UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  July 29, 2016

 

APTEVO THERAPEUTICS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Registrant’s telephone number, including area code:  (206) 838-0500

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

 

 

 

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Explanatory Note

On August 1, 2016 (the “Distribution Date”), Emergent BioSolutions Inc. (“Emergent”) completed its previously announced distribution (the “Distribution”) of all of the outstanding shares of common stock of Aptevo Therapeutics Inc. (“Aptevo”) to Emergent stockholders of record as of the close of business on July 22, 2016 (the “Record Date”).  As a result of the Distribution, Aptevo is now an independent public company, whose common stock trades under the symbol “APVO” on The NASDAQ Stock Market LLC. The Distribution was effectuated through the payment of a dividend to Emergent stockholders of record as of the Record Date, who received one share of Aptevo common stock for every two shares of Emergent common stock held of record as of the Record Date, except that any Emergent stockholder who otherwise would have received a fractional share of Aptevo common stock in the Distribution received in lieu of the fractional share a pro rata share of the net cash proceeds from the sale of aggregated fractional shares into the market. In the aggregate, 20,228,849 shares of Aptevo common stock were distributed to Emergent stockholders in the Distribution.  Following the Distribution, Emergent does not own any shares of Aptevo common stock.     

Contribution Agreement and Promissory Note

On July 29, 2015, in anticipation of the Distribution, Emergent, Aptevo and certain other parties entered into a Contribution Agreement  (the “Contribution Agreement”) pursuant to which Aptevo issued to Emergent20,228,849 shares of Aptevo common stock in exchange for Emergent’s contribution to Aptevo of (i) $45,000,000 in cash, (ii) a non-negotiable promissory note made by Emergent in favor of Aptevo in the principal amount of $20,000,000 (the “Promissory Note”) and (iii) all of the equity interests in Aptevo Research and Development LLC and Aptevo BioTherapeutics LLC. The principal amount outstanding under the Promissory Note does not bear interest and is payable on Aptevo’s demand within six to 12 months following the Distribution Date.  The foregoing descriptions of the Contribution Agreement and the Promissory Note do not purport to be complete and are qualified in their entirety by reference to the complete text of the Contribution Agreement and the Promissory Note, which are filed as Exhibits 2.1 and 10.1 to this Current Report on Form 8-K, respectively, and incorporated herein by reference.

Other Agreements

Also on July 29, 2016 and in anticipation of the Distribution, Emergent entered into with Aptevo the following agreements, which govern the relationship of Emergent and Aptevo following the Distribution:

A summary of the material terms of these agreements is included under the section entitled “Certain Relationships and Related Party Transactions” in Aptevo’s information statement, dated July 22, 2016 (the “Information Statement”), which is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.  The summary does not purport to be complete and is qualified in its entirety by reference to the complete text of these agreements, which are filed as Exhibits 2.2, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8 to this Current Report on Form 8-K, respectively, and incorporated herein by reference.

Registration Rights Agreement

On August 1, 2016, in connection with the Distribution, Aptevo entered into a Registration Rights Agreement with certain holders of Aptevo common stock (the “Registration Rights Agreement”) pursuant to which those holders will have the right to require Aptevo to register the sale of shares of Aptevo common stock held by them under the Securities Act of 1933, as amended (the “Securities Act”), under specified circumstances. A summary of the material terms of the Registration Rights Agreement is included in Aptevo’s Information Statement under the section entitled “Description of Aptevo’s Capital Stock,” which is incorporated herein by reference.

 

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The summary does not purport to be complete and is qualified in its entirety by reference to the complete text of the Registration Rights Agreement, which is filed as Exhibit 4 to this Current Report on Form 8-K and incorporated herein by reference.

The disclosure under “Contribution Agreement and Promissory Note” in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

The disclosure under “Contribution Agreement and Promissory Note” in Item 1.01of this Current Report on Form 8 is incorporated herein by reference. The issuance of shares of Aptevo common stock by Aptevo to Emergent pursuant to the Contribution Agreement was exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

The disclosure in Item 5.03 of this Current Report on Form 8-K is incorporated herein by reference.

The disclosure in Item 1.01, Item 5.02 and Item 8.01 of this Current Report on Form 8-K is incorporated herein by reference.

Election of Directors

On the Distribution Date, in connection with the Distribution, (i) Aptevo’s Board of Directors (the “Board”) expanded its size from five directors to seven directors, (ii) each of Fuad El-Hibri, Marvin L. White, Daniel J. Abdun-Nabi, Grady Grant, III, Barbara Lopez Kunz and John E. Niederhuber, M.D. was elected to serve as a director of Aptevo and (iii) each of A.B. Cruz III, Michael Darling, Eric Burt and Robert Kramer, who had been serving as members of the Board, resigned from the Board. Zsolt Harsanyi, Ph.D., who had been serving as a member of the Board, remains on the Board and will continue to serve as a director of Aptevo following the Distribution. Biographical information for each of the directors other than Mr. White can be found in the Information Statement under the section entitled “Management—Board of Directors Following the Separation,” which is incorporated herein by reference, and with respect to Mr. White can be found in the Information Statement under the section entitled “Management—Executive Officers Following the Separation,” which is incorporated herein by reference.

The members of the Board have each been assigned to a class with an initial term expiring as follows:

Also in connection with the Distribution, the Aptevo Board made the following governance decisions:

The Board has determined that each of Mr. Grant, Dr. Harsanyi, Ms. Kunz and Dr. Niederhuber qualifies as an independent director under the director independence standards set forth in the NASDAQ Marketplace Rules.

 

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The non-employee directors of Aptevo are expected to receive compensation for their service as members of the Board and as members of the committees of the Board on which they serve in accordance with the plans and programs more fully described in the Information Statement under the heading “Executive Compensation—Director Compensation Following the Separation,” which is incorporated herein by reference.

Appointment of Certain Officers

Effective as of July 29, 2016, each of the following individuals was elected to the offices set forth opposite his name below:

Biographical information for each of these officers can be found in the Information Statement under the section entitled “Management—Executive Officers Following the Separation,” which is incorporated herein by reference.

Information regarding the  anticipated compensation and employment arrangements of each of these officers can be found in the Information Statement under the section entitled “Compensation Discussion and Analysis—Anticipated Aptevo Compensation Programs,” which is incorporated herein by reference. In connection with the Distribution, Emergent paid to Mr. White a cash bonus of $125,256 in recognition of his services to Emergent and Aptevo in furtherance of the separation and spin-off of Aptevo.

On July 29, 2016, the Board and Emergent, as sole stockholder of Aptevo, approved and adopted the Aptevo Therapeutics Inc. 2016 Stock Incentive Plan (the “Stock Incentive Plan”) and the Aptevo Therapeutics Inc. Converted Equity Awards Incentive Plan (the “Converted Equity Plan”).  A summary of the Stock Incentive Plan and the Converted Equity Plan, respectively, can be found in the Information Statement, under the section entitled “Compensation Discussion and Analysis—Anticipated Aptevo Compensation Programs,” and such summaries are incorporated herein by reference. These summaries do not purport to be complete and are qualified in their entirety by reference to the complete text of the Plans, which are filed as Exhibits 10.9 and 10.10 to this Current Report on Form 8-K, respectively, and incorporated herein by reference.  

Also on July 29, 2016, the Board approved and adopted the Aptevo Therapeutics Inc. Senior Management Severance Plan (the “Aptevo SMSP”). A summary of the Aptevo SMSP can be found in the Information Statement, under the section entitled “Compensation Discussion and Analysis—Anticipated Aptevo Compensation Programs,” and such summary is incorporated herein by reference. The summary does not purport to be complete and is qualified in its entirety by reference to the complete text of the Aptevo SMSP, which is filed as Exhibit 10.11 to this Current Report on Form 8-K and incorporated herein by reference.  

In connection with the Distribution, Aptevo entered into indemnity agreements with its directors and executive officers. A description of the terms of the indemnity agreements can be found in the Information Statement under the section entitled “Description of Aptevo’s Capital Stock—Limitation of Liability and Indemnification of Officers and Directors,” which description is incorporated herein by reference. Such description does not purport to be complete and is qualified in its entirety by reference to the complete text of the form of indemnity agreement, which is filed as Exhibit 10.12 to this Current Report on Form 8-K and incorporated herein by reference.

On July 29, 2016, Aptevo amended and restated its Certificate of Incorporation (the “Restated Certificate of Incorporation”) and its By-Laws (the “Amended and Restated Bylaws”). The Amended and Restated Bylaws became effective as of the effectiveness of the filing of the Restated Certificate of Incorporation with the Secretary of State of the State of Delaware.  A description of the material provisions of the Restated Certificate of Incorporation and the Amended and Restated Bylaws can be found in Aptevo’s Information Statement under the section entitled “Description of Aptevo’s Capital Stock,” which is incorporated herein by reference. The description does not purport to be complete and is qualified in its entirety by reference to the full text of the Restated Certificate of Incorporation and the Amended and Restated Bylaws, which are filed as Exhibits 3.1 and 3.2 to this Current Report on Form 8-K, respectively, and incorporated herein by reference.

On August 1, 2016, Aptevo issued a press release announcing the completion of the Distribution and the start of Aptevo’s operations as an independent company. A copy of the press release is filed as Exhibit 99.2 and incorporated herein by reference.

 

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Following the Distribution, Aptevo’s website is located at the address www.aptevotherapeutics.com. Aptevo’s investor relations information, including press releases and links to Aptevo’s SEC filings, will be found on this website. Aptevo’s corporate governance documents, including the charters of the committees of the Board and the Code of Business Conduct and Ethics, are available on this website under the “Investors” section. The information on Aptevo’s website does not constitute part of this Current Report on Form 8-K and is not incorporated herein by reference.

See Exhibit Index attached hereto.

 

 

 

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

 

Exhibit 2.1

 

CONTRIBUTION AGREEMENT

This Contribution Agreement (this “Agreement”) is made and entered into as of July 29, 2016 (the “Effective Date”) by and among Emergent BioSolutions Inc., a Delaware corporation (the “Parent”), Aptevo Therapeutics Inc., a Delaware corporation (“Aptevo”), Aptevo Research and Development LLC, a Delaware limited liability company (“Seattle LLC”), and Aptevo BioTherapeutics LLC, a Delaware limited liability company (“Aptevo LLC”).

WHEREAS, the Parent is the sole member of, and owns all of the limited liability company interests in, each of Seattle LLC and Aptevo LLC;

WHEREAS, the Parent owns all of the issued and outstanding shares of capital stock of Aptevo, which, before giving effect to the transactions contemplated by this Agreement, consists of 1,000 shares of common stock, par value $0.001 per share, of Aptevo (“Aptevo Common Stock”);

WHEREAS, in anticipation of the Parent’s planned spin-off (the “Spin-Off”) of its biosciences business into a separate stand-alone publicly traded company, the Parent and its subsidiaries are undergoing an internal restructuring (the “Restructuring”);

WHEREAS, in connection with the Restructuring, the Parent wishes to contribute to Aptevo in exchange for additional shares of Aptevo Common Stock and the assumption of certain liabilities related to the biosciences business pursuant to the Separation Agreement (as defined herein): (1) all of the limited liability company interests in Seattle LLC, (2) all of the limited liability company interests in Aptevo LLC, (3) $45,000,000 in cash (the “Initial Cash Contribution”) and (4) the non-negotiable promissory note attached hereto as Exhibit A made by the Parent in favor of Aptevo in the principal amount of $20,000,000 (the “Promissory Note”);

WHEREAS, the Promissory Note is being contributed to Aptevo to evidence the Parent’s obligation to make an additional cash transfer of $20,000,000 to Aptevo within 6 to 12 months following the Distribution (as defined below) to fund the operations of the biosciences business;

WHEREAS, following the completion of the transactions contemplated by this Agreement, the Parent intends to distribute to its stockholders pursuant to the Spin-Off all of the shares of Aptevo Common Stock then held by the Parent (the “Distribution”); and

WHEREAS, the transactions contemplated by this Agreement and the Distribution, together, are intended to be a divisive reorganization under Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended, for U.S. federal income tax purposes.

 

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NOW, THEREFORE, in consideration of the mutual covenants and promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Contributions.  In consideration for the issuance of the Shares (as defined below) pursuant to Section 2 below:

(a)The Parent does hereby contribute, assign, transfer, convey and deliver to Aptevo, and Aptevo does hereby accept from the Parent, all of the Parent’s right, title and interest in, to and under all of the limited liability company interests in Seattle LLC.  Aptevo is hereby admitted as the sole member of Seattle LLC in substitution for the Parent (and the Parent does hereby withdraw as a member of Seattle LLC) pursuant to the amended and restated limited liability company agreement of Seattle LLC, as further amended or restated, and Aptevo does hereby assume all obligations of the Parent thereunder.  Seattle LLC does hereby consent to the transactions contemplated by this paragraph.

(b)The Parent does hereby contribute, assign, transfer, convey and deliver to Aptevo, and Aptevo does hereby accept from the Parent, all of the Parent’s right, title and interest in, to and under all of the limited liability company interests in Aptevo LLC.  Aptevo is hereby admitted as the sole member of Aptevo LLC in substitution for the Parent (and the Parent does hereby withdraw as a member of Aptevo LLC) pursuant to the limited liability company agreement of Aptevo LLC, as amended or restated, and Aptevo does hereby assume all obligations of the Parent thereunder.  Aptevo LLC does hereby consent to the transactions contemplated by this paragraph.

(c)Concurrently with the execution and delivery of this Agreement, the Parent shall contribute and deliver to Aptevo (i) by wire transfer of immediately available funds to an account designated by Aptevo, the Initial Cash Contribution and (ii) the Promissory Note.  Aptevo does hereby accept the Initial Cash Contribution and the Promissory Note.

2.Issuance of Stock.  In consideration of the transactions described in Section 1 above, Aptevo does hereby issue and deliver to the Parent 20,228,849 shares of Aptevo Common Stock (the “Shares”) and, concurrently with the execution and delivery of this Agreement, Aptevo shall deliver to the Parent a stock certificate representing the Shares.  Aptevo hereby represents, warrants, covenants and agrees for the benefit of the Parent that the Shares are and shall be duly authorized, validly issued, fully paid and non-assessable.

3.Taking of Further Action.  If, at any time after the date hereof, any further action is necessary or desirable to effectuate the transactions contemplated by this Agreement, each party hereto will take such action, including the signing of additional documentation, as is reasonably requested by any other party hereto to effectuate the transactions contemplated by this Agreement, all at the cost and expense of the requesting party.

4.Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the State of Delaware.

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5.Entire Agreement.  This Agreement contains the full understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior understandings and writings relating thereto, except that, if executed prior to execution and delivery hereof, the Separation Agreement shall survive the execution and delivery of this Agreement and remain in full force and effect in accordance with its terms.  No waiver, alteration, amendment or modification of any of the provisions hereof shall be binding unless made in writing and signed by all parties hereto. 

6.Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

7.Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

8.Separation and Distribution Agreement.  Aptevo and the Parent have entered into or will enter into a Separation and Distribution Agreement in connection with the Spin-Off (the “Separation Agreement”). The remedies expressly set forth in the Separation Agreement shall be the sole and exclusive remedies of the parties with respect to the transactions contemplated hereby.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first written above.

 

 

[Signature Page to Contribution Agreement – Step 12]

 

Exhibit 2.2

SEPARATION AND DISTRIBUTION AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

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SEPARATION AND DISTRIBUTION AGREEMENT

This SEPARATION AND DISTRIBUTION AGREEMENT, dated as of July 29, 2016 (this “Agreement”), is made and entered into by and between Emergent BioSolutions Inc., a Delaware corporation (“Emergent”), and Aptevo Therapeutics Inc., a Delaware corporation (“Aptevo”). Aptevo and Emergent are referred to together as the “Parties” and individually as a “Party.” Capitalized terms used herein shall have the respective meanings assigned to them in Article I or elsewhere in this Agreement.

RECITALS

WHEREAS, Emergent, directly or indirectly, currently owns and operates both the Emergent Business and the Aptevo Business;

WHEREAS, the board of directors of Emergent (the “Emergent Board”) has determined that it is in the best interests of Emergent and its shareholders that the Aptevo Business be operated by a newly incorporated publicly traded company;

WHEREAS, Aptevo has been incorporated for these purposes and has not engaged in activities except those incidental to its formation and in preparation for the transactions described herein;

WHEREAS, in furtherance of the foregoing, the Emergent Board and the board of directors of Aptevo (the “Aptevo Board”) have determined that it is appropriate and desirable for Emergent and its applicable Subsidiaries to transfer the Aptevo Assets to Aptevo and certain entities designated by Aptevo that will be Subsidiaries of Aptevo as of the Distribution Date (any such entities, the “Aptevo Designees”), and for Aptevo and the Aptevo Designees to assume the Aptevo Liabilities, in each case as more fully described in this Agreement and the Ancillary Agreements and including the steps set forth in the Plan of Reorganization (the “Separation”);

WHEREAS, Emergent currently intends that, on the Distribution Date, it will make a distribution, on a pro rata basis, to holders of record of the outstanding Emergent Common Shares on the Record Date (the “Record Holders”) of all of the outstanding Aptevo Common Shares owned by Emergent (the “Distribution”);

WHEREAS, the Distribution and certain related transactions, taken together, are intended to qualify as a reorganization under Section 368 of the Code for U.S. federal income tax purposes;

WHEREAS, this Agreement is intended to be a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g); and

WHEREAS, each of Emergent and Aptevo has determined that it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Distribution and to set forth certain other agreements that shall govern certain matters relating to the Separation and the Distribution and the relationship of Emergent, Aptevo and their respective Subsidiaries following the Distribution.

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NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I
DEFINITIONS

For purposes of this Agreement, the following terms shall have the following meanings:

“Action” shall mean any demand, action, claim, dispute, suit, countersuit, arbitration, settlement, inquiry, subpoena, proceeding (including any administrative proceeding) or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.

“Affiliate” (including with a correlative meaning, “affiliated”) shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one (1) or more intermediaries, controls, is controlled by or is under common control with such specified Person. For the purpose of this definition, “control” (including with correlative meanings, “controlled by” and “under common control with”), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise. It is expressly agreed that, prior to, on and after the Distribution Date, for purposes of this Agreement and the Ancillary Agreements, (1) no member of the Aptevo Group shall be deemed to be an Affiliate of any member of the Emergent Group and (2) no member of the Emergent Group shall be deemed to be an Affiliate of any member of the Aptevo Group. For the avoidance of doubt, after the Effective Time, the members of the Emergent Group and the members of the Aptevo Group shall not be deemed to be under common control for purposes hereof due solely to the fact that Emergent and Aptevo may have common shareholders.

“Agent” shall mean Broadridge Corporate Issuer Solutions, Inc., or such other trust company or bank duly appointed by Emergent to act as distribution agent, transfer agent and/or registrar for the Aptevo Common Shares in connection with the Distribution.

“Agreement” shall have the meaning set forth in the Preamble.

“Ancillary Agreement” shall mean the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Intercompany Agreements and the Transfer Documents.

“Approvals or Notifications” shall mean any consents, waivers, approvals, permits or authorizations to be obtained from, notices, registrations or reports to be submitted to, or other filings to be made with, any third Person, including any Governmental Authority.

“Aptevo” shall have the meaning set forth in the Preamble.

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“Aptevo Accounts” shall have the meaning set forth in Section 2.10(a).

“Aptevo Assets” shall have the meaning set forth in Section 2.2(a).

“Aptevo Balance Sheet” shall mean the unaudited pro forma balance sheet of the Aptevo Business, as of the Balance Sheet Date, including the notes thereto, as reflected in the Form 10.

“Aptevo Board” shall have the meaning set forth in the Recitals.

“Aptevo Business” shall mean: (a) (i) the business and operations of the Biosciences Business and (ii) such other businesses and operations relating thereto carried on by the Biosciences Business and (b) except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations that at the time of termination, divestiture or discontinuation exclusively or primarily related to the Aptevo Business (as described in the foregoing clause (a)) as then conducted, excluding, in the case of each of clauses (a) and (b), the businesses and operations primarily related to the Excluded Assets.

“Aptevo Cash” shall have the meaning set forth in Section 2.2(a)(ix).

“Aptevo Common Shares” shall mean the shares of common stock, par value $0.001 per share, of Aptevo.

“Aptevo Contracts” shall mean the following contracts and agreements to which Emergent or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of their respective Assets is bound, whether or not in writing, in each case immediately prior to the Distribution (including, for the avoidance of doubt, any Person that will be a member of the Aptevo Group at the time of the Distribution), except for any such contract or agreement that is contemplated to be retained by Emergent or any member of the Emergent Group pursuant to any provision of this Agreement or any Ancillary Agreement (including pursuant to Section 2.2(b)(ii)):

(a)any customer, distribution, supply or vendor contracts or agreements entered into prior to the Effective Time that relate exclusively or primarily to the Aptevo Business, including the contracts set forth on Schedule 1.1;

(b)any other contract or agreement that relates exclusively or primarily to the Aptevo Business;

(c)any joint venture agreement or, subject to Section 2.13, any license agreement that relates exclusively or primarily to the Aptevo Business;

(d)any guarantee, indemnity, representation, warranty or other Liability of any member of the Aptevo Group or the Emergent Group in respect of any other Aptevo Contract, any Aptevo Liability or the Aptevo Business;

(e)any employment, change of control, retention, consulting, indemnification, termination, severance or other similar agreements with any Aptevo Employee or consultants of

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the Aptevo Group that are in effect as of the Distribution Date, except for the arrangements listed on Schedule 1.2; 

(f)any consent order, decree or agreement with any third party including Governmental Authorities that relates exclusively or primarily to the Aptevo Business;

(g)any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be assigned to Aptevo or any member of the Aptevo Group; and

(h)any interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements that relate exclusively or primarily to the Aptevo Business, including the hedging arrangements listed on Schedule 1.3.

“Aptevo Designees” shall have the meaning set forth in the Recitals.

“Aptevo Employee” shall have the meaning set forth in the Employee Matters Agreement.

“Aptevo Group” shall mean Aptevo, each Subsidiary of Aptevo and each other Person that is controlled directly or indirectly by Aptevo, in each case as of immediately prior to the Distribution.

“Aptevo Indemnitees” shall have the meaning set forth in Section 4.3.

“Aptevo Intellectual Property” shall mean (a) all Registrable IP set forth on Schedule 1.4 and (b) all Intellectual Property, other than Registrable IP, that is owned by any member of the Emergent Group or Aptevo Group and that is used or held for use exclusively or primarily in the Aptevo Business as of the Distribution Date, in each case other than any Registrable IP or other Intellectual Property that is contemplated to be retained by Emergent or any member of the Emergent Group pursuant to any provision of this Agreement or any Ancillary Agreement (including pursuant to Section 2.2(b)(ii)).

“Aptevo Liabilities” shall have the meaning set forth in Section 2.3(a).

“Aptevo Platform Technologies” shall mean the platform technologies described on Schedule 1.5.

“Aptevo Products” shall mean shall mean the products and product candidates listed on Schedule 1.6.

“Aptevo Released Party” shall have the meaning set forth in Section 4.1(b).

“Aptevo Software” shall mean all Software owned or licensed by any member of the Emergent Group or Aptevo Group that is exclusively or primarily used or held for use in the Aptevo Business as of the Distribution Date, other than any Software that is contemplated to be retained by Emergent or any member of the Emergent Group pursuant to any provision of this Agreement or any Ancillary Agreement (including pursuant to Section 2.2(b)(ii)).

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“Aptevo Technology” shall mean all Technology owned or licensed by any member of the Emergent Group or Aptevo Group that is exclusively or primarily used or held for use in the Aptevo Business as of the Distribution Date, other than any Technology that is contemplated to be retained by Emergent or any member of the Emergent Group pursuant to any provision of this Agreement or any Ancillary Agreement (including pursuant to Section 2.2(b)(ii)).

“Aptevo Transfer Documents” shall have the meaning set forth in Section 2.4(b).

“Assets” shall mean, with respect to any Person, the assets, properties, claims and rights (including goodwill) of such Person, wherever located (including in the possession of vendors or other third Persons or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including the following:

(a)all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape, electronic or any other form;

(b)all apparatus, computers and other electronic data processing and communications equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, vessels, motor vehicles and other transportation equipment and other tangible personal property;

(c)all inventories of materials, parts, raw materials, components, supplies, works-in-process and finished goods and products;

(d)all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;

(e)(i) all interests in any capital stock or other equity interests of any Subsidiary, Affiliate or any other Person, (ii) all bonds, notes, debentures or other securities issued by any Subsidiary, Affiliate or any other Person, (iii) all loans, advances or other extensions of credit or capital contributions to any Subsidiary, Affiliate or any other Person and (iv) all other investments in securities of any Person;

(f)all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services and other contracts, agreements or commitments;

(g)all deposits, letters of credit and performance and surety bonds;

(h)all written (including in electronic form) or oral technical information, data, specifications, research and development information, engineering drawings and specifications, operating and maintenance manuals, and materials and analyses prepared by consultants and other third Persons;

(i)all Intellectual Property and Technology;

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(j)all Software;  

(k)all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product data and literature, artwork, design, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents;

(l)all prepaid expenses, trade accounts and other accounts and notes receivable;

(m)all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;

(n)all rights under contracts, consent decrees, orders or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent;

(o)all licenses, permits, approvals and authorizations that have been issued by any Governmental Authority;

(p)all cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and

(q)all interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements.

“Balance Sheet Date” shall mean March 31, 2016.

“Biosciences Business” shall mean the business of exploiting the Aptevo Products and the Aptevo Platform Technologies, all as conducted by the Emergent Group and/or the Aptevo Group on the date hereof.

“Business Day” shall mean any day that is not a Saturday, a Sunday or other day that is a statutory holiday under the federal Laws of the United States. In the event that any action is required or permitted to be taken under this Agreement on or by a date that is not a Business Day, such action may be taken on or by the Business Day immediately following such date.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

“Competitive Activities” shall mean making, manufacturing, using, selling, offering for sale, importing or otherwise exploiting protein therapeutics intended to treat oncolytic diseases.

“Confidential Information” shall have the meaning set forth in Section 7.7(a).

“CPR” shall have the meaning set forth in Section 8.2.

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“Disclosing Group” shall have the meaning set forth in Section 7.7(a).

“Disclosing Party” shall have the meaning set forth in Section 7.7(a).

“Disclosure Document” shall mean any registration statement (including the Form 10) filed with the SEC by or on behalf of either Party or any of its controlled Affiliates, and also includes any information statement (including the Information Statement), prospectus, periodic report or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, in each case which describes the Separation or the Distribution or the Aptevo Group or primarily relates to the transactions contemplated hereby.

“Dispute” shall have the meaning set forth in Section 8.1(b).

“Dispute Notice” shall have the meaning set forth in Section 8.2.

“Distribution” shall have the meaning set forth in the Recitals.

“Distribution Date” shall mean the date of the consummation of the Distribution, which shall be determined by Emergent in its sole discretion.

“Distribution Ratio” shall mean a fraction the numerator of which shall be one (1) and the denominator of which shall be two (2).

“Effective Time” shall mean the time at which the Distribution occurs on the Distribution Date, which shall be deemed to be 12:01 a.m., Eastern Time, on the Distribution Date, or such other time as Emergent may determine in its sole discretion.

“Emergent” shall have the meaning set forth in the Preamble.

“Emergent Accounts” shall have the meaning set forth in Section 2.10(a).

“Emergent Board” shall have the meaning set forth in the Recitals.

“Emergent Business” shall mean the businesses and operations of the Emergent Group other than the Aptevo Business.

“Emergent Change of Control” shall mean, whether in one transaction or event or series of transactions or events (but excluding any transaction solely between or among Emergent and its wholly owned Subsidiaries): (a) any merger, reorganization, consolidation, share exchange, tender offer, business combination, recapitalization, liquidation, dissolution or similar transaction involving Emergent (or any other member of the Emergent Group whose business constitutes 50% or more of the consolidated net revenues, net income or assets of the Emergent Group, taken as a whole), (b) the acquisition in any manner (including by virtue of any equity interest), directly or indirectly, of 50% or more of the consolidated assets of the Emergent Group, (c) any transaction that results in any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becoming the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right

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is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of 35% or more of the issued and outstanding equity securities of Emergent entitled to vote for members of the Emergent Board (including all such securities that such “person” or “group” has the right to acquire pursuant to any option right), or (d) during any period of twelve (12) consecutive months, a majority of the members of the Emergent Board cease to be composed of individuals (i) who were members of the Emergent Board on the first day of such period, (ii) whose election or nomination to the Emergent Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of the Emergent Board or (iii) whose election or nomination to the Emergent Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of the Emergent Board (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of the Emergent Board occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the Emergent Board).

“Emergent Common Shares” shall mean the shares of common stock, par value $0.001 per share, of Emergent.

“Emergent Disclosure Portions” shall mean the information set forth in the Form 10, the Information Statement or any other Disclosure Document, in each case solely to the extent relating exclusively to (a) the Emergent Group, (b) the Emergent Business, (c) Emergent’s intentions with respect to the Distribution, or (d) the terms of the Distribution, including the form, structure and terms of any transaction(s) to effect the Distribution and the timing of and conditions to the consummation of the Distribution.

“Emergent Group” shall mean Emergent, each Subsidiary of Emergent and each other Person that is controlled directly or indirectly by Emergent (in each case other than any member of the Aptevo Group).

“Emergent Indemnitees” shall have the meaning set forth in Section 4.2.

“Emergent Intellectual Property” shall mean (i) the Emergent Name and Emergent Marks and (ii) all other Intellectual Property that is owned or licensed by any member of the Emergent Group or the Aptevo Group, other than the Aptevo Intellectual Property.

“Emergent Name and Emergent Marks” shall mean the names, marks, trade dress, logos, monograms, domain names and other source or business identifiers of Emergent or any of its Affiliates using or containing “Emergent” and/or “BioSolutions” (in all capital letter, block letters or otherwise), either alone or in combination with other words or elements and all names, marks, trade dress, logos, monograms, domain names and other source or business identifiers confusingly similar to or embodying any of the foregoing either alone or in combination with other words or elements, together with the goodwill associated with any of the foregoing.

“Emergent Released Party” shall have the meaning set forth in Section 4.1(a).

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“Emergent Software” shall mean all Software that is owned or licensed by any member of the Emergent Group or the Aptevo Group, other than the Aptevo Software.

“Emergent Technology” shall mean all Technology that is owned or licensed by any member of the Emergent Group or the Aptevo Group, other than the Aptevo Technology.

“Emergent Transfer Documents” shall have the meaning set forth in Section 2.1(b).

“Employee Matters Agreement” shall mean the Employee Matters Agreement, dated as of the date hereof, by and between Emergent and Aptevo, as such Employee Matters Agreement may be amended from time to time.

“Environmental Law” shall mean any Law relating to pollution, protection or restoration of or prevention of harm to the environment or natural resources, including the use, handling, transportation, treatment, storage, disposal, Release or discharge of Hazardous Materials or the protection of or prevention of harm to human health and safety.

“Environmental Liabilities” shall mean all Liabilities relating to, arising out of or resulting from any Hazardous Materials, Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, response costs, natural resources damages, equipment upgrades or replacements, asbestos survey and removal costs, property damages, personal injury damages, costs of compliance, including with any product take back requirements, or with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses, interest, fines, penalties or other monetary sanctions in connection therewith.

“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

“Excluded Assets” shall have the meaning set forth in Section 2.2(b).

“Excluded Liabilities” shall have the meaning set forth in Section 2.3(b).

“Force Majeure” shall have the meaning set forth in Section 11.7.

“Form 10” shall mean the registration statement on Form 10 filed by Aptevo with the SEC to effect the registration of Aptevo Common Shares pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time prior to the Effective Time.

“GAAP” means United States generally accepted accounting principles, consistently applied.

“Governmental Approvals” shall mean any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority.

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“Governmental Authority” shall mean any nation or government, any state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.

“Group” shall mean either the Aptevo Group or the Emergent Group, as the context requires.

“Guarantee Release” shall have the meaning set forth in Section 4.8(b).

“Hazardous Materials” shall mean any chemical, radiological isotope, material, substance, waste, pollutant, emission, discharge, release or contaminant that could result in liability under, or that is prohibited, limited or regulated by or pursuant to, any Environmental Law, and any natural or artificial substance (whether solid, liquid or gas, noise, ion, vapor or electromagnetic) that could cause harm to human health or the environment, including petroleum, petroleum products and byproducts, asbestos and asbestos-containing materials, urea formaldehyde foam insulation, electronic, medical or infectious wastes, polychlorinated biphenyls, radon gas, radioactive substances, chlorofluorocarbons and all other ozone-depleting substances.

“Indemnifying Party” shall have the meaning set forth in Section 4.4(a).

“Indemnitee” shall have the meaning set forth in Section 4.4(a).

“Information” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, whether or not stored in any medium that has existed, now exists or will exist, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other Software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

“Information Statement” shall mean the information statement to be sent to each holder of Emergent Common Shares in connection with the Distribution, as filed with the SEC, as such information statement may be amended or supplemented from time to time prior to the Effective Time.

“Insurance Proceeds” shall mean those monies (a) received by an insured from an insurance carrier, including due to premium adjustments, whether or not retrospectively rated, or (b) paid by an insurance carrier on behalf of an insured, in either case net of any applicable premium deductible or self-insured retention. For the avoidance of doubt, “Insurance Proceeds” shall be calculated net of any costs or expenses incurred by a Party in pursuing insurance coverage.

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“Intellectual Property” shall mean all of the following whether arising under the Laws of the United States or of any other foreign or multinational jurisdiction: (a) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, substitutions, renewals, extensions and reexaminations of any of the foregoing, and all rights in any of the foregoing provided by international treaties or conventions (the foregoing, collectively, “Patents”), (b) trademarks, service marks, trade names, service names, trade dress, logos and other source or business identifiers, including all goodwill associated with any of the foregoing, and any and all common law rights in and to any of the foregoing, registrations and applications for registration of any of the foregoing, all rights in and to any of the foregoing provided by international treaties or conventions, and all reissues, extensions and renewals of any of the foregoing (the foregoing, collectively, “Trademarks”), (c) Internet domain names, (d) copyrightable works, copyrights, moral rights, mask work rights, database rights and design rights, in each case, other than Software, whether or not registered, and all registrations and applications for registration of any of the foregoing, and all rights in and to any of the foregoing provided by international treaties or conventions, (e) confidential and proprietary Information, including trade secrets, invention disclosures, processes and know-how, in each case, other than Software, (f) intellectual property rights arising from or in respect of any Technology, and (g) rights to enforce any past, present or infringement or misappropriation of any of the foregoing.

“Intercompany Agreements” shall mean the agreements listed on Schedule 1.7.

“Intercompany Balances” shall mean the intercompany accounts receivable and accounts payable between any member of the Emergent Group, on the one hand, and any member of the Aptevo Group, on the other hand.

“IRS” shall mean the United States Internal Revenue Service.

“IRS Ruling” shall have the meaning set forth in Section 3.3(a)(i).

“Law” shall mean any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.

“Liabilities” shall mean any and all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, Taxes, remediation, deficiencies, reimbursement obligations in respect of letters of credit, damages, fines, penalties, settlements, sanctions, costs, expenses, interest and obligations of any nature or description, whether accrued or fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, claim (including any Third-Party Claim), demand, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any contract, agreement, obligation, indenture, instrument, lease, promise,

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arrangement, release, warranty, commitment or undertaking, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.

“Losses” shall mean any and all damages, losses, deficiencies, Liabilities, Taxes, obligations, penalties, judgments, settlements, claims, payments, fines, charges, interest, costs and expenses, whether or not resulting from Third-Party Claims, including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder.

“Nasdaq” shall mean the Nasdaq Global Select Market.

“NYSE” shall mean the New York Stock Exchange.

“Parties” or “Party” shall have the meaning set forth in the Preamble.

“Patents” shall have the meaning set forth in the definition of Intellectual Property.

“Person” shall mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity or any Governmental Authority.

“Plan of Reorganization” shall have the meaning set forth in Section 2.1(a).

“Policies” shall mean insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including primary, excess and umbrella policies, comprehensive general liability policies, director and officer liability, fiduciary liability, automobile, aircraft, marine, property and casualty, workers’ compensation and employee dishonesty insurance policies, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder.

“Prime Rate” shall mean the rate that JPMorgan Chase Bank, N.A. (or any successor thereto or other major money center commercial bank agreed to by the Parties) announces from time to time as its prime lending rate, as in effect from time to time.

“Privileged Information” means any information, in written, oral, electronic or other tangible or intangible forms, including any communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), as to which a Party or its respective Subsidiaries would be entitled to assert or have asserted a privilege, including the attorney-client and attorney work product privileges.

“Product License Agreement” means the Product License Agreement by and between Emergent and Aptevo to be entered into at or prior to the Distribution.

“Receiving Group” shall have the meaning set forth in Section 7.7(a).

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“Receiving Party” shall have the meaning set forth in Section 7.7(a).

“Record Date” shall mean the close of business on July 22, 2016 or the close of business on another date if determined by the Emergent Board as the record date for determining holders of Emergent Common Shares entitled to receive Aptevo Common Shares pursuant to the Distribution.

“Record Holders” shall have the meaning set forth in the Recitals.

“Registrable IP” shall mean all Patents, registered Trademarks (including all goodwill associated therewith), registered Internet domain names and copyright registrations.

“Release” shall mean any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including ambient air, surface water, groundwater and surface or subsurface strata).

“Reorganization Agreement” means any contract, agreement, arrangement, commitment, understanding, instrument, loan note, security, transfer document, or other document executed or presented for the purposes of, in relation to or arising from, the implementation of the Plan of Reorganization.

“Representatives” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.

“Restricted Party” shall mean each member of the Emergent Group but only until it ceases to be a member of the Emergent Group, at which time such Person shall cease to be subject to Section 6.5.

“Restricted Period” shall have the meaning set forth in Section 6.5(a).

“SEC” shall mean the U.S. Securities and Exchange Commission.

“Security Interest” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.

“Separation” shall have the meaning set forth in the Recitals.

“Shared Contract” shall have the meaning set forth in Section 2.9(a).

“Software” shall mean any and all (a) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, (d) screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and

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icons, and (e) documentation, including user manuals and other training documentation, relating to any of the foregoing.

“Specified Product Liability Claim” shall mean any product liability claim brought by a third party (whether prior to, on or after the Distribution Date) against any member of the Aptevo Group or the Emergent Group that relates to any product sold by the Aptevo Business under an Emergent label, whether prior to, on or after the Distribution Date.

“Subsidiary” shall mean, with respect to any Person, any corporation, limited liability company, joint venture or partnership of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities of such Person, (ii) the total combined equity interests or (iii) the capital or profit interests, in the case of a partnership, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.

“Tax Matters Agreement” shall mean the Tax Matters Agreement, dated as of the date hereof, by and between Emergent and Aptevo, as such Tax Matters Agreement may be amended from time to time.

“Tax Return” shall have the meaning set forth in the Tax Matters Agreement.

“Taxes” shall have the meaning set forth in the Tax Matters Agreement.

“Technology” shall mean all technology, designs, formulae, algorithms, procedures, methods, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or nonpublic information, and other similar materials or Information, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein, in each case, other than Software.

“Third-Party Claim” shall have the meaning set forth in Section 4.4(a).

“Trademarks” shall have the meaning set forth in the definition of Intellectual Property.

“Transfer Documents” shall have the meaning set forth in Section 2.4(b).

“Transferred Entities” shall have the meaning set forth in Section 2.2(a)(iii).

“Transition Committee” shall have the meaning set forth in Section 2.14.

“Transition Services Agreement” shall mean the Transition Services Agreement, dated as of the date hereof, by and between Emergent and Aptevo, as such Transition Services Agreement may be amended from time to time.

“Trial” shall mean a pre-clinical or clinical trial related to the Aptevo Products.

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“Trial Materials” shall mean the Aptevo Products and the placebo for each of these Aptevo Products for use in Trials, whether in bulk, formulated or finished form and whether or not in existence at the Effective Time.

“Trial Study Reports” shall mean all reports or summaries of all data, records and documents resulting from each Trial.

“Unreleased Aptevo Liability” shall have the meaning set forth in Section 2.6(b).

“Unreleased Excluded Liability” shall have the meaning set forth in Section 2.7(b).

ARTICLE II
THE SEPARATION

2.1Transfer of Assets and Assumption of Liabilities.

(a)On or prior to the Distribution Date, but in any case prior to the Effective Time, in accordance with the plan and structure set forth on Schedule 2.1(a) (such plan and structure being referred to as the “Plan of Reorganization”) and to the extent not previously effected pursuant to the steps of the Plan of Reorganization that have been completed prior to the date hereof:

(i)Emergent shall, and shall cause its applicable Subsidiaries to, assign, transfer, convey and deliver to Aptevo or the applicable Aptevo Designees, and Aptevo or such Aptevo Designees shall accept from Emergent and its applicable Subsidiaries, all of Emergent’s and such Subsidiaries’ respective direct or indirect right, title and interest in and to all of the Aptevo Assets (it being understood that if any Aptevo Asset shall be held by a Transferred Entity or a wholly owned Subsidiary of a Transferred Entity, such Aptevo Asset may be assigned, transferred, conveyed and delivered to Aptevo as a result of the transfer of all or substantially all of the equity interests in such Transferred Entity from Emergent or its applicable Subsidiaries to Aptevo or its applicable Subsidiaries);

(ii)subject to Section 2.5(c), Aptevo and the applicable Aptevo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill when due all the Aptevo Liabilities in accordance with their respective terms. Aptevo and such Aptevo Designees shall be responsible for all Aptevo Liabilities, regardless of when or where such Aptevo Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Aptevo Liabilities are asserted or determined (including any Aptevo Liabilities arising out of claims made by Emergent’s or Aptevo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Emergent Group or the Aptevo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud, misrepresentation or any other cause by any member of the Emergent Group or the Aptevo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates;

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(iii)Emergent shall cause the Aptevo Designees to assign, transfer, convey and deliver to certain of its other Subsidiaries designated by Emergent, and such other Subsidiaries shall accept from the Aptevo Designees, the Aptevo Designees’ respective right, title and interest in and to any Excluded Assets specified by Emergent to be so assigned, transferred, conveyed and delivered; and  

(iv)Emergent and certain of its Subsidiaries designated by Emergent shall accept and assume from the Aptevo Designees and agree faithfully to perform, discharge and fulfill when due certain Excluded Liabilities of the Aptevo Designees, and Emergent and its applicable Subsidiaries shall be responsible for all Excluded Liabilities, regardless of when or where such Excluded Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Excluded Liabilities are asserted or determined (including any such Excluded Liabilities arising out of claims made by Emergent’s or Aptevo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Emergent Group or the Aptevo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud, misrepresentation or any other cause by any member of the Emergent Group or the Aptevo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates.

(b)In furtherance of the assignment, transfer, conveyance and delivery of the Aptevo Assets and the assumption of the Aptevo Liabilities in accordance with Sections 2.1(a)(i) and 2.1(a)(ii), on or before the date that such Aptevo Assets are assigned, transferred, conveyed or delivered or such Aptevo Liabilities are assumed (i) Emergent shall execute and deliver, and shall cause its applicable Subsidiaries to execute and deliver, such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Emergent’s and its applicable Subsidiaries’ (other than Aptevo’s Subsidiaries) right, title and interest in and to the Aptevo Assets to Aptevo and/or the Aptevo Designees, and (ii) Aptevo shall execute and deliver, and shall cause the applicable Aptevo Designees to execute and deliver, such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Aptevo Liabilities by Aptevo and the Aptevo Designees. All of the foregoing documents contemplated by this Section 2.1(b) shall be referred to collectively herein as the “Emergent Transfer Documents.”

(c)In the event that, in connection with the Separation, any Party (or any member of such Party’s respective Group) shall receive or otherwise possess any Asset or Liability that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such Party shall promptly transfer, or cause to be transferred, such Asset or Liability, as the case may be, to the Person entitled to such Asset or responsible for such Liability, as the case may be. Prior to any such transfer, the Person receiving, possessing or responsible for such Asset or Liability shall be deemed to be holding such Asset or Liability, as the case may be, in trust for any such other Person.

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(d)Aptevo hereby waives compliance by each and every member of the Emergent Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Aptevo Assets to any member of the Aptevo Group.  

(e)Emergent hereby waives compliance by each and every member of the Aptevo Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Excluded Assets to any member of the Emergent Group.

2.2Aptevo Assets.

(a)For the purposes of this Agreement, “Aptevo Assets” shall mean (without duplication):

(i)all Assets that are expressly provided by this Agreement or any Ancillary Agreement (including for the avoidance of doubt the Schedules hereto or thereto) as Assets to be transferred to Aptevo or any other member of the Aptevo Group, including the Assets listed on Schedule 2.2(a)(i);

(ii)all the Aptevo Contracts and all rights, interests or claims of either Emergent or Aptevo or any of their respective Subsidiaries thereunder;

(iii)all issued and outstanding capital stock or other equity interests held by Emergent or its Subsidiaries in the wholly owned Subsidiaries listed on Schedule 2.2(a)(iii) (such Subsidiaries, the “Transferred Entities”);

(iv)all Assets reflected as assets of Aptevo and its Subsidiaries on the Aptevo Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the Aptevo Balance Sheet; provided that the amounts set forth on the Aptevo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of Aptevo Assets pursuant to this subclause (iv);

(v)all Assets that are of a nature or type that would have resulted in such Assets being included as Assets on a pro forma balance sheet of Aptevo as of the Effective Time (were such balance sheet to be prepared on a basis consistent with the determination of the Assets included on the Aptevo Balance Sheet), it being understood that the Aptevo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Assets that are included in the definition of Aptevo Assets pursuant to this subclause (v);

(vi)subject to Section 6.5, all rights, interests and claims of either Emergent or Aptevo or any of their respective Subsidiaries to any Aptevo Intellectual Property, Aptevo Software and Aptevo Technology;

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(vii)all other rights, interests and claims of either Party or any of its Subsidiaries with respect to Information that is exclusively or primarily related to the Aptevo Assets, the Aptevo Liabilities, the Aptevo Business or the Transferred Entities; 

(viii)solely to the extent provided in Article V, rights under any Policies;

(ix)subject to Section 2.10, all cash or cash equivalents of Aptevo or any Transferred Entity (the “Aptevo Cash”);

(x)any cash or cash equivalents withdrawn from Emergent Accounts in accordance with Section 2.10(c);

(xi)all actions, claims, causes of action, rights of recovery, choses in action and rights of setoff with respect to the Actions listed on Schedule 2.2(a)(xi);

(xii)all books and records which relate exclusively or primarily to the Aptevo Assets, the Aptevo Liabilities, the Aptevo Business or the Transferred Entities (provided that Emergent shall have the right to retain copies of all such books and records to the extent related to the Emergent Business);

(xiii)all pre-clinical and clinical data related exclusively or primarily to the Aptevo Assets, the Aptevo Liabilities, the Aptevo Business or the Transferred Entities and which is contained in Emergent’s databases or otherwise in Emergent’s possession or control (provided that Emergent shall have the right to retain copies of all hyperimmune data and to use and exploit such data pursuant to the Product License Agreement);

(xiv)all of Emergent’s rights, title and interest in and to the Trial Materials and the Trial Study Reports; and

(xv)except as contemplated by Section 2.5(b), any and all Assets, other than Intellectual Property, Software and Technology, owned and used or held for use immediately prior to the Effective Time by Emergent or any of its Subsidiaries that are used exclusively or primarily in the Aptevo Business. The intention of this clause (xv) is only to rectify any inadvertent omission of transfer or conveyance of any Assets that, had the Parties given specific consideration to such Asset as of the date hereof, would have otherwise been classified as an Aptevo Asset. No Asset shall be deemed to be an Aptevo Asset solely as a result of this clause (xv) if such Asset is within the category or type of Asset expressly covered by the terms of this Agreement or an Ancillary Agreement unless the Party claiming entitlement to such Asset can establish that the omission of the transfer or conveyance of such Asset was inadvertent.

Notwithstanding the foregoing, the Aptevo Assets shall not in any event include the Excluded Assets referred to in Section 2.2(b).

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(b)For the purposes of this Agreement, “Excluded Assets” shall mean (without duplication):  

(i)any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by Emergent or any other member of the Emergent Group,

(ii)the Assets described on Schedule 2.2(b)(ii);

(iii)any cash or cash equivalents withdrawn from Aptevo Accounts in accordance with Section 2.10(c);

(iv)all rights, interests and claims of either Party or any of its Subsidiaries to any Emergent Intellectual Property, Emergent Software or Emergent Technology;

(v)any and all Shared Contracts (other than Aptevo Assets arising under any Shared Contracts in accordance with Section 2.9);

(vi)except as otherwise provided in Article V, any and all rights under any Policies; and

(vii)subject to Section 2.2(a)(xv), any and all Assets of any members of the Emergent Group that are not Aptevo Assets.

2.3Aptevo Liabilities.

(a)For the purposes of this Agreement, “Aptevo Liabilities” shall mean (without duplication):

(i)all Liabilities, including any Environmental Liabilities and any Liability relating to the protection of human and occupational health and safety, the protection or restoration of, or prevention of harm to, the environment or natural resources, relating to, arising out of or resulting from:

(A)the operation or ownership of the Aptevo Business, as conducted at any time prior to, on or after the Distribution Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any Representative (whether or not such act or failure to act is or was within such Person’s authority) and including (for the avoidance of doubt) any Liability with respect to any products sold by the Aptevo Business under an Emergent label, whether prior to, on or after the Distribution Date);

(B)the operation or ownership of any business conducted by any member of the Aptevo Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any Representative (whether or not such act or failure to act is or was within such Person’s authority));

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(C)any Aptevo Assets (including any Aptevo Contracts and any Aptevo Assets arising under any Shared Contracts, to the extent related to the Aptevo Business, and any real property and leasehold interests) in any such case whether arising before, on or after the Distribution Date; or 

(D)any product liability claims or other claims of third parties relating to any product developed, manufactured, marketed, distributed, licensed or sold by the Aptevo Business, including for the avoidance of doubt any Specified Product Liability Claims;

(ii)all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by or otherwise the responsibility of Aptevo or any other member of the Aptevo Group, and all agreements, obligations and Liabilities of any member of the Aptevo Group under this Agreement or any of the Ancillary Agreements;

(iii)all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations of the Aptevo Business, including the businesses listed on Schedule 2.3(a)(iii);

(iv)all Liabilities reflected as liabilities or obligations of Aptevo and its Subsidiaries on the Aptevo Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Aptevo Balance Sheet; provided that the amounts set forth on the Aptevo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of Aptevo Liabilities pursuant to this subclause (iv);

(v)all Liabilities that are of a nature or type that would have resulted in such Liabilities being included as Liabilities on a pro forma balance sheet of Aptevo as of the Effective Time (were such balance sheet to be prepared on a basis consistent with the determination of the Liabilities included on the Aptevo Balance Sheet), it being understood that the Aptevo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of Aptevo Liabilities pursuant to this subclause (v);

(vi)all Liabilities relating to, arising out of or resulting from the Actions listed on Schedule 2.2(a)(xi); and

(vii)all Liabilities arising out of claims made by Emergent’s or Aptevo’s current or former respective directors, officers, shareholders, employees, agents, Subsidiaries or Affiliates against any member of the Emergent Group or the Aptevo Group to the extent relating to, arising out of or resulting from the (x) Aptevo Business or (y) the other businesses, operations, activities or Liabilities referred to in clauses (i) through (vi) above, inclusive.

Notwithstanding the foregoing, the Aptevo Liabilities shall not include the Excluded Liabilities referred to in Section 2.3(b).

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(b)For the purposes of this Agreement, “Excluded Liabilities” shall mean (without duplication):  

(i)any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or assumed by Emergent or any other member of the Emergent Group, and all agreements and obligations of any member of the Emergent Group under this Agreement or any of the Ancillary Agreements;

(ii)any and all Liabilities of a member of the Emergent Group to the extent relating to, arising out of or resulting from any Excluded Assets (other than Liabilities arising under any Shared Contracts to the extent such Liabilities relate to the Aptevo Business);

(iii)the Liabilities described on Schedule 2.3(b)(iii); and

(iv)any and all Liabilities of any members of the Emergent Group that are not Aptevo Liabilities.

2.4Transfer of Excluded Assets; Assumption of Excluded Liabilities.

(a)To the extent any Excluded Asset is transferred or assigned to, or any Excluded Liability is assumed by, a member of the Aptevo Group upon consummation of the Distribution or is owned or held by a member of the Aptevo Group after the Effective Time, from and after the Distribution Date:

(i)Aptevo shall, and shall cause its applicable Subsidiaries to, promptly assign, transfer, convey and deliver to Emergent or certain of its Subsidiaries designated by Emergent, and Emergent or such Subsidiaries shall accept from Aptevo and its applicable Subsidiaries, all of Aptevo’s and such Subsidiaries’ respective right, title and interest in and to such Excluded Assets; and

(ii)Emergent and certain of its Subsidiaries designated by Emergent shall promptly accept, assume and agree faithfully to perform, discharge and fulfill all such Excluded Liabilities in accordance with their respective terms.

(b)In furtherance of the assignment, transfer, conveyance and delivery of Excluded Assets and the assumption of Excluded Liabilities set forth in Sections 2.1(a)(iii), 2.1(a)(iv), 2.4(a)(i) and 2.4(a)(ii) and without any additional consideration therefor: (i) Aptevo shall execute and deliver, and shall cause its applicable Subsidiaries to execute and deliver, such bills of sale, quitclaim deeds, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of Aptevo’s and its applicable Subsidiaries’ right, title and interest in and to the Excluded Assets to Emergent and its applicable Subsidiaries, and (ii) Emergent shall execute and deliver, and shall cause its applicable Subsidiaries to execute and deliver, such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Excluded Liabilities by Emergent and such Subsidiaries. All of the foregoing documents

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contemplated by this Section 2.4(b) shall be referred to collectively herein as the “Aptevo Transfer Documents” and, together with the Emergent Transfer Documents, the “Transfer Documents.”  

2.5Approvals and Notifications.

(a)To the extent that the transfer or assignment of any Excluded Assets or the assumption of any Excluded Liabilities requires any Approvals or Notifications, the Parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between Emergent and Aptevo, neither Emergent nor Aptevo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person, or agree to any material undertaking, in order to obtain or make such Approvals or Notifications.

(b)If and to the extent that the valid, complete and perfected transfer or assignment to the Emergent Group of any Excluded Assets or the assumption by the Emergent Group of any Excluded Liabilities would be a violation of applicable Law, or require any Approvals or Notifications that has not been obtained or made on or before the Distribution Date, then, unless the Parties shall otherwise mutually determine, the transfer or assignment to the Emergent Group of such Excluded Assets or the assumption by the Emergent Group of such Excluded Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made. Notwithstanding the foregoing, any such Excluded Assets or Excluded Liabilities shall continue to constitute Excluded Assets or Excluded Liabilities for all other purposes of this Agreement.

(c)If any transfer or assignment of any Excluded Asset or any assumption of any Excluded Liability not intended to be transferred, assigned or assumed hereunder, as the case may be, is consummated on or prior to the Distribution Date, then, insofar as reasonably possible, the member of the Aptevo Group holding or owning such Excluded Asset or such Excluded Liability, as the case may be, shall thereafter hold such Excluded Asset or Excluded Liability, as the case may be, for the use and benefit of the member of the Emergent Group entitled thereto (at the expense of the member of the Emergent Group entitled thereto). In addition, the member of the Aptevo Group retaining such Excluded Asset or such Excluded Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Excluded Asset or Excluded Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the member of the Emergent Group to whom such Excluded Asset is to be transferred or assigned, or which will assume such Excluded Liability, as the case may be, in order to place such member of the Emergent Group in a substantially similar position as if such Excluded Asset or Excluded Liability had not been so transferred, assigned or assumed and so that all the benefits and burdens relating to such Excluded Asset or Excluded Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Excluded Asset or Excluded Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Distribution Date to the Emergent Group.

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(d)If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Excluded Asset or the deferral of assumption of any Excluded Liability, are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Excluded Asset or the assumption of any Excluded Liability have been removed, the transfer or assignment of the applicable Excluded Asset or the assumption of the applicable Excluded Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.  

(e)Any member of the Aptevo Group retaining an Excluded Asset or Excluded Liability due to the deferral of the transfer or assignment of such Excluded Asset or the deferral of the assumption of such Excluded Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by Emergent or the member of the Emergent Group entitled to the Excluded Asset or Excluded Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by Emergent or the member of the Emergent Group entitled to such Excluded Asset or Excluded Liability.

(f)To the extent that the transfer or assignment of any Aptevo Asset, the assumption of any Aptevo Liability, the Separation or the Distribution requires any Approvals or Notifications, the Parties shall use their commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between Emergent and Aptevo, neither Emergent nor Aptevo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person, or agree to any material undertaking, in order to obtain or make such Approvals or Notifications.

(g)If and to the extent that the valid, complete and perfected transfer or assignment to the Aptevo Group of any Aptevo Asset or assumption by the Aptevo Group of any Aptevo Liability would be a violation of applicable Law, or require any Approvals or Notifications in connection with the Separation or the Distribution that have not been obtained or made on or before the Distribution Date, then, unless the Parties shall otherwise mutually determine, the transfer or assignment to the Aptevo Group of such Aptevo Assets or the assumption by the Aptevo Group of such Aptevo Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approvals or Notifications have been obtained or made. Notwithstanding the foregoing, any such Aptevo Assets or Aptevo Liabilities shall continue to constitute Aptevo Assets and Aptevo Liabilities for all other purposes of this Agreement.

(h)If any transfer or assignment of any Aptevo Asset or any assumption of any Aptevo Liability intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Distribution Date, whether as a result of the provisions of Section 2.5(g) or for any other reason, then, insofar as reasonably possible, the member of the Emergent Group retaining such Aptevo Asset or such Aptevo Liability, as the case may be, shall thereafter hold such Aptevo Asset or Aptevo Liability, as the case may be, for the use and benefit of the member of the Aptevo Group entitled thereto (at the expense of the member of the Aptevo

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Group entitled thereto). In addition, the member of the Emergent Group retaining such Aptevo Asset or such Aptevo Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Aptevo Asset or Aptevo Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the member of the Aptevo Group to whom such Aptevo Asset is to be transferred or assigned, or which will assume such Aptevo Liability, as the case may be, in order to place such member of the Aptevo Group in a substantially similar position as if such Aptevo Asset or Aptevo Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Aptevo Asset or Aptevo Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Aptevo Asset or Aptevo Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Distribution Date to the Aptevo Group.  

(i)If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Aptevo Asset or the deferral of assumption of any Aptevo Liability pursuant to Section 2.5(g), are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Aptevo Asset or the assumption of any Aptevo Liability have been removed, the transfer or assignment of the applicable Aptevo Asset or the assumption of the applicable Aptevo Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.

(j)Any member of the Emergent Group retaining an Aptevo Asset or Aptevo Liability due to the deferral of the transfer or assignment of such Aptevo Asset or the deferral of the assumption of such Aptevo Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made available) by Aptevo or the member of the Aptevo Group entitled to the Aptevo Asset or Aptevo Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by Aptevo or the member of the Aptevo Group entitled to such Aptevo Asset or Aptevo Liability.

(k)Notwithstanding anything to the contrary in this Agreement, the Parties’ respective obligations under Sections 2.5(a), 2.5(c), 2.5(f) and 2.5(h) shall terminate on the first anniversary of the Distribution Date.

2.6Novation of Aptevo Liabilities.

(a)Each of Emergent and Aptevo, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute Aptevo Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Aptevo Group, so that, in any such case, the members of the Aptevo Group will be solely responsible for such Liabilities; provided, however, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither Emergent nor Aptevo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any third Person from whom any such consent, substitution, approval,

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amendment or release is requested or to agree to any material undertaking in connection therewith.  

(b)If Emergent or Aptevo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the Emergent Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased Aptevo Liability”), Aptevo shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the Emergent Group, as the case may be, (i) pay, perform and discharge fully all the obligations or other Liabilities of such member of the Emergent Group that constitute Unreleased Aptevo Liabilities from and after the Distribution Date and (ii) use its commercially reasonable efforts to effect such payment, performance, or discharge prior to any demand for such payment, performance, or discharge is permitted to be made by the obligee thereunder on any member of the Emergent Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased Aptevo Liabilities shall otherwise become assignable or able to be novated, Emergent shall promptly assign, or cause to be assigned, and Aptevo or the applicable Aptevo Group member shall assume, such Unreleased Aptevo Liabilities without exchange of further consideration.

2.7Novation of Excluded Liabilities.

(a)Each of Emergent and Aptevo, at the request of the other, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all obligations under agreements, leases, licenses and other obligations or Liabilities for which a member of the Emergent Group and a member of the Aptevo Group are jointly or severally liable and that constitute Excluded Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Emergent Group, so that, in any such case, the members of the Emergent Group will be solely responsible for such Liabilities; provided, however, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither Emergent nor Aptevo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any third Person from whom any such consent, substitution, approval, amendment or release is requested or to agree to any material undertaking in connection therewith.

(b)If Emergent or Aptevo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the Aptevo Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased Excluded Liability”), Emergent shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the Aptevo Group, as the case may be, (i) pay, perform and discharge fully all the obligations or other Liabilities of such member of the Aptevo Group that constitute Unreleased Excluded Liabilities from and after the Distribution Date and (ii) use its commercially reasonable efforts to effect such payment, performance, or discharge prior to any demand for such payment, performance, or discharge is permitted to be made by the obligee thereunder on any member of the Aptevo Group. If and when any such consent, substitution, approval, amendment or release

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shall be obtained or the Unreleased Excluded Liabilities shall otherwise become assignable or able to be novated, Aptevo shall promptly assign, or cause to be assigned, and Emergent or the applicable Emergent Group member shall assume, such Unreleased Excluded Liabilities without exchange of further consideration.  

2.8Intercompany Agreements and Arrangements.

(a)Except as set forth in Section 2.8(b), in furtherance of the releases and other provisions of Section 4.1 hereof, Aptevo and each other member of the Aptevo Group, on the one hand, and Emergent and each other member of the Emergent Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among Aptevo and/or any other member of the Aptevo Group, on the one hand, and Emergent and/or any other member of the Emergent Group, on the other hand, effective as of the Effective Time. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time. Each Party shall, at the reasonable request of any other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

(b)The provisions of Section 2.8(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the Parties or any of the members of their respective Groups or to be continued following the Effective Time); (ii) any agreements, arrangements, commitments or understandings to which any Person other than the Parties and their respective Affiliates is a party; (iii) any intercompany accounts payable or accounts receivable accrued as of the Effective Time that are reflected in the books and records of the Parties or otherwise documented in writing in accordance with past practices, which shall be settled in the manner contemplated by Section 2.8(d); (iv) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of Emergent or Aptevo, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned); (v) any Shared Contracts; (vi) any agreements, arrangements, commitments or understandings relating to the purchase and sale of products in the ordinary course of business between any member of the Aptevo Group and any member of the Emergent Group; (vii) the Reorganization Agreements; and (viii) any other agreements, arrangements, commitments or understandings that this Agreement or any Ancillary Agreement expressly contemplates will survive past the Effective Time.

(c)The Parties acknowledge and agree that all of the Intercompany Balances as of June 30, 2016 have been repaid, settled or otherwise eliminated by means of cash payments, a dividend, capital contribution, a combination of the foregoing or otherwise, as determined by Emergent.

(d)All Intercompany Balances outstanding as of the date hereof shall, as promptly as practicable after the Effective Time, be repaid, settled or otherwise eliminated by

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means of cash payments, a dividend, capital contribution, a combination of the foregoing or otherwise, as determined by Emergent. 

2.9Treatment of Shared Contracts.

(a)Without limiting the generality of the obligations set forth in Section 2.1, unless the Parties otherwise agree or the benefits of any contract, agreement, arrangement, commitment or understanding described in this Section 2.9 are expressly conveyed to the applicable Party pursuant to this Agreement or an Ancillary Agreement, (i) any contract, agreement, arrangement, commitment or understanding that is listed on Schedule 2.9(a) shall be assigned in part to the applicable member(s) of the applicable Group, if so assignable, or appropriately amended prior to, on or after the Distribution Date, so that each Party or the members of its respective Group shall, as of the Distribution Date, be entitled to the rights and benefits, and shall assume the related portion of any Liabilities, inuring to its respective businesses, in each case, in accordance with the allocation of benefits and burdens set forth on Schedule 2.9(a), and (ii) (A) any contract, agreement, arrangement, commitment or understanding that is an Excluded Asset or Excluded Liability but, prior to the Effective Time, inured in part to the benefit or burden of any member of the Aptevo Group (other than any such contract, agreement, arrangement, commitment or understanding covering substantially the same services or arrangements that are covered by a contract, agreement, arrangement, commitment or understanding entered into by a member of the Aptevo Group in connection with the Separation), and (B) any contract, agreement, arrangement, commitment or understanding that is an Aptevo Asset or an Aptevo Liability but, prior to the Effective Time, inured in part to the benefit or burden of any member of the Emergent Group (other than any such contract, agreement, arrangement, commitment or understanding covering substantially the same services or arrangements that are covered by a contract, agreement, arrangement, commitment or understanding entered into by a member of the Emergent Group in connection with the Separation), shall be assigned in part to the applicable member(s) of the applicable Group, if so assignable, or appropriately amended prior to, on or after the Distribution Date, so that each Party or the members of its respective Group shall, as of the Distribution Date, be entitled to the rights and benefits, and shall assume the related portion of any Liabilities, inuring to its respective businesses (any contract, agreement, arrangement, commitment or understanding referred to in clause (i) or (ii) above, a “Shared Contract”); provided, however, that, in the case of each of clause (i) and (ii), (1) in no event shall any member of any Group be required to assign (or amend) any Shared Contract in its entirety or to assign a portion of any Shared Contract which is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled) and (2) if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot be amended or if such assignment or amendment would impair the benefit the Parties thereto derive from such Shared Contract, then the Parties shall, and shall cause each of their respective Subsidiaries to, take such other reasonable and permissible actions (including by providing prompt notice to the other Party with respect to any relevant claim of Liability or other relevant matters arising in connection with a Shared Contract so as to allow such other Party the ability to exercise any applicable rights under such Shared Contract) to cause a member of the Aptevo Group or the Emergent Group, as the case may be, to receive the rights and benefits of that portion of each Shared Contract that relates to the Aptevo Business or the businesses retained by Emergent, as the case may be (in each case, to the extent so related),

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as if such Shared Contract had been assigned to (or amended to allow) a member of the applicable Group pursuant to this Section 2.9, and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of such arrangement), as if such Liabilities had been assumed by a member of the applicable Group pursuant to this Section 2.9.  

(b)Each of Emergent and Aptevo shall, and shall cause the members of its Group to, (i) treat for all Tax purposes the portion of each Shared Contract inuring to its respective businesses as Assets owned by, and/or Liabilities of, as applicable, such Party, or its subsidiaries, as applicable, not later than the Distribution Date, and (ii) neither report nor take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by applicable Law).

(c)Nothing in this Section 2.9 shall require any member of any Group to make any payment (except to the extent advanced, assumed or agreed in advance to be reimbursed by any member of the other Group), incur any obligation or grant any concession for the benefit of any member of any other Group in order to effect any transaction contemplated by this Section 2.9.

2.10Bank Accounts; Cash Balances; Collection of Accounts Receivable.

(a)Emergent and Aptevo each agrees to take, or cause the respective members of their respective Groups to take, on the Distribution Date (or such earlier time as Emergent and Aptevo may agree), all actions necessary to amend all contracts or agreements governing each bank and brokerage account owned by Aptevo or any other member of the Aptevo Group (collectively, the “Aptevo Accounts”) and all contracts or agreements governing each bank or brokerage account owned by Emergent or any other member of the Emergent Group (collectively, the “Emergent Accounts”) so that each such Aptevo Account and Emergent Account, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to) to any Emergent Account or Aptevo Account, respectively, is delinked from such Emergent Account or Aptevo Account, respectively.

(b)With respect to any outstanding payments initiated by Emergent, Aptevo or any of their respective Subsidiaries prior to the Effective Time, such outstanding payments shall be honored following the Effective Time by the Person or Group owning the account from which the payment was initiated.

(c)As between Emergent and Aptevo (and the members of their respective Groups) all payments made and reimbursements received after the Effective Time by either Party (or member of its Group) that relate to a business, Asset or Liability of the other Party (or member of its Group) shall be held by such Party in trust for the use and benefit of the Party entitled thereto and, promptly following receipt by such Party of any such payment or reimbursement, such Party shall pay over, or shall cause the applicable member of its Group to pay over, to the other Party the amount of such payment or reimbursement without right of set-off.

(d)From and after the Effective Time, Emergent (or any member of the Emergent Group designated by Emergent) shall be solely responsible for the collection efforts of

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any and all accounts receivable of the Emergent Group or the Aptevo Group outstanding as of the Effective Time.  Promptly following the collection of any such account receivable by Emergent (or the applicable member of the Emergent Group), but solely to the extent that such account receivable constitutes an Aptevo Asset, Emergent (or the applicable member of the Emergent Group) shall forward to Aptevo the amount so collected. 

2.11Ancillary Agreements. Effective on or prior to the Distribution Date, each of Emergent and Aptevo will execute and deliver all Ancillary Agreements to which it is a party.

2.12Disclaimer of Representations and Warranties. EACH OF EMERGENT (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF THE EMERGENT GROUP) AND APTEVO (ON BEHALF OF ITSELF AND EACH OTHER MEMBER OF THE APTEVO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY REORGANIZATION AGREEMENT OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT, ANY REORGANIZATION AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT, ANY REORGANIZATION AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS, NOTIFICATIONS OR APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN, IN ANY REORGANIZATION AGREEMENT OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, EXCEPT AS OTHERWISE AGREED BY EMERGENT, BY MEANS OF A QUITCLAIM OR SIMILAR FORM OF DEED OR CONVEYANCE), AND EXCLUDING ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR TITLE, AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (A) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (B) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.

2.13Intellectual Property. Notwithstanding anything to the contrary in this Agreement or any Ancillary Agreement, Emergent will retain all licenses, rights and royalty payments in and to any and all existing Intellectual Property license agreements with third parties, including the sole right to amend or modify such agreements, except for Intellectual Property related

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agreements which (a) relate exclusively or primarily to the Aptevo Business, (b) were executed or entered into by the Aptevo Business and (c) do not otherwise constitute Excluded Assets. 

2.14Transition Committee.  Prior to the Effective Time, the Parties shall establish a transition committee (the “Transition Committee”) that shall consist of an equal number of members designated by Emergent and Aptevo at all times, with each Party having the right to replace the Transition Committee members delegated by it from time to time and taking such efforts as are necessary from time to time to cause the Transition Committee to consist of an equal number of representatives of Emergent and Aptevo (in a total number determined from time to time by the Parties). The Transition Committee shall be responsible for monitoring and managing all matters related to any of the transactions contemplated by this Agreement or any Ancillary Agreements. The Transition Committee shall have the authority to (a) establish one or more subcommittees from time to time as it deems appropriate or as may be described in any Ancillary Agreements, with each such subcommittee comprised of an equal number of members representing each Party, and each such subcommittee having such scope of responsibility as may be determined by the Transition Committee from time to time; (b) delegate to any such committee any of the powers of the Transition Committee; and (c) combine, modify the scope of responsibility of, and disband any such subcommittees, and to modify or reverse any such delegations. The Transition Committee shall establish general procedures for managing the responsibilities delegated to it under this Section 2.14, and may modify such procedures from time to time. All decisions by the Transition Committee or any subcommittee thereof shall be effective only with majority approval, and any such approval must include the approval of at least one member of the Transition Committee designated by Emergent and at least one member of the Transition Committee designated by Aptevo. The Parties shall utilize the procedures set forth in Article VIII to resolve any matters as to which the Transition Committee is not able to reach a decision.

ARTICLE III
THE DISTRIBUTION

3.1The Distribution.

(a)Subject to the terms and conditions of this Agreement (including the conditions set out in Section 3.3), Emergent agrees that, on the Distribution Date and with effect from the Effective Time, it will effect the Distribution.

(b)Notwithstanding any other provision of this Agreement, Emergent shall, in its sole and absolute discretion, determine the Distribution Date and all terms of the Distribution, including the form, structure and terms of any transaction(s) to effect the Distribution and the timing and conditions to the consummation of the Distribution. In addition, Emergent may, at any time and from time to time until the consummation of the Distribution, modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. For the avoidance of doubt, nothing in the foregoing shall in any way limit Emergent’s right to terminate this Agreement or the Distribution as set forth in Article X or alter the consequences of any such termination from those specified in such Article.

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(c)Aptevo shall cooperate with Emergent to accomplish the Distribution and shall, at Emergent’s direction, promptly take any and all actions necessary or desirable to effect the Distribution, including the registration under the Exchange Act of Aptevo Common Shares on an appropriate registration form or forms to be designated by Emergent. Emergent shall select any investment bank or manager in connection with the Distribution, as well as any financial printer, solicitation and/or exchange agent and financial, legal, accounting and other advisors for Emergent. Aptevo and Emergent, as the case may be, will provide to the Agent any information required in order to complete the Distribution.  

3.2Actions Prior to the Distribution.

(a)Emergent shall, to the extent possible, give the NYSE not less than ten (10) days’ advance notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.

(b)Emergent and Aptevo shall prepare and mail, prior to the Distribution Date, to the holders of Emergent Common Shares, such information concerning Aptevo, its business, operations and management, the Distribution and such other matters as Emergent shall reasonably determine and as may be required by Law. Emergent and Aptevo will prepare, and Aptevo will, to the extent required under applicable Law, file with the SEC any such documentation and any requisite no-action letters which Emergent determines are necessary or desirable to effectuate the Distribution and Emergent and Aptevo shall each use its reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable.

(c)Aptevo shall prepare, file with the SEC and cause to become effective any registration statements or amendments thereto required to effect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements.

(d)Emergent and Aptevo shall take all such action as may be necessary or appropriate under the securities or blue sky Laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.

(e)Emergent shall enter into a distribution agent agreement with the Agent or otherwise provide instructions to the Agent regarding the Distribution.

(f)Aptevo shall prepare and file, and shall use its reasonable best efforts to have approved, an application for the listing of the Aptevo Spin Shares on Nasdaq, subject to official notice of issuance.

(g)Emergent and Aptevo shall take all such action as may be necessary or appropriate to provide for the adoption by Aptevo of its certificate of incorporation and bylaws in such form as Emergent may determine in its sole discretion.

(h)At or prior to the Effective Time, Emergent and Aptevo shall take all actions as may be necessary to approve the stock-based employee benefit plans of Aptevo in

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order to satisfy the requirements of Rule 16b-3 under the Exchange Act and the applicable rules and regulations of Nasdaq. 

(i)Emergent and Aptevo shall cooperate to change the name, effective on or prior to the Distribution Date, of any entity that is part of (i) Aptevo and any of its Affiliates so that the words “Emergent BioSolutions”, or, if separate, “Emergent” or “Biosolutions” are changed to “Aptevo” without “Emergent” or “BioSolutions” as part of any such name, and (ii) Emergent and its Affiliates so that the word “Aptevo” is changed to “Emergent BioSolutions” (or other word(s)) without “Aptevo” as part of any such name.

(j)Emergent and Aptevo shall cooperate to cause the conditions to the Distribution set forth in this Article III to be satisfied and to effect the Distribution at the Effective Time.

3.3Conditions to Distribution.

(a)The consummation of the Distribution will be subject to the satisfaction, or waiver by Emergent in its sole and absolute discretion, of the following conditions:

(i)The continued validity of a private letter ruling received by Emergent from the IRS (the “IRS Ruling”) prior to the date hereof in connection with the transactions contemplated hereby, which shall continue in full force and effect and which shall not be modified or amended in any respect adversely affecting the intended tax-free treatment of the Distribution and certain related transactions.

(ii)The receipt of a tax opinion from Wilmer Cutler Pickering Hale and Dorr LLP, tax counsel to Emergent, dated as of the Distribution Date to be in form and substance satisfactory to Emergent in its sole and absolute discretion, which tax opinion shall rely on the effectiveness of the IRS Ruling, substantially to the effect that, for U.S. federal income tax purposes, the Distribution and certain related transactions, taken together, will qualify as transactions under Sections 355(a) and/or 368(a)(1)(D) of the Code.

(iii)The Reorganization shall have been completed in accordance with the Plan of Reorganization.

(iv)Each of the Ancillary Agreements shall have been duly executed and delivered by the applicable parties thereto.

(v)No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the transactions related thereto shall be pending, threatened, issued or in effect.

(vi)The actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities Laws or blue sky Laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted.

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(vii)All Governmental Approvals necessary to consummate the Separation, the Distribution and the transactions related thereto and to permit the operation of the Aptevo Business after the Distribution Date shall have been obtained and be in full force and effect.  

(viii)The Separation and the Distribution shall not violate or result in a breach of applicable Law or any material contract of Emergent or Aptevo or any of their respective Subsidiaries.

(ix)The approval for listing on Nasdaq for the Aptevo Common Shares to be delivered to the Record Holders in the Distribution shall have been obtained, subject to official notice of issuance.

(x)The SEC declaring effective the Form 10, with no order suspending the effectiveness of the Form 10 in effect and no proceedings for such purposes pending before or threatened by the SEC.

(xi)The Information Statement and such other information concerning Aptevo, its business, operations and management, the Distribution and such other matters as Emergent shall determine in its sole and absolute discretion and as may otherwise be required by Law shall have been mailed to the Record Holders.

(xii)The Emergent Board shall have authorized and approved the Distribution and not withdrawn such authorization and approval.

(xiii)The Emergent Board shall have approved the basis of the determination of the categories of assets and liabilities included in the Aptevo Balance Sheet.

(xiv)No other events or developments shall exist or shall have occurred that, in the judgment of the Emergent Board, in its sole and absolute discretion, makes it inadvisable to effect the Separation, the Distribution or the transactions related thereto.

(b)The foregoing conditions are for the sole benefit of Emergent and shall not give rise to or create any duty on the part of Emergent or the Emergent Board to waive or not waive such conditions or in any way limit Emergent’s right to terminate this Agreement as set forth in Article X or alter the consequences of any such termination from those specified in such Article. Any determination made by the Emergent Board prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 3.3 shall be conclusive and binding on the Parties.

3.4Certain Stockholder Matters.

(a)Subject to Section 3.3, on or prior to the Distribution Date, Emergent will deliver to the Agent for the benefit of the Record Holders book-entry transfer authorizations for all of the Aptevo Common Shares to be delivered in the Distribution, and shall cause the Agent to distribute on the Distribution Date the appropriate number of Aptevo Common Shares to each

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such holder or designated transferee or transferees of such holder by way of direct registration in book-entry form. The Distribution shall be effective at the Effective Time.  

(b)Subject to Section 3.3, each Record Holder will be entitled to receive in the Distribution a number of whole Aptevo Common Shares equal to the number of Emergent Common Shares held by such holder on the Record Date multiplied by the Distribution Ratio and rounded down to the nearest whole number, with any residual fractional interest dealt with in accordance with paragraph (c) below.  Emergent shall instruct the Agent to distribute such Aptevo Common Shares to the Record Holders as soon as practicable following the Effective Time.  Aptevo agrees to provide all book-entry transfer authorizations for Aptevo Common Shares that Emergent or the Agent shall require in order to effect the Distribution.

(c)No fractional interests in Aptevo Common Shares will be distributed or credited to book-entry accounts in connection with the Distribution. As soon as practicable after the Distribution Date, Emergent shall direct the Agent to determine the fractional interests in Aptevo Common Shares which would have been allocable to each holder of record or beneficial owner of Emergent Common Shares as of the Record Date had no rounding down occurred as part of the calculation in paragraph (b) above, to aggregate all such fractional interests into whole Aptevo Common Shares and to sell those whole shares in open market transactions (with the Agent, in its sole and absolute discretion, determining when, how and through which broker-dealer and at what price to make such sales), and to cause to be distributed to each such holder or for the benefit of each such beneficial owner, in lieu of any fractional interest, such holder’s or owner’s ratable share of the proceeds of such sale, after deducting any Taxes required to be withheld and after deducting an amount equal to all brokerage charges, commissions and transfer Taxes attributed to such sale. Neither Emergent nor Aptevo will be required to guarantee any minimum sale price for the relevant Aptevo Common Shares. Neither Emergent nor Aptevo will be required to pay any interest on the proceeds from the sale of such Aptevo Common Shares.

(d)Until the Aptevo Common Shares are delivered in accordance with this Section 3.4 and applicable Law, from and after the Effective Time, Aptevo will regard the Persons entitled to receive such Aptevo Common Shares as record holders of Aptevo Common Shares in accordance with the terms of the Distribution without requiring any action on the part of such Persons. Aptevo agrees that, subject to any transfers of such shares, from and after the Effective Time (i) each such holder will be entitled to receive all dividends payable on, and exercise voting rights and all other rights and privileges with respect to, the Aptevo Common Shares then held by such holder, and (ii) each such holder will be entitled, without any action on the part of such holder, to receive evidence of ownership of the Aptevo Common Shares then held by such holder.

(e)Any Aptevo Common Shares or cash in lieu of fractional shares with respect to Aptevo Common Shares that remain unclaimed by any Record Holder one hundred and eighty (180) days after the Distribution Date shall be delivered to Aptevo, Aptevo shall hold such Aptevo Common Shares for the account of such Record Holder and the Parties agree that all obligations to provide such Aptevo Common Shares and cash, if any, in lieu of fractional share interests shall be obligations of Aptevo, subject in each case to applicable escheat or other abandoned property Laws, and Emergent shall have no Liability with respect thereto.

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ARTICLE IV
MUTUAL RELEASES; INDEMNIFICATION

4.1Release of Pre-Distribution Claims.

(a)Except as provided in (i) Sections 4.1(c) and 4.1(d) and (ii) any Ancillary Agreement, effective as of the Effective Time, Aptevo does hereby, for itself and each other member of the Aptevo Group, their respective Affiliates (other than any member of the Emergent Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the Aptevo Group (in each case, in their respective capacities as such), remise, release and forever discharge Emergent and the members of the Emergent Group, their respective Affiliates (other than any member of the Aptevo Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the Emergent Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns (the “Emergent Released Parties”), from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the transactions and all other activities to implement the Separation and the Distribution.

(b)Except as provided in (i) Sections 4.1(c) and 4.1(d) and (ii) any Ancillary Agreement, effective as of the Effective Time, Emergent does hereby, for itself and each other member of the Emergent Group, their respective Affiliates (other than any member of the Aptevo Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the Emergent Group (in each case, in their respective capacities as such), remise, release and forever discharge Aptevo, the respective members of the Aptevo Group, their respective Affiliates (other than any member of the Emergent Group), successors and assigns, and all Persons who at any time prior to the Effective Time have been shareholders, directors, officers, agents or employees of any member of the Aptevo Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns (the “Aptevo Released Parties”), from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the transactions and all other activities to implement the Separation and the Distribution.

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(c)Nothing contained in Section 4.1(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.8(b) or the applicable Schedules thereto not to terminate as of the Effective Time, in each case in accordance with its terms. Nothing contained in Section 4.1(a) or (b) shall release any Person from:  

(i)any Liability provided in or resulting from any agreement among any members of the Emergent Group or the Aptevo Group that is specified in Section 2.8(b) or the applicable Schedules thereto as not to terminate as of the Effective Time, or any other Liability specified in such Section 2.8(b) as not to terminate as of the Effective Time;

(ii)any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;

(iii)any Liability for the sale, lease or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Effective Time;

(iv)any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group at the request or on behalf of a member of the other Group;

(v)any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement, any Ancillary Agreement or otherwise for claims brought against the Parties by third Persons, which Liability shall be governed by the provisions of this Article IV and Article V and, if applicable, the appropriate provisions of the Ancillary Agreements; or

(vi)any Liability solely to the extent such Liability is the basis of a claim against any Person that is not an Aptevo Released Party or an Emergent Released Party.

In addition, nothing contained in Section 4.1(a) shall release any member of the Emergent Group from honoring its existing obligations to indemnify any director, officer or employee of Aptevo who was a director, officer or employee of any member of the Emergent Group on or prior to the Distribution Date, to the extent such director, officer or employee is or becomes a named defendant in any Action with respect to which such director, officer or employee was entitled to such indemnification pursuant to then-existing obligations; it being understood that, if the underlying obligation giving rise to such Action is an Aptevo Liability, Aptevo shall indemnify, or procure from a Subsidiary the effective indemnification of, Emergent for such Liability (including Emergent’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article IV.

(d)Aptevo shall not make, and shall not permit any member of the Aptevo Group to make, any claim or demand, or commence any Action asserting any claim or demand,

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including any claim of contribution or any indemnification, against Emergent or any other member of the Emergent Group, or any other Person released pursuant to Section 4.1(a), with respect to any Liabilities released pursuant to Section 4.1(a). Emergent shall not make, and shall not permit any member of the Emergent Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against Aptevo or any other member of the Aptevo Group, or any other Person released pursuant to Section 4.1(b), with respect to any Liabilities released pursuant to Section 4.1(b).  

(e)It is the intent of each of Emergent and Aptevo, by virtue of the provisions of this Section 4.1, to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Distribution Date, between or among Aptevo or any other member of the Aptevo Group, on the one hand, and Emergent or any other member of the Emergent Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Distribution Date), except as expressly set forth in Section 4.1(c). At any time, at the request of any other Party, each Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof.

(f)Any breach of the provisions of this Section 4.1 by either Emergent or Aptevo shall entitle the other Party to recover reasonable fees and expenses of counsel in connection with such breach or any Action resulting from such breach.

4.2Indemnification by Aptevo. Aptevo shall, and shall cause the other members of the Aptevo Group to, indemnify, defend and hold harmless Emergent, each member of the Emergent Group and each of their respective directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Emergent Indemnitees”), from and against any and all Liabilities of the Emergent Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

(a)the failure of Aptevo or any other member of the Aptevo Group or any other Person to pay, perform or otherwise promptly discharge any Aptevo Liabilities or Aptevo Contract in accordance with its respective terms, whether prior to, on or after the Distribution Date;

(b)the Aptevo Business (except to the extent it constitutes an Excluded Liability), any Aptevo Liability or any Aptevo Contract;

(c)any breach by Aptevo or any other member of the Aptevo Group of this Agreement or any of the Ancillary Agreements, unless any such Ancillary Agreement expressly provides for separate indemnification therein, in which case any claim for indemnification for breach thereof shall be made exclusively pursuant to (and subject to the terms and conditions of) the indemnification provisions therein;

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(d)except to the extent it constitutes an Excluded Liability, any guarantee, indemnification obligation, letter of credit reimbursement obligation, surety, bond or other credit support agreement, arrangement, commitment or understanding for the benefit of any member of the Aptevo Group by any member of the Emergent Group that survives following the Distribution; and  

(e)any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, contained in the Form 10, the Information Statement or any other Disclosure Document, in each case, as amended or supplemented, except in each case solely to the extent such statement or omission constitutes an Emergent Disclosure Portion.

4.3Indemnification by Emergent. Emergent shall, and shall cause the other members of the Emergent Group to, indemnify, defend and hold harmless Aptevo, each member of the Aptevo Group and each of their respective directors, officers, employees or agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Aptevo Indemnitees”), from and against any and all Liabilities of the Aptevo Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):

(a)the failure of Emergent or any other member of the Emergent Group or any other Person to pay, perform or otherwise promptly discharge any Excluded Liabilities in accordance with their terms, whether prior to, on or after the Distribution Date;

(b)the Excluded Liabilities;

(c)the Emergent Business (except to the extent it constitutes an Aptevo Liability and other than the conduct of business, operations or activities for the benefit of the Aptevo Group pursuant to any Ancillary Agreement);

(d)any breach by Emergent or any other member of the Emergent Group of this Agreement or any of the Ancillary Agreements, unless any such Ancillary Agreement expressly provides for separate indemnification therein, in which case any claim for indemnification for breach thereof shall be made exclusively pursuant to (and subject to the terms and conditions of) the indemnification provisions therein; and

(e)any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, contained in the Form 10, the Information Statement or any other Disclosure Document, in each case, as amended or supplemented, and in each case solely to the extent such statement or omission constitutes an Emergent Disclosure Portion.

4.4Procedures for Indemnification of Third-Party Claims.

(a)If any Person entitled to indemnification hereunder (an “Indemnitee”) shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the Emergent Group or the Aptevo Group of any claim or of the commencement by any such Person of any Action (collectively, a “Third-Party Claim”) with

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respect to which any Party (an “Indemnifying Party”) may be obligated to provide indemnification to such Indemnitee pursuant to Section 4.2 or 4.3, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as promptly as practicable (and no later than thirty (30) days or sooner, if the nature of the Third-Party Claim so requires) after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail and include copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim. Notwithstanding the foregoing, the failure of an Indemnitee to provide notice in accordance with this Section 4.4(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent to which the Indemnifying Party is actually materially prejudiced by the Indemnitee’s failure to provide notice in accordance with this Section 4.4(a).  

(b)An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has specified any reservations or exceptions, to seek to settle or compromise), at such Indemnifying Party’s own expense, any Third-Party Claim with outside counsel satisfactory to the Indemnitee. Within thirty (30) days after the receipt of notice from an Indemnitee in accordance with Section 4.4(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third-Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee except as otherwise set forth in this Section 4.4. Notwithstanding the foregoing or anything else to the contrary in this Agreement, the Indemnifying Party shall not be entitled to defend (or settle or compromise) any Third-Party Claim that involves any Governmental Authority or potential criminal liability or that seeks injunctive or other non-monetary relief or that constitutes a Specified Product Liability Claim.

(c)In the event that the Indemnifying Party is permitted by the terms of this Agreement, and has elected, to assume the defense of the Third-Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice, then, in any such case, the reasonable fees and expenses of one (1) separate counsel for all Indemnitees shall be borne by the Indemnifying Party.

(d)If an Indemnifying Party is not permitted by this terms of this Agreement or elects not to assume responsibility for defending a Third-Party Claim, or fails to notify an Indemnitee of its election as provided in Section 4.4(b), such Indemnitee may defend such Third-Party Claim at the cost and expense of the Indemnifying Party.

(e)Unless the Indemnifying Party has failed or is not permitted by the terms of this Agreement to assume the defense of the Third-Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third-Party Claim, or admit to any wrongdoing in connection therewith, without the consent of the Indemnifying Party.

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(f)In the case of a Third-Party Claim, no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third-Party Claim, or admit to any wrongdoing in connection therewith, without the consent of the Indemnitee; provided, however, that the Indemnifying Party may, without the consent of the Indemnitee, consent to any settlement of a Third-Party Claim (other than a Specified Product Liability Claim) that (i) does not require or result in any payment by the Indemnitee, (ii) does not include any admission of wrongdoing by the Indemnitee or any of its Affiliates, (iii) does not provide for any injunctive or non-monetary relief against the Indemnitee or any of its Affiliates and (iv) includes a complete and unconditional release of the Indemnitee and its Affiliates with respect to such Third-Party Claim.  

(g)The party controlling the defense of any Third-Party Claim shall keep the other party fully informed of the status of such Third-Party Claim and the defense thereof and shall consider in good faith recommendations made by the other party with respect thereto.  

(h)Notwithstanding anything to the contrary in this Agreement, (i) Emergent shall have the right to approve counsel employed by Aptevo in the defense of Aptevo against any Specified Product Liability Claim and (ii) neither Aptevo nor any member of the Aptevo Group shall consent to entry of any judgment or enter into any settlement of any Specified Product Liability Claim, or admit to any wrongdoing in connection therewith, without Emergent’s prior written consent.

(i)For the avoidance of doubt, the provisions of this Article IV shall apply to Third-Party Claims that have already been asserted as well as Third-Party Claims asserted after the date hereof, and there shall be no requirement under this Section 4.4 to give notice with respect to any Third-Party Claims that have already been asserted as of the Effective Time.

4.5Additional Matters.

(a)Indemnification payments in respect of any Liabilities for which an Indemnitee is entitled to indemnification under this Article IV shall be paid by the Indemnifying Party to the Indemnitee as such Liabilities are incurred upon demand by the Indemnitee, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities. The indemnity agreements contained in this Article IV shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee, (ii) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder and (iii) any termination of this Agreement.

(b)Any claim on account of a Liability which does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30)-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall

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be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements.  

(c)In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

(d)In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section 4.5, and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys’ fees, experts fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement.

(e)For all claims as to which indemnification or contribution is provided under this Article IV, other than Third-Party Claims (as to which Section 4.4 shall apply), the reasonable fees and expenses of counsel to the Indemnitee for the enforcement of the indemnity obligations shall be borne by the Indemnifying Party.

4.6Remedies Cumulative. The remedies provided in this Article IV shall be cumulative and, subject to the provisions of Article VIII, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

4.7Survival of Indemnities. The rights and obligations of each of Emergent and Aptevo and their respective Indemnitees under this Article IV shall survive the sale or other transfer by any Party of any Assets or businesses or the assignment by it of any Liabilities.

4.8Guarantees, Letters of Credit or Other Obligations. In furtherance of, and not in limitation of, the obligations set forth in Section 2.6 and this Article IV:

(a)On or prior to the Distribution Date or as soon as practicable thereafter, Aptevo shall (with the reasonable cooperation of the applicable member(s) of the Emergent Group) use its reasonable best efforts to have any member(s) of the Emergent Group removed as guarantor of or obligor for any Aptevo Liability to the extent that they constitute Aptevo Liabilities.

(b)On or prior to the Distribution Date, to the extent required to obtain a release from a guarantee or letter of credit, including the guarantees listed on Schedule 4.8(b) (a “Guarantee Release”), of any member of the Emergent Group, Aptevo shall execute a guarantee

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agreement in the form of the existing guarantee or letter of credit, as applicable, or such other form as is agreed to by the relevant parties to such guarantee agreement or letter of credit, except to the extent that such existing guarantee or letter of credit contains representations, covenants or other terms or provisions either (i) with which Aptevo would be reasonably unable to comply or (ii) which would be reasonably expected to be breached.  

(c)If the Parties are unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (a) and (b) of this Section 4.8, (i) Aptevo shall, and shall cause the other members of the Aptevo Group to, indemnify, defend and hold harmless each of the Emergent Indemnitees for any Liability arising from or relating to such guarantee and shall, as agent or subcontractor for the applicable Emergent Group guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder, and (ii) Aptevo shall not, and shall cause the other members of the Aptevo Group not to, agree to renew or extend the term of, increase any obligations under, or transfer to a third Person, any loan, guarantee, letter of credit, lease, contract or other obligation for which a member of the Emergent Group is or may be liable unless all obligations of the members of the Emergent Group with respect thereto are thereupon terminated by documentation satisfactory in form and substance to Emergent in its sole and absolute discretion.

4.9Contribution. If the indemnification provided for in Section 4.2 is unavailable to, or insufficient to hold harmless, any Indemnitee under this Article IV with respect to any Liabilities (other than in accordance with the terms of this Agreement, in which case this Section 4.9 shall not apply), then the Indemnifying Party, in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by such Indemnitee as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnitee in connection with the conduct, statements or omissions that resulted in such Liabilities. The relative fault of any Emergent Indemnitee, on the one hand, and of any Aptevo Indemnitee, on the other hand, in the case of any Liabilities arising out of or related to information contained in the Form 10, the Information Statement or any other Disclosure Document shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission of a material fact relates to information supplied by an Aptevo Indemnitee or an Emergent Indemnitee, it being understood that (a) the Emergent Disclosure Portions shall in all cases be deemed supplied by Emergent and the Emergent Indemnitees and (b) all other information in the Form 10, the Information Statement or any other Disclosure Document shall in all cases be deemed supplied by Aptevo and the Aptevo Indemnitees.

4.10Covenant Not to Sue.  Each Party hereby covenants and agrees that none of it, its Subsidiaries or any Person claiming through it shall bring suit or otherwise assert any claim against any Indemnitee, or assert a defense against any claim asserted by any Indemnitee, before any court, arbitrator, neutral mediator or administrative agency anywhere in the world, alleging that: (a) the assumption of any Aptevo Liabilities by Aptevo and the other members of the Aptevo Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; (b) the retention of any Emergent Liabilities by Emergent and the other members of the Emergent Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is void or unenforceable for any reason; or (c) the provisions of this Article IV are void or unenforceable for any reason.

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4.11Taxes. The provisions of this Agreement, including this Article IV, shall not apply to any matters relating to Taxes to the extent such matters are addressed in the Tax Matters Agreement or the Employee Matters Agreement. In the case of any conflict between this Agreement and either the Tax Matters Agreement or the Employee Matters Agreement in relation to any matters related to Taxes, the Tax Matters Agreement or the Employee Matters Agreement, as applicable, shall prevail.  

 

ARTICLE V
INSURANCE

5.1Insurance Matters.

(a)Aptevo acknowledges and agrees, on its own behalf and on behalf of each other member of the Aptevo Group, that, from and after the Effective Time, neither Aptevo nor any other member of the Aptevo Group shall have any rights to or under any member of the Emergent Group’s insurance policies, except as expressly provided in this Agreement or any Ancillary Agreement.

(b)Notwithstanding Section 5.1(a), from and after the Effective Time, with respect to any Liability incurred by any member of the Aptevo Group prior to the Effective Time, to the extent reasonably possible, Emergent will, or will cause the applicable insurance companies or the member of the Emergent Group that is insured thereunder to (i) continue to provide the members of the Aptevo Group with access to and coverage under the applicable insurance policies, and (ii) reasonably cooperate with Aptevo and take commercially reasonable actions as may be necessary or advisable to assist Aptevo in submitting such claims under the applicable insurance policies; provided, that Aptevo shall be responsible for any and all applicable deductibles, self-insured retentions, retrospective premiums, claims-handling charges, co-payments or any other charge or fee legally due and owing relating to such claims and neither Emergent nor the insurance company or any other member of the Emergent Group shall be required to maintain such insurance policies. For the avoidance of doubt, if an occurrence date is after the Effective Time, then no payment for any damages, costs of defense, or other sums with respect to such claim shall be available to Aptevo under such insurance policies. No member of the Aptevo Group, in connection with making a claim under any insurance policy of any member of the Emergent Group pursuant to this Section 5.1(b), shall take any action that would be reasonably likely to: (A) have an adverse impact on the then-current relationship between any member of the Emergent Group, on the one hand, and the applicable insurance company, on the other hand; (B) result in the applicable insurance company terminating or reducing coverage, or increasing the amount of any premium owed by any member of the Emergent Group under the applicable insurance policy; or (C) otherwise compromise, jeopardize or interfere with the rights of any member of the Emergent Group under the applicable insurance policy. At all times, the Parties shall, and shall cause the other members of its Group to, cooperate with reasonable requests for information by the other Party or the insurance companies regarding any such insurance policy claim.

(c)At the Effective Time, Aptevo shall have in effect all insurance programs required to comply with Aptevo’s statutory and contractual obligations and such other insurance policies as reasonably necessary or customary for companies operating a business similar to the

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Aptevo Business. Such insurance programs include general liability, commercial auto liability, workers’ compensation, employers liability, product liability, property, cargo, employment practices liability, employee dishonesty/crime, directors’ and officers’ liability and fiduciary liability. 

(d)Aptevo agrees, on its own behalf and on behalf of each other member of the Aptevo Group, that, from the Effective Time until the sixth (6^th) anniversary of the Effective Time, each member of the Emergent Group shall be named as additional insureds or loss payees, whichever is appropriate, under the Aptevo Group’s insurance policies in respect of any Emergent Liabilities arising out of the Aptevo Business or any wrongful acts or omissions prior to the Effective Time to the extent the applicable insurance carrier permits it. Aptevo shall indemnify, hold harmless and reimburse each member of the Emergent Group for any and all costs incurred by any member of the Emergent Group to the extent resulting from any member of the Aptevo Group’s insurance policies in which any member of the Emergent Group is named as an additional insureds, including any deductibles, self-insured retentions or uninsured losses.

(e)No member of the Emergent Group shall have any obligation to secure extended reporting for any claims under any member of the Emergent Group’s claims-made or occurrence-reported liability policies for any acts or omissions by any member of the Aptevo Group incurred prior to the Effective Time.

(f)This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Emergent Group in respect of any of the Emergent insurance policies and programs or any other contract or policy of insurance.

ARTICLE VI
CERTAIN OTHER MATTERS

6.1No Right to Use Regulatory Information. Except as otherwise set forth in the Product License Agreement: (a) no member of the Emergent Group shall have a right of reference to or otherwise be entitled to use the regulatory filings or other regulatory information that is owned or controlled by any member of the Aptevo Group and exclusively related to any Aptevo Products; and (b) no member of the Aptevo Group shall have a right of reference to or otherwise be entitled to use the regulatory filings or other regulatory information owned or controlled by any member of the Emergent Group.

6.2Late Payments. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within forty-five (45) days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus five percent (5%) (or, if lower, the maximum rate permitted by applicable Law).

6.3Inducement. Aptevo acknowledges and agrees that Emergent’s willingness to cause, effect and consummate the Separation and the Distribution has been conditioned upon and induced by Aptevo’s covenants and agreements in this Agreement and the Ancillary

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Agreements, including Aptevo’s assumption of the Aptevo Liabilities pursuant to the Separation and the provisions of this Agreement and Aptevo’s covenants and agreements contained in Article IV.  

6.4Post-Effective Time Conduct. The Parties acknowledge that, after the Effective Time, each Party shall be independent of the other Party, with responsibility for its own actions and inactions and its own Liabilities relating to, arising out of or resulting from the conduct of its business, operations and activities following the Effective Time, except as may otherwise be provided herein or in any Ancillary Agreement, and each Party shall (except as otherwise provided in Article IV, including Section 4.2 and Section 4.3) use commercially reasonable efforts to prevent such Liabilities from being inappropriately borne by the other Party.

6.5Non-Competition Obligation.

(a)Subject to Section 6.5(b), during the period commencing on the Distribution Date and ending on the earlier of the third (3^rd) anniversary of the Distribution Date and the time as of immediately prior to the consummation of an Emergent Change of Control (the “Restricted Period”), Emergent shall not (and it shall cause each other Restricted Party not to) engage in any Competitive Activities anywhere in the world.

(b)Aptevo hereby agrees that the covenant set forth in Section 6.5(a) above shall not be deemed to prohibit or otherwise restrict any Restricted Party from:

(i)providing services to any member of the Aptevo Group, or otherwise performing such Restricted Party’s obligations or exercising its rights, under the terms of this Agreement or any Ancillary Agreement or otherwise taking any action in furtherance of the Separation, the Distribution and the other transactions contemplated by this Agreement and the Ancillary Agreements;

(ii)owning or acquiring any Person that engages in Competitive Activities if (A) such Competitive Activities account for less than thirty-three percent (33%) of such person’s consolidated annual revenues for the most recent calendar year ended prior to such acquisition or (B) following such acquisition until the earlier of the eighteen (18) month anniversary thereof or the end of the Restricted Period, such Restricted Party shall have used commercially reasonable efforts to divest or cease the portion of such Person’s business that is engaged in Competitive Activities; provided that such Restricted Party shall have a minimum of eighteen (18) months following such acquisition to complete such divestiture or cessation;

(iii)purchasing products or services from, or selling products or services to, or otherwise engaging in a subcontracting, contract manufacturing or other commercial relationship with, any Person that is engaged in Competitive Activities;

(iv)engaging in any business in which (after giving effect to the Distribution) any Restricted Party is currently engaged, whether or not any one or more products or services associated with such business activities might be deemed to be competitive in some manner with the Competitive Activities;

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(v)acquiring rights to any product or assets (whether by purchase, license or otherwise) that may be used for Competitive Activities if such product or assets are not so employed or otherwise would fall within the exception set forth in clause (ii) above if they were an acquired Person for purposes of such clause (ii); or  

(vi)acquiring or owning securities of a Person whose securities are publicly traded on a recognized securities exchange or quotation system representing not in excess of five percent (5%) of any class of such securities.

6.6No Solicitation of Employees. For and during the twelve (12) month period following the Distribution Date, none of Emergent, Aptevo or any member of their respective Groups will, without the prior written consent of the other applicable party, either directly or indirectly, on their own behalf or in the service or on behalf of others, solicit, aid, induce or encourage any employee of any other party’s respective Group to leave his or her employment; provided, however, that nothing in this Section 6.6 shall restrict or preclude the rights of Emergent, Aptevo or any member of their respective Groups from soliciting or hiring (i) any employee who responds to a general solicitation or advertisement that is not specifically targeted or focused on the employees employed by any other party’s respective Group (and nothing shall prohibit such generalized searches for employees through various means, including, but not limited to, the use of advertisements in the media (including trade media) or the engagement of search firms to engage in such searches); provided that the applicable party has not encouraged or advised such firm to approach any such employee; (ii) any employee whose employment has been terminated by the other party’s respective Group; or (iii) any employee whose employment has been terminated by such employee after ninety (90) days from the date of termination of such employee’s employment.

ARTICLE VII
EXCHANGE OF INFORMATION; CONFIDENTIALITY

7.1Agreement for Exchange of Information; Archives. Subject to Section 7.7 and any other applicable confidentiality obligations, each of Emergent and Aptevo, on behalf of its respective Group, agrees to provide, or cause to be provided, to the other Group, at any time before, on or after the Distribution Date, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such respective Group which the requesting Party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting Party (including under applicable securities or Tax Laws) by a Governmental Authority having jurisdiction over the requesting Party, (ii) for use in any other judicial, regulatory, administrative, Tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, Tax or other similar requirements, in each case other than claims or allegations that one Party to this Agreement has against the other, or (iii) subject to the foregoing clause (ii), to comply with its obligations under this Agreement or any Ancillary Agreement; provided, however, that, in the event that any Party determines that any such provision of Information could be commercially detrimental, violate any Law or agreement, or waive any privilege otherwise available under applicable Law, including the attorney-client privilege, the Parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. For the avoidance of doubt, the rights and obligations of any Party described in this Section 7.1 with respect to the sharing of

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Information related to Taxes are subject to the rights and obligations described in the Tax Matters Agreement.  

7.2Ownership of Information. Any Information owned by one Group that is provided to a requesting Party pursuant to Section 7.1 or Section 7.6 shall be deemed to remain the property of the providing Party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

7.3Compensation for Providing Information. The Party requesting Information agrees to reimburse the other Party for the reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting Party.

7.4Record Retention. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement after the Effective Time, the Parties agree to use their reasonable best efforts to retain all Information in their respective possession or control on the Distribution Date in accordance with the policies of Emergent as in effect on the Distribution Date or such other policies as may be adopted by Emergent after the Effective Time (provided, in the case of Aptevo, that Emergent notifies Aptevo of any such material change). Neither Party will destroy, or permit any of its Subsidiaries to destroy, any Information which the other Party may have the right to obtain pursuant to this Agreement prior to the end of the retention period set forth in such policies without first notifying the other Party of the proposed destruction and giving the other Party the opportunity to take possession of such information prior to such destruction; provided, however, that in the case of any Information relating to Taxes, employee benefits or Environmental Liabilities, such retention period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof). Notwithstanding the foregoing, Section 5.01 of the Tax Matters Agreement shall govern the retention of Tax Records (as defined in the Tax Matters Agreement).

7.5Limitations of Liability. Neither Party shall have any liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by the Party providing such Information. Neither Party shall have any liability to the other Party if any Information is destroyed after reasonable best efforts by such Party to comply with the provisions of Section 7.4.

7.6Production of Witnesses; Records; Cooperation.

(a)After the Effective Time, except in the case of an adversarial Action by one Party against the other Party, each Party shall use its commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the

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requesting Party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. Without limiting any indemnification obligations of the non-requesting Party pursuant to Article IV, the requesting Party shall bear all costs and expenses in connection therewith. For the avoidance of doubt, the rights and obligations of any Party described in this Section 7.6 are subject to the rights and obligations described in the Tax Matters Agreement.  

(b)If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the other Party shall make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be.

(c)Without limiting the foregoing, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions.

(d)Without limiting any provision of this Section 7.6, each of the Parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any Intellectual Property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any Intellectual Property of a third Person in a manner that would hamper or undermine the defense of such infringement or similar claim.

(e)The obligation of the Parties to provide witnesses pursuant to this Section 7.6 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses inventors and other officers (subject to the exception set forth in the first sentence of Section 7.6(a)).

(f)In connection with any matter contemplated by this Section 7.6, the Parties will enter into, in accordance with Section 7.9, a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group.

7.7Confidentiality.

(a)Subject to Section 7.1 and 7.8, each of Emergent and Aptevo (each, a “Receiving Party”), on behalf of itself and each member of its respective Group (collectively, the relevant “Receiving Group”), agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to Emergent’s confidential and proprietary information pursuant to policies in effect as of the Distribution Date (and in no event less than a reasonable degree of care), all confidential or proprietary Information

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(“Confidential Information”) concerning each such other Group or any of its members (collectively, the “Disclosing Group”, and the relevant Party in such Group, the “Disclosing Party”) that is either in the possession of any member of the Receiving Group or any of its respective Representatives (including such Confidential Information in its possession prior to the date hereof) or furnished by any member of the Disclosing Group or its respective Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Confidential Information other than for such purposes as shall be expressly permitted hereunder or under any Ancillary Agreement, except, in each case, to the extent that such Confidential Information (i) is as of the date hereof or at any time thereafter in the public domain or generally known to the public through no fault of any member of the Receiving Group or any of their respective Representatives, (ii) is after the Distribution Date lawfully acquired by any member of the Receiving Group from sources, other than any member of the Disclosing Group or any of its respective Representatives, which sources are not themselves bound by a confidentiality obligation, or (iii) is independently generated by a member of the Receiving Group without reference to any Confidential Information of the Disclosing Group. Each Party shall maintain, and shall cause its respective Group members and Representatives to maintain, policies and procedures, and develop such further policies and procedures as will from time to time become necessary or appropriate, to ensure compliance with this Section 7.7.  

(b)Aptevo acknowledges that it and other members of the Aptevo Group may have in its or their possession Confidential Information of third Persons that was received under a confidentiality or nondisclosure agreement with such third Person while the Aptevo Group was part of Emergent. Aptevo will, and will cause its respective Group members and its Representatives to, hold in strict confidence the Confidential Information of third Persons to which any member of the Aptevo Group has access, in accordance with the terms of any agreements entered into prior to the Effective Time between any member of the Emergent Group and such third Persons.

(c)Each Receiving Party, on behalf of itself and the other members of its Receiving Group, agrees not to release, communicate or disclose, or permit to be released, communicated or disclosed, directly or indirectly, any Confidential Information of the Disclosing Group to any other Person, except its Representatives who need to know such Confidential Information (who shall be advised of their obligations hereunder with respect to such Confidential Information), except in compliance with Section 7.8. Without limiting the foregoing, when any such Confidential Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Receiving Party will promptly after request of the Disclosing Party either return to the Disclosing Party all such Confidential Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the Disclosing Party that it has destroyed such Confidential Information (and such copies thereof and such notes, extracts or summaries based thereon).

(d)Each Party shall be liable for any failure by the members of its Group, and their respective Representatives, to comply with the restrictions on use and disclosure of Confidential Information contained in this Agreement.

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7.8Protective Arrangements. In the event that any Receiving Party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Confidential Information of the Disclosing Group pursuant to applicable Law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Confidential Information of the Disclosing Party (or any member of any other Party’s Group), such Receiving Party shall notify the Disclosing Party (if legally permissible under the circumstances) prior to disclosing or providing such Confidential Information and shall cooperate at the expense of the Disclosing Party in seeking any reasonable protective arrangements requested by the Disclosing Party. Subject to the foregoing, the member of the Receiving Group that received such request may thereafter disclose or provide the Disclosing Group’s Confidential Information to the extent required by such Law (as so advised by counsel) or by lawful process or such Governmental Authority. The Receiving Party shall promptly provide the Disclosing Party with a copy of the Confidential Information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such Confidential Information was disclosed, in each case if legally permissible under the circumstances.  

7.9Privileged Matters.

(a)The Parties recognize that legal and other professional services that have been and shall be provided prior to the Effective Time have been and shall be rendered for the collective benefit of the Parties and their respective Subsidiaries, and that each Party and its respective Subsidiaries should be deemed to be the client with respect to such services for the purposes of asserting all privileges and immunities that may be asserted under applicable Law in connection therewith.

(b)The Parties agree as follows:

(i)Emergent shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the Emergent Business, whether or not the Privileged Information is in the possession or under the control of any member of the Emergent Group or any member of the Aptevo Group. Emergent shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any Emergent Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the Emergent Group or any member of the Aptevo Group.

(ii)Aptevo shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the Aptevo Business, whether or not the Privileged Information is in the possession or under the control of any member of the Emergent Group or any member of the Aptevo Group. Aptevo shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any Aptevo Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged

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Information is in the possession or under the control of any member of the Emergent Group or any member of the Aptevo Group.  

(iii)If Emergent and Aptevo do not agree as to whether certain information is Privileged Information, then the information shall be treated as Privileged Information, and the Party who believes such information is Privileged Information shall be entitled to control the assertion or waiver of all privileges and immunities in connection with any such information unless the Parties otherwise agree. The Parties shall utilize the procedures set forth in Article VIII to resolve any disputes as to whether any information relates solely to the Emergent Business, solely to the Aptevo Business, or to both the Emergent Business and the Aptevo Business.

(c)Subject to Section 7.9(d) and Section 7.9(e), the Parties agree that they shall have a shared privilege or immunity with respect to all privileges not allocated pursuant to Section 7.9(b) and all privileges and immunities relating to any Actions or other matters that involve both Parties (or one or more of their respective Subsidiaries) and in respect of which both Parties have Liabilities under this Agreement, and that no such shared privilege or immunity may be waived by either Party or any of its Subsidiaries without the consent of the other Party.

(d)If any dispute arises between any member of the Emergent Group and any member of the Aptevo Group regarding whether a privilege or immunity should be waived to protect or advance the interests of either Party and/or the other members of its Group, each Party agrees that it shall (i) negotiate with the other Party in good faith; (ii) endeavor to minimize any prejudice to the rights of the members of the other Group; and (iii) not unreasonably withhold consent to any request for waiver by the other Party. Further, each Party specifically agrees that it shall not (and shall cause its Subsidiaries not to) withhold its consent to the waiver of a privilege or immunity for any purpose except to protect its own legitimate interests.

(e)Upon receipt by any member of the Aptevo Group of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of information subject to a shared privilege or immunity or as to which any member of the Emergent Group has the sole right hereunder to assert a privilege or immunity, or if Aptevo obtains knowledge that any current or former directors, officers, agents or employees of any member of the Aptevo Group have received any subpoena, discovery or other requests that may reasonably be expected to result in the production or disclosure of such Privileged Information, Aptevo shall promptly provide notice to Emergent of the existence of the request (which notice shall be delivered to Emergent no later than five (5) Business Days following the receipt of any such subpoena, discovery or other request) and shall provide Emergent a reasonable opportunity to review the information and to assert any rights it or they may have, including under this Section 7.9 or otherwise, to prevent the production or disclosure of such Privileged Information.

(f)Upon receipt by any member of the Emergent Group of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of information subject to a shared privilege or immunity or as to which any member of the Aptevo Group has the sole right hereunder to assert a privilege or immunity, or if Emergent obtains knowledge that any current or former directors, officers, agents or employees of any

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member of the Emergent Group have received any subpoena, discovery or other requests that may reasonably be expected to result in the production or disclosure of such Privileged Information, Emergent shall promptly provide notice to Aptevo of the existence of the request (which notice shall be delivered to Aptevo no later than five (5) Business Days following the receipt of any such subpoena, discovery or other request) and shall provide Aptevo a reasonable opportunity to review the information and to assert any rights it or they may have, including under this Section 7.9 or otherwise, to prevent the production or disclosure of such Privileged Information.  

(g)The Parties agree that they have or may in the future have common legal interests in the Emergent Liabilities and any corresponding legal rights, in the Aptevo Liabilities and any corresponding legal rights, in the Privileged Information and in the preservation of the protected status of the Privileged Information. The Parties have disclosed and exchanged and will disclose and exchange certain Privileged Information between and among themselves in order to further the Parties’ common legal interests.

(h)Any furnishing of, or access to, information pursuant to this Agreement is made in reliance on the agreement of Emergent and Aptevo set forth in this Section 7.9 and in Section 7.7 to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges and immunities. The Parties further agree that (i) the exchange by one Party (or any of members of its Group) to the other Party (or any members of its Group) of any Privileged Information that should not have been transferred pursuant to the terms of this Article VII shall not be deemed to constitute a waiver of any privilege or immunity that has been or may be asserted under this Agreement or otherwise with respect to such Privileged Information; and (ii) the Party receiving (or for which a Subsidiary has received) such Privileged Information shall promptly return such Privileged Information to the Party (or its applicable Subsidiary) who has the right to assert the privilege or immunity.

(i)In furtherance of, and without limitation to, the Parties’ agreement under this Section 7.9, Emergent and Aptevo shall, and shall cause their applicable Group members to, use reasonable efforts to maintain their respective separate and joint privileges and immunities, including by executing joint defense and/or common interest agreements where necessary or useful for this purpose.

ARTICLE VIII
DISPUTE RESOLUTION

8.1Disputes.

(a)Except as otherwise provided in Section 8.1(b), any controversy or claim arising out of or relating to this Agreement or any Ancillary Agreements, or the breach thereof, shall be resolved by Emergent in its sole and absolute discretion.

(b)Any controversy or claim arising after the Effective Time and arising out of or relating to this Agreement or any Ancillary Agreements, or the breach thereof (a “Dispute”), shall be resolved: (a) first, by negotiation by the applicable local or functional leads (if applicable to any Dispute), and then (if there remains a Dispute) negotiation by and among

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the members of the Transition Committee, with the possibility of mediation as provided in Section 8.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 8.3. Each Party agrees on behalf of itself and each of its Subsidiaries that the procedures set forth in this Article VIII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.  

8.2Negotiation and Mediation. If either party serves written notice of a Dispute upon the other party (a “Dispute Notice”), the parties will first attempt to resolve such Dispute by direct discussions and negotiation (including as set forth in Section 8.1 above or, as applicable, in accordance with the applicable Ancillary Agreement). If the parties to the Dispute agree, the parties may also attempt to resolve the Dispute by a mediation administered by the International Institute for Conflict Prevention & Resolution (“CPR”) under its Mediation Procedure.

8.3Arbitration.

(a)If a Dispute is not resolved within 45 days (or later if mutually agreed by the Parties) after the service of a Dispute Notice, either Party shall have the right to commence arbitration. The arbitration shall be administered by the CPR pursuant to its Arbitration Rules and Procedures. References herein to any arbitration rules or procedures mean such rules or procedures as amended from time to time, including any successor rules or procedures, and references herein to the CPR include any successor thereto. The arbitration shall be before three (3) arbitrators. Each Party shall designate one arbitrator in accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Rules. The two Party-appointed arbitrators will select the third, who will serve as the panel’s chair or president. This arbitration provision, and the arbitration itself, shall be governed by the Laws of the State of Delaware and the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

(b)Consistent with the expedited nature of arbitration, each Party will, upon the written request of the other Party, promptly provide the other with copies of documents on which the producing Party may rely in support of or in opposition to any claim or defense. At the request of a Party, the arbitrators shall have the discretion to order examination by deposition of witnesses to the extent the arbitrator deems such additional discovery relevant and appropriate. Depositions shall be limited to a maximum of five per Party and shall be held within 45 days of the grant of a request. Additional depositions may be scheduled only with the permission of the arbitrators, and for good cause shown. Each deposition shall be limited to a maximum of one day’s duration. All objections are reserved for the arbitration hearing except for objections based on privilege and proprietary or confidential information. The Parties shall not utilize any other discovery mechanisms, including international processes and U.S. federal statutes, to obtain additional evidence for use in the arbitration. Any Dispute regarding discovery, or the relevance or scope thereof, shall be determined by the arbitrators, which determination shall be conclusive. All discovery shall be completed within 60 days following the appointment of the arbitrators. All costs and fees relating to the retrieval, review and production of electronic discovery shall be paid by the Party requesting such discovery.

(c)The panel of arbitrators shall have no power to award non-monetary or equitable relief of any sort. The arbitrators shall have no power or authority, under the CPR

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Rules for Non-Administered Arbitration or otherwise, to relieve the Parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this Agreement or any Ancillary Agreement. The award of the arbitrators shall be final, binding and the sole and exclusive remedy to the Parties. Either Party may seek to confirm and enforce any final award entered in arbitration, in any court of competent jurisdiction.  

(d)Absent fraud or manifest error, any arbitral award issued hereunder shall be final and binding on the Parties.

(e)Except as may be required by Law or any applicable rules and regulations of any stock exchange, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both Parties.

8.4Interim Relief. At any time during the resolution of a Dispute between the Parties, either Party has the right to apply to any court of competent jurisdiction for interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the Parties’ rights or to maintain the Parties’ relative positions until such time as the arbitration award is rendered or the Dispute is otherwise resolved.

8.5Remedies. The arbitrators shall have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement or any Ancillary Agreement nor any right or power to award punitive, exemplary or treble damages (or other multiple damages that are not actual damages).

8.6Expenses. Each Party shall bear its own costs, expenses and attorneys’ fees in pursuit and resolution of any Dispute; provided, however, that, in the event of any arbitration with respect to any Dispute pursuant to Section 8.3 in which the arbitrator issues an arbitral award in an amount that is within ten percent (10%) of the amount of the most recent bona fide written settlement offer submitted by a Party and rejected by a Party in connection with such Dispute, then the Party that rejected such settlement offer shall bear both Parties’ costs, expenses and attorneys’ fees incurred in connection with such arbitration (including the fees and expenses of any arbitrator).

8.7Continuation of Services and Commitments. Unless otherwise agreed in writing, the Parties shall, and shall cause their respective Subsidiaries to, continue to honor all commitments under this Agreement and each Ancillary Agreement to the extent required by such agreements during the course of dispute resolution pursuant to the provisions of this Article VIII with respect to all matters related to such Dispute.

ARTICLE IX
FURTHER ASSURANCES AND ADDITIONAL COVENANTS

9.1Further Assurances.

(a)In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall use its reasonable best efforts, prior to, on and after the Distribution Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and

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agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.  

(b)Without limiting the foregoing, prior to, on and after the Distribution Date, each Party hereto shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all Approvals or Notifications of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the Aptevo Assets and the assignment and assumption of the Aptevo Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each Party will, at the reasonable request, cost and expense of any other Party, take such other actions as may be reasonably necessary to vest in such other Party good and marketable title to the Assets allocated to such Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest.

(c)On or prior to the Distribution Date, Emergent and Aptevo in their respective capacities as direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions which are reasonably necessary or desirable to be taken by Emergent, Aptevo or any of their respective Subsidiaries, as the case may be, to effectuate the transactions contemplated by this Agreement and the Ancillary Agreements.

(d)Emergent and Aptevo, and each of the members of their respective Groups, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of: (i) the failure of Aptevo or any other member of the Aptevo Group, on the one hand, or of Emergent or any other member of the Emergent Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of any Group to any member of the other Group of ownership or operational control of any Assets not previously owned or operated by such transferee; or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any third Person arises out of any action or inaction described in clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability.

ARTICLE X
TERMINATION

10.1Termination. This Agreement may be terminated by Emergent at any time, in its sole and absolute discretion, prior to the Effective Time. After the Effective Time, this Agreement may not be terminated except by an agreement in writing signed by each of the Parties.

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10.2Effect of Termination. In the event of any termination of this Agreement prior to the Effective Time, no Party (or any of its directors or officers) shall have any Liability or further obligation to any other Party.  

ARTICLE XI
MISCELLANEOUS

11.1Counterparts; Entire Agreement; Corporate Power.

(a)This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

(b)This Agreement, the Ancillary Agreements, the Exhibits, the Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

(c)Emergent represents on behalf of itself and each other member of the Emergent Group, and Aptevo represents on behalf of itself and each other member of the Aptevo Group, as follows:

(i)each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and

(ii)this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.

(d)Each Party acknowledges that it and each other Party is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature made in its respective name as if it were a manual signature, agrees that it will not assert that any such signature is not adequate to bind such Party to the same extent as if it were signed manually and agrees that at the reasonable request of any other Party at any time it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof).

(e)Notwithstanding any provision of this Agreement or any Ancillary Agreement, neither Emergent nor Aptevo shall be required to take or omit to take any act that would violate its fiduciary duties to any minority shareholders of any non-wholly owned Subsidiary of Emergent or Aptevo, as the case may be (it being understood that directors’

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qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned).  

11.2Governing Law.  This Agreement and, unless expressly provided therein, each Ancillary Agreement, shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws and principles of the State of Delaware, as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies.

11.3Assignability. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by either Party without the express written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement (i) in connection with the merger of such Party, or the sale, transfer or other divestiture of all or substantially all of an entire product line, Affiliate, division or other business unit of such Party, or (ii) to any Affiliate of such Party; provided, however, that in connection with each such assignment or delegation, the assigning Party provides a guarantee to the non-assigning Party for any liability or obligation assigned or delegated pursuant to this Section 11.3; provided, further, that Aptevo shall only be entitled to assign its rights or delegate its obligations under this Agreement with the prior written consent of Emergent.

11.4Third-Party Beneficiaries. Except (a) for the indemnification rights under this Agreement of any Emergent Indemnitee or Aptevo Indemnitee in their respective capacities as such and (b) as expressly set forth in any Ancillary Agreement, (i) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (ii) there are no third-party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement.

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11.5Notices. All notices, requests, claims, demands or other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 11.5):  

If to Emergent, to:

 

General Counsel

400 Professional Drive

Suite 400

Gaithersburg, MD  20879

 

If to Aptevo to:

 

General Counsel

2401 4th Avenue

Suite 1050

Seattle, WA  98121

 

Any Party may, by notice to the other Party, change the address and contact person to which any such notices are to be given.

11.6Severability. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

11.7Force Majeure. No Party shall be deemed in default of this Agreement or any Ancillary Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement or any Ancillary Agreement, other than a delay or failure to make a payment, results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment (each such cause, a “Force Majeure”). In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

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11.8Publicity. Prior to the Effective Time, each of Aptevo and Emergent shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the Separation, the Distribution or any of the other transactions contemplated hereby or under any Ancillary Agreement and prior to making any filings with any Governmental Authority with respect thereto.  

11.9Expenses. Except as expressly set forth in this Agreement (including Sections 6.1, 7.6(a), 7.8, 8.6 and 9.1(b) and Articles IV and V) or in any Ancillary Agreement, all fees, costs and expenses incurred in connection with the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, and with the consummation of the transactions contemplated hereby and thereby, will be borne by the Party incurring such fees, costs or expenses.

11.10Headings. The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement.

11.11Survival of Covenants. Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.

11.12Waivers of Default. Waiver by any Party of any default by the other Party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by any Party in exercising any right, power or privilege under this Agreement or any Ancillary Agreement shall operate as a waiver thereof nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

11.13Specific Performance. Subject to the provisions of Article VIII, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.

11.14Amendments. No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.

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11.15Interpretation. In this Agreement and any Ancillary Agreement, (a) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement); (c) Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified; (d) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation”; (e) the word “or” shall not be exclusive; (f) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to July 29, 2016, regardless of any amendment or restatement hereof; (g) the verb “will” means “shall”; and (h) except where the context otherwise requires, references to Subsidiaries of Aptevo refers to Persons that will be Subsidiaries of Aptevo upon consummation of the Distribution. Emergent and Aptevo have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement.  

11.16No Set Off. Except as set forth in any Ancillary Agreement or as otherwise mutually agreed to in writing by the Parties, neither Party nor any of its Subsidiaries shall have any right of set off or other similar rights with respect to (a) any amounts received pursuant to this Agreement or any Ancillary Agreement; or (b) any other amounts claimed to be owed to the other Party or any of its Subsidiaries arising out of this Agreement or any Ancillary Agreement.

11.17Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, neither Aptevo or its Affiliates, on the one hand, nor Emergent or its Affiliates, on the other hand, shall be liable under this Agreement to the other for any special, punitive, exemplary or similar damages in connection with the transactions contemplated hereby (other than any such liability with respect to a Third-Party Claim), whether or not advised of the possibility of such damages and whether or not such damages are reasonably foreseeable.

11.18Performance. Emergent will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the Emergent Group. Aptevo will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the Aptevo Group. Each Party (including its permitted successors and assigns) further agrees that it will (a) give timely notice of the terms, conditions and continuing obligations contained in this Section 11.18 to all of the other members of its Group, and (b) cause all of the other members of its Group not to take any action or fail to take any such action inconsistent with such Party’s obligations under this Agreement, any Ancillary Agreement or the transactions contemplated hereby or thereby.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their duly authorized representatives.

 

 

 

 

[Signature Page to Separation and Distribution Agreement]

 

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

APTEVO THERAPEUTICS INC.

                                      

Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware

(originally incorporated on February 22, 2016)

                                      

Aptevo Therapeutics Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”), hereby certifies as follows:

1.The current name of the Corporation and the name under which the Corporation was originally incorporated is Aptevo Therapeutics Inc. The original Certificate of Incorporation was filed on February 22, 2016.

2.The Board of Directors of the Corporation pursuant to Sections 242 and 245 of the General Corporation Law duly adopted resolutions setting forth this Restated Certificate of Incorporation and declaring said Restated Certificate of Incorporation advisable.  The sole stockholder of the Corporation duly approved and adopted this Restated Certificate of Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law.

The Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows:

First:  The name of the Corporation is Aptevo Therapeutics Inc. (hereinafter referred to as the “Corporation”).

Second:  The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801.  The name of its registered agent at such address is The Corporation Trust Company.

Third:  The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

Fourth:  The total number of shares of all classes of stock which the Corporation shall have authority to issue is 515,000,000 shares, consisting of (i) 500,000,000 shares of Common Stock, $0.001 par value per share (“Common Stock”), and (ii) 15,000,000 shares of Preferred Stock, $0.001 par value per share (“Preferred Stock”).

 

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The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

1.General.  The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series.

2.Voting.  The holders of the Common Stock shall have voting rights at all meetings of stockholders, each such holder being entitled to one vote for each share thereof held by such holder; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (which, as used herein, shall mean the restated certificate of incorporation of the Corporation, as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation.  There shall be no cumulative voting.

The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of capital stock representing at least a majority of the votes entitled to be cast irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

3.Dividends.  Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend or other rights of any then outstanding Preferred Stock.

4.Liquidation.  Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders, subject to any preferential or other rights of any then outstanding Preferred Stock.

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided.  Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law.

Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designations relating thereto in accordance with the General Corporation

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Law of the State of Delaware, to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of the State of Delaware.  Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law.

The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares then outstanding) by the affirmative vote of the holders of capital stock representing a majority of the votes entitled to be cast thereon, voting as a single class, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

Fifth:  Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation.

Sixth:  In furtherance and not in limitation of the powers conferred upon it by the General Corporation Law of the State of Delaware, and subject to the terms of any series of Preferred Stock, the Board of Directors shall have the power to adopt, amend, alter or repeal the By-laws of the Corporation by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.  The stockholders may not adopt, amend, alter or repeal the By-laws of the Corporation, or adopt any provision inconsistent therewith, unless such action is approved, in addition to any other vote required by this Certificate of Incorporation, by the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes that all the stockholders would be entitled to cast in any annual election of directors or class of directors.  Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article SIXTH.

Seventh:  Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability.  No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.  If the General Corporation Law of the State of Delaware is amended to permit further elimination or limitation of the personal liability of directors, then the liability

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of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware as so amended.

Eighth:  The Corporation shall provide indemnification and advancement of expenses as follows:

1.Actions, Suits and Proceedings Other than by or in the Right of the Corporation.  The Corporation shall indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

2.Actions or Suits by or in the Right of the Corporation.  The Corporation shall indemnify any Indemnitee who was or is a party to or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made under this Section 2 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case,

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Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including attorneys’ fees) which the Court of Chancery of Delaware or such other court shall deem proper. 

3.Indemnification for Expenses of Successful Party.  Notwithstanding any other provisions of this Article EIGHTH, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article EIGHTH, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, Indemnitee shall be indemnified against all expenses (including attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith.  Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) an adjudication that Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by Indemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe his or her conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.

4.Notification and Defense of Claim.  As a condition precedent to an Indemnitee’s right to be indemnified pursuant to Section 1, 2 or 3 of this Article EIGHTH, or to receive advancement of expenses pursuant to Section 5 of this Article EIGHTH, such Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity or advancement of expenses will or could be sought.  With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee.  After notice from the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 4.  Indemnitee shall have the right to employ his or her own counsel in connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) counsel to Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article EIGHTH.  The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (ii) of the preceding sentence.  The Corporation shall not be required to indemnify Indemnitee under this Article EIGHTH for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent.  The Corporation shall not settle any action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on Indemnitee without

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Indemnitee’s written consent.  Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement. 

5.Advancement of Expenses.  Subject to the provisions of Sections 4 and 6 of this Article EIGHTH, any expenses (including attorneys’ fees) incurred by or on behalf of Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided, however, that the payment of such expenses incurred by or on behalf of Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH.  Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.

6.Procedure for Indemnification and Advancement of Expenses.  In order to obtain indemnification pursuant to Section 1, 2 or 3 of this Article EIGHTH or advancement of expenses pursuant to Section 5 of this Article EIGHTH, an Indemnitee shall submit to the Corporation a written request.  Any such advancement of expenses shall be made promptly, and in any event within 30 days after receipt by the Corporation of the written request of Indemnitee, unless the Corporation has assumed the defense pursuant to Section 4 of this Article EIGHTH (and none of the circumstances described in Section 4 of this Article EIGHTH that would nonetheless entitle the Indemnitee to indemnification or an advancement for the fees and expenses of separate counsel have occurred).  Any such indemnification, unless ordered by a court, shall be made with respect to requests under Section 1 or 2 only as authorized in the specific case upon a determination by the Corporation that the indemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section 1 or 2, as the case may be.  Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation who are not at that time parties to the action, suit or proceeding in question (“disinterested directors”), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of the Corporation.

7.Remedies.  The right to indemnification or advancement of expenses as granted by this Article EIGHTH shall be enforceable by Indemnitee in any court of competent jurisdiction.  Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article EIGHTH that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.  Indemnitee’s expenses (including attorneys’ fees) reasonably incurred in connection with successfully establishing Indemnitee’s right to advancement of expenses or indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.

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8.Limitations.  Notwithstanding anything to the contrary in this Article EIGHTH, except as set forth in Section 7 of this Article EIGHTH, the Corporation shall not indemnify or advance expenses to an Indemnitee pursuant to this Article EIGHTH in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors.  Notwithstanding anything to the contrary in this Article EIGHTH, the Corporation shall not indemnify or advance expenses to an Indemnitee to the extent such Indemnitee is reimbursed or paid expenses from the proceeds of insurance, and in the event the Corporation makes any indemnification payments or advancement of expenses to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund indemnification payments or advancement of expenses to the Corporation to the extent of such insurance reimbursement. 

9.Subsequent Amendment.  No amendment, termination or repeal of this Article EIGHTH or of the relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws shall adversely affect or diminish in any way the rights of any Indemnitee to indemnification or advancement of expenses under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

10.Other Rights.  The indemnification and advancement of expenses provided by this Article EIGHTH shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of Indemnitee.  Nothing contained in this Article EIGHTH shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification and advancement rights and procedures different from those set forth in this Article EIGHTH.  In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification and advancement rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article EIGHTH.

11.Partial Indemnification and Advancement of Expenses.  If an Indemnitee is entitled under any provision of this Article EIGHTH to indemnification or advancement of expenses by the Corporation for some or a portion of the expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify or advance expenses to Indemnitee for the portion of such expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlement to which Indemnitee is entitled.

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12.Insurance.  The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. 

13.Savings Clause.  If this Article EIGHTH or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article EIGHTH that shall not have been invalidated and to the fullest extent permitted by applicable law.

14.Definitions.  Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of the State of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).

Ninth:  This Article NINTH is inserted for the management of the business and for the conduct of the affairs of the Corporation.

1.General Powers.  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

2.Number of Directors; Election of Directors.  Subject to the rights of holders of any series of Preferred Stock to elect directors, the number of directors of the Corporation shall be established by the Board of Directors.  Election of directors need not be by written ballot, except as and to the extent provided in the By-laws of the Corporation.

3.Classes of Directors.  Subject to the rights of holders of any series of Preferred Stock to elect directors, the Board of Directors shall be and is divided into three classes, designated Class I, Class II and Class III.  Each class shall consist, as nearly as may be possible, of one‑third of the total number of directors constituting the entire Board of Directors.  The Board of Directors is authorized to assign members of the Board of Directors already in office to Class I, Class II or Class III at the time such classification becomes effective.

4.Terms of Office.  Subject to the rights of holders of any series of Preferred Stock to elect directors, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided that each director initially assigned to Class I shall serve for a term expiring at the Corporation’s first annual meeting of stockholders held after the effectiveness of this Restated Certificate of Incorporation; each director initially assigned to Class II shall serve for a term expiring at the Corporation’s second annual meeting of stockholders held after the

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effectiveness of this Restated Certificate of Incorporation; and each director initially assigned to Class III shall serve for a term expiring at the Corporation’s third annual meeting of stockholders held after the effectiveness of this Restated Certificate of Incorporation; provided further, that the term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, resignation or removal.  A decrease in the number of authorized directors shall not shorten the term of any incumbent director. 

5.Quorum.  The greater of (a) a majority of the directors at any time in office and (b) one‑third of the number of directors fixed pursuant to Section 2 of this Article NINTH shall constitute a quorum of the Board of Directors.  If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

6.Action at Meeting.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law or by this Certificate of Incorporation.

7.Removal.  Subject to the rights of holders of any series of Preferred Stock, directors of the Corporation may be removed only for cause and only by the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors.

8.Vacancies.  Subject to the rights of holders of any series of Preferred Stock, any vacancy or newly created directorship in the Board of Directors, however occurring, shall be filled only by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director and shall not be filled by the stockholders.  A director elected to fill a vacancy shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of a successor and to such director’s earlier death, resignation or removal.

9.Stockholder Nominations and Introduction of Business, Etc.  Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the By-laws of the Corporation.

10.Amendments to Article.  Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article NINTH.

Tenth:  Stockholders of the Corporation may not take any action by written consent in lieu of a meeting; provided, however, that, notwithstanding the foregoing and only for so long as

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Emergent BioSolutions Inc., a Delaware corporation, and its wholly owned subsidiaries, collectively, own capital stock representing a majority of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors, any action required or permitted to be taken by the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be taken, are signed by the holders of shares of outstanding capital stock having at least the minimum number of votes necessary to authorize such action.  Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TENTH.

Eleventh:  Special meetings of stockholders for any purpose or purposes may be called at any time by only the Board of Directors, the Chairman of the Board, the Chief Executive Officer or, if no person then holds the title Chief Executive Officer, the President, and may not be called by any other person or persons.  Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.  Notwithstanding any other provision of law, this Certificate of Incorporation or the By‑laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of capital stock representing at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH.

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IN WITNESS WHEREOF, Aptevo Therapeutics Inc. has caused this Restated Certificate of Incorporation to be duly executed and acknowledged in its name and on its behalf by an authorized officer as of this 29^th day of July, 2016.

 

 

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Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF

APTEVO THERAPEUTICS INC.

 

 

 

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TABLE OF CONTENTS

 

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ARTICLE I

STOCKHOLDERS

1.1Place of Meetings.  All meetings of stockholders shall be held at such place as may be designated from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President or, if not so designated, at the principal office of the corporation.

1.2Annual Meeting.  The annual meeting of stockholders for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly be brought before the meeting shall be held on a date and at a time designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.  The corporation may postpone, reschedule or cancel any previously scheduled annual meeting of stockholders.

1.3Special Meetings.  Special meetings of stockholders for any purpose or purposes may be called at any time by only the Board of Directors, the Chairman of the Board, the Chief Executive Officer or, if no person then holds the title Chief Executive Officer, the President, and may not be called by any other person or persons.  Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting.  The corporation may postpone, reschedule or cancel any previously scheduled special meeting of stockholders.  

1.4Notice of Meetings.  Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting.  Without limiting the manner by which notice otherwise may be given to stockholders, any notice shall be effective if given by a form of electronic transmission consented to (in a manner consistent with the General Corporation Law of the State of Delaware) by the stockholder to whom the notice is given.  The notices of all meetings shall state the place, date and time of the meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present

 

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in person and vote at such meeting.  The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called.  If notice is given by mail, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.  If notice is given by electronic transmission, such notice shall be deemed given at the time specified in Section 232 of the General Corporation Law of the State of Delaware. 

1.5Voting List.  The Secretary shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation.  The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present.  Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 1.5 or to vote in person or by proxy at any meeting of stockholders.

1.6Quorum.  Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, the holders of shares of capital stock representing a majority in voting power of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at the meeting, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion, or represented by proxy, shall constitute a quorum for the transaction of business; provided, however, that where a separate vote by a class or classes or series of capital stock is required by law or the Certificate of Incorporation, the holders of shares of capital stock representing a majority in voting power of the shares of such class or classes or series of the capital stock of the corporation issued and outstanding and entitled to vote on such matter, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion, or

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represented by proxy, shall constitute a quorum entitled to take action with respect to the vote on such matter.  A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. 

1.7Adjournments.  Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these By‑laws by the chairman of the meeting or by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum.  It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting.  At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.

1.8Voting and Proxies.  Each stockholder shall have one vote for each share of stock entitled to vote and held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or the Certificate of Incorporation.  Each stockholder of record entitled to vote at a meeting of stockholders may vote in person (including by means of remote communications, if any, by which stockholders may be deemed to be present in person and vote at such meeting) or may authorize another person or persons to vote for such stockholder by a proxy executed or transmitted in a manner permitted by the General Corporation Law of the State of Delaware by the stockholder or such stockholder’s authorized agent and delivered (including by electronic transmission) to the Secretary of the corporation.  No such proxy shall be voted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period.

1.9Action at Meeting.  When a quorum is present at any meeting, any matter other than the election of directors to be voted upon by the stockholders at such meeting shall be decided by the vote of the holders of shares of capital stock representing a majority in voting power of the votes cast by the holders of all of the shares of capital stock present or represented at the meeting and voting affirmatively or negatively on such matter (or if there are two or more

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classes or series of capital stock entitled to vote as separate classes, then in the case of each such class or series, the holders of shares of capital stock representing a majority in voting power of the votes cast by the holders of all of the shares of capital stock of that class or series present or represented at the meeting and voting affirmatively or negatively on such matter), except when a different vote is required by law, the Certificate of Incorporation or these By‑laws.  When a quorum is present at any meeting, any election by stockholders of directors shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. 

1.10Nomination of Directors.  

(a)Except for (1) any directors entitled to be elected by the holders of preferred stock, (2) any directors elected in accordance with Section 2.9 hereof by the Board of Directors to fill a vacancy or newly-created directorship or (3) as otherwise required by applicable law or stock exchange regulation, at any meeting of stockholders, only persons who are nominated in accordance with the procedures in this Section 1.10 shall be eligible for election as directors.  Nomination for election to the Board of Directors at a meeting of stockholders may be made (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who (x) timely complies with the notice procedures in Section 1.10(b), (y) is a stockholder of record on the date of the giving of such notice and on the record date for the determination of stockholders entitled to vote at such meeting and (z) is entitled to vote at such meeting.

(b)To be timely, a stockholder’s notice must be received in writing by the Secretary at the principal executive offices of the corporation as follows: (i) in the case of an election of directors at an annual meeting of stockholders, not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the first anniversary of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year, a stockholder’s notice must be so received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of (A) the 90th day prior to such annual meeting and (B) the tenth day following the day on which notice of the date of such annual meeting was mailed or public

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disclosure of the date of such annual meeting was made, whichever first occurs; or (ii) in the case of an election of directors at a special meeting of stockholders, provided that the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President has determined, in accordance with Section 1.3, that directors shall be elected at such special meeting and provided further that the nomination made by the stockholder is for one of the director positions that the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, as the case may be, has determined will be filled at such special meeting, not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of (x) the 90th day prior to such special meeting and (y) the tenth day following the day on which notice of the date of such special meeting was mailed or public disclosure of the date of such special meeting was made, whichever first occurs.  In no event shall the adjournment or postponement of a meeting (or the public disclosure thereof) commence a new time period (or extend any time period) for the giving of a stockholder’s notice. 

The stockholder’s notice to the Secretary shall set forth: (A) as to each proposed nominee (1) such person’s name, age, business address and, if known, residence address, (2) such person’s principal occupation or employment, (3) the class and series and number of shares of stock of the corporation that are, directly or indirectly, owned, beneficially or of record, by such person, (4) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among (x) the stockholder, the beneficial owner, if any, on whose behalf the nomination is being made and the respective affiliates and associates of, or others acting in concert with, such stockholder and such beneficial owner, on the one hand, and (y) each proposed nominee, and his or her respective affiliates and associates, or others acting in concert with such nominee(s), on the other hand, including all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made or any affiliate or associate thereof or person acting in concert therewith were the “registrant” for purposes of such Item and the proposed nominee were a director or executive officer of such registrant, and (5) any other information concerning such person that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”); and (B) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is being made (1) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (2) the class or series and number of shares of stock of the corporation that are, directly or indirectly, owned, beneficially or of record, by such stockholder and such beneficial owner, (3) a description of any agreement, arrangement or understanding between or among such stockholder and/or such beneficial owner and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are being made or who may participate in the solicitation of proxies in favor of electing such nominee(s), (4) a description of any agreement, arrangement or understanding (including any derivative or short positions, swaps, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner with respect to shares of stock of the corporation, (5) any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (6) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person(s) named in its notice and (7) a representation whether such stockholder and/or such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of shares of capital stock representing at least the percentage of voting power of all of the shares of capital stock of the corporation outstanding as of the record date of the meeting reasonably believed by such stockholder or such beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder or such beneficial owner (and such representation shall be included in any such proxy statement and form of proxy) and/or (y) otherwise to solicit proxies or votes from stockholders in support of such nomination (and such representation shall be included in any such solicitation materials).  Not later than 10 days after the record date for the meeting, the information required by Items (A)(1)-(5) and (B)(1)-(5) of the prior sentence shall be

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supplemented by the stockholder giving the notice to provide updated information as of the record date.  In addition, to be effective, the stockholder’s notice must be accompanied by the written consent of the proposed nominee to serve as a director if elected.  The corporation may require any proposed nominee to furnish such other information as the corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation or whether such nominee would be independent under applicable Securities and Exchange Commission and stock exchange rules and the corporation’s publicly disclosed corporate governance guidelines.  A stockholder shall not have complied with this Section 1.10(b) if the stockholder (or beneficial owner, if any, on whose behalf the nomination is made) solicits or does not solicit, as the case may be, proxies or votes in support of such stockholder’s nominee in contravention of the representations with respect thereto required by this Section 1.10.

(c)The chairman of any meeting shall have the power and duty to determine whether a nomination was made in accordance with the provisions of this Section 1.10 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee in compliance with the representations with respect thereto required by this Section 1.10), and if the chairman should determine that a nomination was not made in accordance with the provisions of this Section 1.10, the chairman shall so declare to the meeting and such nomination shall not be brought before the meeting.

(d)Except as otherwise required by law, nothing in this Section 1.10 shall obligate the corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the corporation or the Board of Directors information with respect to any nominee for director submitted by a stockholder.

(e)Notwithstanding the foregoing provisions of this Section 1.10, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting to present a nomination, such nomination shall not be brought before the meeting, notwithstanding that proxies in respect of such nominee may have been received by the corporation.  For purposes of this Section 1.10, to be considered a “qualified

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representative of the stockholder”, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, at the meeting of stockholders. 

(f)For purposes of this Section 1.10, “public disclosure” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

1.11Notice of Business at Annual Meetings.  

(a)At any annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting.  To be properly brought before an annual meeting, business must be (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (3) properly brought before the meeting by a stockholder.  For business to be properly brought before an annual meeting by a stockholder, (i) if such business relates to the nomination of a person for election as a director of the corporation, the procedures in Section 1.10 must be complied with and (ii) if such business relates to any other matter, the business must constitute a proper matter under Delaware law for stockholder action and the stockholder must (x) have given timely notice thereof in writing to the Secretary in accordance with the procedures set forth in Section 1.11(b), (y) be a stockholder of record on the date of the giving of such notice and on the record date for the determination of stockholders entitled to vote at such annual meeting and (z) be entitled to vote at such annual meeting.

(b)To be timely, a stockholder’s notice must be received in writing by the Secretary at the principal executive offices of the corporation not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from the first anniversary of the preceding year’s annual

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meeting, or if no annual meeting was held in the preceding year, a stockholder’s notice must be so received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of (A) the 90th day prior to such annual meeting and (B) the tenth day following the day on which notice of the date of such annual meeting was mailed or public disclosure of the date of such annual meeting was made, whichever first occurs.  In no event shall the adjournment or postponement of an annual meeting (or the public disclosure thereof) commence a new time period (or extend any time period) for the giving of a stockholder’s notice. 

The stockholder’s notice to the Secretary shall set forth:  (A) as to each matter the stockholder proposes to bring before the annual meeting (1) a brief description of the business desired to be brought before the annual meeting, (2) the text of the proposal (including the exact text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the By-laws, the exact text of the proposed amendment), and (3) the reasons for conducting such business at the annual meeting, and (B) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is being made (1) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (2) the class or series and number of shares of stock of the corporation that are, directly or indirectly, owned, beneficially or of record, by such stockholder and such beneficial owner, (3) a description of any material interest of such stockholder or such beneficial owner and the respective affiliates and associates of, or others acting in concert with, such stockholder or such beneficial owner in such business, (4) a description of any agreement, arrangement or understanding between or among such stockholder and/or such beneficial owner and any other person or persons (including their names) in connection with the proposal of such business or who may participate in the solicitation of proxies in favor of such proposal, (5) a description of any agreement, arrangement or understanding (including any derivative or short positions, swaps, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner with respect to shares of stock of the corporation, (6) any other information relating to such stockholder and such beneficial owner

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that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the business proposed pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (7) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting and (8) a representation whether such stockholder and/or such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of shares of capital stock representing at least the percentage of voting power of all of the shares of the capital stock of the corporation outstanding as of the record date of the meeting required to approve or adopt the proposal (and such representation shall be included in any such proxy statement and form of proxy) and/or (y) otherwise to solicit proxies or votes from stockholders in support of such proposal (and such representation shall be included in any such solicitation materials).  Not later than 10 days after the record date for the meeting, the information required by Items (A)(3) and (B)(1)-(6) of the prior sentence shall be supplemented by the stockholder giving the notice to provide updated information as of the record date.  Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any annual meeting of stockholders except in accordance with the procedures in this Section 1.11; provided that any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any successor provision) promulgated under the Exchange Act and is to be included in the corporation’s proxy statement for an annual meeting of stockholders shall be deemed to comply with the notice requirements of this Section 1.11.  A stockholder shall not have complied with this Section 1.11(b) if the stockholder (or beneficial owner, if any, on whose behalf the proposal is made) solicits or does not solicit, as the case may be, proxies in support of such stockholder’s proposal in contravention of the representations with respect thereto required by this Section 1.11.

(c)The chairman of any annual meeting shall have the power and duty to determine whether business was properly brought before the annual meeting in accordance with the provisions of this Section 1.11 (including whether the stockholder or beneficial owner, if any, on whose behalf the proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s proposal in compliance with the representation with respect thereto required by this Section 1.11), and if the chairman should determine that business was not properly brought before the annual

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meeting in accordance with the provisions of this Section 1.11, the chairman shall so declare to the meeting and such business shall not be brought before the annual meeting. 

(d)Except as otherwise required by law, nothing in this Section 1.11 shall obligate the corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the corporation or the Board of Directors information with respect to any proposal submitted by a stockholder.

(e)Notwithstanding the foregoing provisions of this Section 1.11, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present business, such business shall not be considered, notwithstanding that proxies in respect of such business may have been received by the corporation.

(f)For purposes of this Section 1.11, the terms “qualified representative of the stockholder” and “public disclosure” shall have the same meaning as in Section 1.10.

1.12Conduct of Meetings.  

(a)Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the Chairman’s absence by the Vice Chairman of the Board, if any, or in the Vice Chairman’s absence by the Chief Executive Officer, or in the Chief Executive Officer’s absence, by the President, or in the President’s absence by a Vice President, or in the absence of all of the foregoing persons by a chairman designated by the Board of Directors.  The Secretary shall act as secretary of the meeting, but in the Secretary’s absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

(b)The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting.  Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to convene and (for any or no reason)

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to recess and/or adjourn the meeting and prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting.  Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as shall be determined; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants.  Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. 

(c)The chairman of the meeting shall announce at the meeting when the polls for each matter to be voted upon at the meeting will be opened and closed.  After the polls close, no ballots, proxies or votes or any revocations or changes thereto may be accepted.

(d)In advance of any meeting of stockholders, the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President shall appoint one or more inspectors of election to act at the meeting and make a written report thereof.  One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act.  If no inspector or alternate is present, ready and willing to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting.  Unless otherwise required by law, inspectors may be officers, employees or agents of the corporation.  Each inspector, before entering upon the discharge of such inspector’s duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.  The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law.  Every vote taken by ballots shall be counted by a duly appointed inspector or duly appointed inspectors.

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1.13Action by Consent in Lieu of a Meeting.  Stockholders of the corporation may not take any action by written consent in lieu of a meeting; provided, however, that, notwithstanding the foregoing and only for so long as Emergent BioSolutions Inc., a Delaware corporation, and its wholly owned subsidiaries, collectively, own capital stock representing a majority of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors, any action required or permitted to be taken by the stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be taken, are signed by the holders of shares of outstanding capital stock having at least the minimum number of votes necessary to authorize such action. 

ARTICLE II

DIRECTORS

2.1General Powers.  The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation.  

2.2Number, Election and Qualification.  Subject to the rights of holders of any series of Preferred Stock to elect directors, the number of directors of the corporation shall be established by the Board of Directors.  Election of directors need not be by written ballot.  Directors need not be stockholders of the corporation.

2.3Chairman of the Board; Vice Chairman of the Board.  The Board of Directors may appoint from its members a Chairman of the Board and a Vice Chairman of the Board, neither of whom need be an employee or officer of the corporation.  If the Board of Directors appoints a Chairman of the Board, such Chairman shall perform such duties and possess such powers as are assigned by the Board of Directors and, if the Chairman of the Board is also designated as the corporation’s Chief Executive Officer, shall have the powers and duties of the Chief Executive Officer prescribed in Section 3.7 of these By-laws.  If the Board of Directors appoints a Vice Chairman of the Board, such Vice Chairman shall perform such duties and possess such powers as are assigned by the Board of Directors.  Unless otherwise provided by

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the Board of Directors, the Chairman of the Board or, in the Chairman’s absence, the Vice Chairman of the Board, if any, shall preside at all meetings of the Board of Directors. 

2.4Classes of Directors.  Subject to the rights of holders of any series of Preferred Stock to elect directors, the Board of Directors shall be and is divided into three classes:  Class I, Class II and Class III.    Each class shall consist, as nearly as may be possible, of one‑third of the total number of directors constituting the entire Board of Directors.  The allocation of directors among classes shall be determined by resolution of the Board of Directors.

2.5Terms of Office.  Subject to the rights of holders of any series of Preferred Stock to elect directors, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided that each director initially assigned to Class I shall serve for a term expiring at the corporation’s first annual meeting of stockholders held after the effectiveness of these Amended and Restated By-laws; each director initially assigned to Class II shall serve for a term expiring at the corporation’s second annual meeting of stockholders held after the effectiveness of these Amended and Restated By-laws; and each director initially assigned to Class III shall serve for a term expiring at the corporation’s third annual meeting of stockholders held after the effectiveness of these Amended and Restated By-laws; provided further, that the term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, resignation or removal.

2.6Quorum.  The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors established by the Board of Directors pursuant to Section 2.2 of these By-laws shall constitute a quorum of the Board of Directors.  If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.

2.7Action at Meeting.  Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number is required by law or by the Certificate of Incorporation.

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2.8Removal.  Subject to the rights of holders of any series of Preferred Stock, directors of the corporation may be removed only for cause and only by the affirmative vote of the holders of shares of capital stock representing at least 75% of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors. 

2.9Vacancies.  Subject to the rights of holders of any series of Preferred Stock, any vacancy or newly-created directorship on the Board of Directors, however occurring, shall be filled only by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director and shall not be filled by the stockholders.  A director elected to fill a vacancy shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of a successor or until such director’s earlier death, resignation or removal.

2.10Resignation.  Any director may resign by delivering a resignation in writing or by electronic transmission to the corporation at its principal office or to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some later event.

2.11Regular Meetings.  Regular meetings of the Board of Directors may be held without notice at such time and place as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination.  A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

2.12Special Meetings.  Special meetings of the Board of Directors may be held at any time and place designated in a call by the Chairman of the Board, the Chief Executive Officer, the President, two or more directors, or by one director in the event that there is only a single director in office.

2.13Notice of Special Meetings.  Notice of the date, place and time of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting.  Notice shall be duly given to each director (a) in person or by

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telephone at least 24 hours in advance of the meeting, (b) by sending an electronic transmission, or delivering written notice by hand, to such director’s last known business, home or electronic transmission address at least 48 hours in advance of the meeting, or (c) by sending written notice by first-class mail to such director’s last known business or home address at least 72 hours in advance of the meeting.  A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 

2.14Meetings by Conference Communications Equipment.  Directors may participate in meetings of the Board of Directors or any committee thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.

2.15Action by Consent.  Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent to the action in writing or by electronic transmission, and the written consents or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

2.16Committees.  The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation with such lawfully delegable powers and duties as the Board of Directors thereby confers, to serve at the pleasure of the Board of Directors.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of law, shall have and may exercise all the powers and authority of

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the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it.  Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request.  Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these By‑laws for the Board of Directors.  Except as otherwise provided in the Certificate of Incorporation, these By-laws, or the resolution of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee. 

2.17Compensation of Directors.  Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine.  No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary entities in any other capacity and receiving compensation for such service.

ARTICLE III

OFFICERS

3.1Titles.  The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including one or more Vice Presidents, Assistant Treasurers and Assistant Secretaries.  The Board of Directors may appoint such other officers as it may deem appropriate.

3.2Election.  The Chief Executive Officer, President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders.  Other officers may be appointed by the Board of Directors at such meeting or at any other meeting.

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3.3Qualification.  No officer need be a stockholder.  Any two or more offices may be held by the same person. 

3.4Tenure.  Except as otherwise provided by law, by the Certificate of Incorporation or by these By‑laws, each officer shall hold office until such officer’s successor is elected and qualified, unless a different term is specified in the resolution electing or appointing such officer, or until such officer’s earlier death, resignation or removal.

3.5Resignation and Removal.  Any officer may resign by delivering a resignation in writing or by electronic transmission to the corporation at its principal office or to the Chief Executive Officer, the President or the Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some later event.  Any officer may be removed at any time, with or without cause, by vote of a majority of the directors then in office.  Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following such officer’s resignation or removal, or any right to damages on account of such removal, whether such officer’s compensation be by the month or by the year or otherwise, unless such compensation is expressly provided for in a duly authorized written agreement with the corporation.

3.6Vacancies.  The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of Chief Executive Officer, President, Treasurer and Secretary.  Each such successor shall hold office for the unexpired term of such officer’s predecessor and until a successor is elected and qualified, or until such officer’s earlier death, resignation or removal.

3.7President; Chief Executive Officer.  Unless the Board of Directors has designated another person as the corporation’s Chief Executive Officer, the President shall be the Chief Executive Officer of the corporation.  The Chief Executive Officer shall have general charge and supervision of the business of the corporation subject to the direction of the Board of Directors, and shall perform all duties and have all powers that are commonly incident to the office of chief executive or that are delegated to such officer by the Board of Directors.  The President shall perform such other duties and shall have such other powers as the Board of Directors or the

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Chief Executive Officer (if the President is not the Chief Executive Officer) may from time to time prescribe.  In the event of the absence, inability or refusal to act of the Chief Executive Officer or the President (if the President is not the Chief Executive Officer), the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the Chief Executive Officer and when so performing such duties shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.   

3.8Vice Presidents.  Each Vice President shall perform such duties and possess such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.  The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

3.9Secretary and Assistant Secretaries.  The Secretary shall perform such duties and shall have such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe.  In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe.  In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.

In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the chairman of the meeting shall designate a temporary secretary to keep a record of the meeting.

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3.10Treasurer and Assistant Treasurers.  The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned by the Board of Directors or the Chief Executive Officer.  In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation. 

The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Treasurer may from time to time prescribe.  In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.

3.11Salaries.  Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

3.12Delegation of Authority.  The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

ARTICLE IV

CAPITAL STOCK

4.1Issuance of Stock.  Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any shares of the authorized capital stock of the corporation held in the corporation’s treasury may be issued, sold, transferred or otherwise disposed of by vote of

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the Board of Directors in such manner, for such lawful consideration and on such terms as the Board of Directors may determine. 

4.2Stock Certificates; Uncertificated Shares.  The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation’s stock shall be uncertificated shares.  Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation.  Every holder of stock of the corporation represented by certificates shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, representing the number of shares held by such holder registered in certificate form.  Each such certificate shall be signed in a manner that complies with Section 158 of the General Corporation Law of the State of Delaware.

Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, these By-laws, applicable securities laws or any agreement among any number of stockholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of each certificate representing shares of such class or series of stock, provided that in lieu of the foregoing requirements there may be set forth on the face or back of each certificate representing shares of such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests a copy of the full text of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing the information

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required to be set forth or stated on certificates pursuant to Sections 151, 202(a) or 218(a) of the General Corporation Law of the State of Delaware or, with respect to Section 151 of General Corporation Law of the State of Delaware, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

4.3Transfers.  Shares of stock of the corporation shall be transferable in the manner prescribed by law and in these By-laws.  Transfers of shares of stock of the corporation shall be made only on the books of the corporation or by transfer agents designated to transfer shares of stock of the corporation.  Subject to applicable law, shares of stock represented by certificates shall be transferred only on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require.  Uncertificated shares may be transferred by delivery of a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require.  Except as may be otherwise required by law, by the Certificate of Incorporation or by these By-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-laws.

4.4Lost, Stolen or Destroyed Certificates.  The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen or destroyed, upon such terms and conditions as the corporation may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity and posting of such bond as the corporation may require for the protection of the corporation or any transfer agent or registrar.

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4.5Record Date.  The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action.  Such record date shall not precede the date on which the resolution fixing the record date is adopted, and such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. 

If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held.  If no record date is fixed, the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

4.6Regulations.  The issue, transfer, conversion and registration of shares of stock of the corporation shall be governed by such other regulations as the Board of Directors may establish.

ARTICLE V

GENERAL PROVISIONS

5.1Fiscal Year.  Except as from time to time otherwise designated by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January of each year and end on the last day of December in each year.

5.2Corporate Seal.  The corporate seal shall be in such form as shall be approved by the Board of Directors.

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5.3Waiver of Notice.  Whenever notice is required to be given by law, by the Certificate of Incorporation or by these By-laws, a written waiver signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before, at or after the time of the event for which notice is to be given, shall be deemed equivalent to notice required to be given to such person.  Neither the business nor the purpose of any meeting need be specified in any such waiver.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 

5.4Voting of Securities.  Except as the Board of Directors may otherwise designate, the Chief Executive Officer, the President or the Treasurer may waive notice of, vote, or appoint any person or persons to vote, on behalf of the corporation at, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or securityholders of any other entity, the securities of which may be held by this corporation.

5.5Evidence of Authority.  A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.

5.6Certificate of Incorporation.  All references in these By-laws to the Certificate of Incorporation shall be deemed to refer to the Restated Certificate of Incorporation of the corporation, as amended and/or restated and in effect from time to time.

5.7Severability.  Any determination that any provision of these By-laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-laws.

5.8Pronouns.  All pronouns used in these By-laws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.

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5.9Exclusive Forum.  Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim arising pursuant to any provision of the Certificate of Incorporation or these By-laws (in each case, as they may be amended from time to time) or governed by the internal affairs doctrine.  Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this Section 5.9. 

ARTICLE VI

AMENDMENTS

These By-laws may be altered, amended or repealed, in whole or in part, or new By-laws may be adopted by the Board of Directors or by the stockholders as provided in the Certificate of Incorporation.

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Exhibit 4

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of August 1, 2016, by and among Aptevo Therapeutics Inc., a Delaware corporation (together with any successor thereto, the “Company”) and the holders of shares of the Company’s Common Stock, $0.001 par value per share, listed on Exhibit A attached hereto (each, a “Stockholder” and together, the “Stockholders”).  Each of the Company and the Stockholders is referred to herein as a “Party” and collectively, as the “Parties.”

WHEREAS, as a result of the completion on the Distribution Date of the spin-off of the Company by Emergent BioSolutions Inc., a Delaware corporation (“Emergent”), by means of a distribution by Emergent of shares of Common Stock to Emergent stockholders, the Stockholders are the owners of issued and outstanding shares of Common Stock, as more fully set forth on Exhibit A attached hereto; and

WHEREAS, the Company and each of the Stockholders desire to provide for certain arrangements with respect to the registration of such shares of Common Stock.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

1.Certain Definitions.  Capitalized terms used in this Agreement and not otherwise defined shall have the following respective meanings:

“Agreement” shall mean this Registration Rights Agreement, as amended, restated, supplemented or otherwise modified from time to time.

“Commission” shall mean the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act and the Exchange Act.

“Common Stock” shall mean the Company’s Common Stock, $0.001 par value per share.

“Distribution Date” shall mean August 1, 2016.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

“Holder” shall mean each Stockholder or other holder of Registrable Securities who was assigned registration rights by a Stockholder hereunder, in accordance with Section 7 hereof.

“Majority Holders” has the meaning set forth in Section 2(a)(ii).

“Other Registrable Securities” shall mean securities of the Company (other than the Registrable Securities) that holders of securities of the Company are entitled, by contract with the Company, to have included in a registration statement (other than a registration statement on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto)

 

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filed by the Company with the Commission for a public offering and sale of securities by the Company.

“Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).

“Registrable Securities” shall mean (a) the shares of Common Stock issuable or issued to each Stockholder, (b) any Common Stock issued or issuable upon conversion of any capital stock of the Company acquired by the Stockholders after the date hereof and (c) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend, stock split or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (a) and (b) above; provided, however, that notwithstanding anything to the contrary contained herein, “Registrable Securities” shall not at any time include any securities (i) registered and sold pursuant to the Securities Act, (ii) sold pursuant to Rule 144 or (iii) which could then be sold in their entirety pursuant to Rule 144 without limitation or restriction.

“Rule 144” shall mean Rule 144 promulgated under the Securities Act or any successor regulation.

“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

2.Registrations.

(a)Demand Registration.

(i)At any time after the expiration of 90 days after the Distribution Date, if the Company receives from the Holders of Registrable Securities then outstanding, a written request to file a registration statement for Registrable Securities under the Securities Act (a “Demand Notice”) in accordance with this Section 2(a), for which the anticipated aggregate offering price to the public is not less than $10,000,000, then the Company shall use commercially reasonable efforts to effect, as soon as practicable, such a registration statement.  Upon receipt of a Demand Notice, the Company shall give written notice of such proposed registration to all Holders and shall offer to include in such proposed registration any Registrable Securities requested to be included in such proposed registration by such Holders who respond in writing to the Company’s notice within 30 days after delivery of such notice (which response shall specify the number of Registrable Securities proposed to be included in such registration).  The Company shall use commercially reasonable efforts, as soon as practicable, to effect such registration on an appropriate form, including Form S-3, if available, under the Securities Act of the Registrable Securities which the Company has been so requested to register; provided, however, that the Company shall not be obligated to effect any registration under the Securities Act except in accordance with the following provisions:

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(A)The Company shall not be obligated to file more than one registration statement initiated by the Holders of Registrable Securities pursuant to this Section 2(a); 

(B)The Company shall not be obligated to file a registration statement when any of the Holders is subject to any restrictions on disposition of Registrable Securities pursuant to any agreement described in Section 6; and

(C)The Company shall not be obligated to file any registration statement during any period in which any other registration statement (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto) pursuant to which securities of the Company are to be or were sold has been filed and not withdrawn or has been declared effective within the prior 90 days.

(ii)If the Holders of a majority of the Registrable Securities requested to be included in a registration pursuant to this Section 2(a) (the “Majority Holders”) so elect, the offering of such Registrable Securities pursuant to such registration shall be in the form of an underwritten offering.  In the event of such election, the Majority Holders shall select one or more nationally recognized firms of investment bankers reasonably acceptable to the Company to act as the lead managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering, which shall also be reasonably acceptable to the Company.

(iii)With respect to any registration pursuant to this Section 2(a), the Company may include in such registration any Common Stock for its own account or on the account of others; provided, however, that if a managing underwriter, if any, advises the Company that the inclusion of all Registrable Securities and Common Stock requested to be included by the Company in such registration would interfere with the successful marketing (including pricing) of all such securities, then the number of Registrable Securities and Common Stock proposed to be included in such registration shall be included in the following order:

(A)first, the Registrable Securities and the Other Registrable Securities shall be included, pro rata based upon the aggregate number of Registrable Securities and Other Registrable Securities to be included at the time of such registration; and

(B)second, any other Common Stock requested to be included by the Company for its own account or on the account of others.

(iv)At any time before the registration statement covering Registrable Securities becomes effective, the Majority Holders may request the Company to withdraw or not to file the registration statement.  In that event, if such request of withdrawal shall have been caused by, or made in response to, a material adverse effect or change in the Company’s financial condition, operations, business or prospects, such Holders of Registrable Securities shall not be deemed to have used their demand registration rights under this Section 2(a).

(b)Piggyback Registration.  If at any time the Company shall seek to register any shares of its Common Stock under the Securities Act for sale to the public for its

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own account or on the account of others (except with respect to registration statements on Form S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), the Company will give written notice thereof to all Holders.  If within 15 business days after their receipt of such notice one or more Holders request in writing the inclusion of some or all of the Registrable Securities owned by them in such registration, the Company will use commercially reasonable efforts to effect the registration under the Securities Act of such Registrable Securities.  In the case of the registration of shares of capital stock by the Company in connection with any underwritten public offering, if the principal underwriter determines that the number of Registrable Securities to be offered must be limited, the Company shall not be required to register Registrable Securities of the Holders in excess of the amount, if any, of shares of the capital stock which the principal underwriter of such underwritten offering shall reasonably and in good faith agree to include in such offering in addition to any amount to be registered for the account of the Company. 

(c)Acknowledgments with Respect to Emergent.  Each Stockholder (on its behalf and on behalf of its successors and permitted assigns) hereby acknowledges and agrees that neither Emergent nor any of its subsidiaries or other affiliates (as defined in Rule 405 under the Securities Act) has any obligation to any Stockholder or any other person to register under the Securities Act or any other applicable securities laws any shares of Common Stock or other securities of the Company, whether under the Class A Common Stockholders Registration Rights Agreement, dated as of September 22, 2006, among the Company, the Stockholders and the other parties thereto, or otherwise.  Emergent is an express third party beneficiary of this Section 2(c).

3.Further Obligations of the Company.

(a)Whenever the Company is required hereunder to register any Registrable Securities, it agrees that it shall also do the following:

(i)Prepare and file, and use commercially reasonable efforts to cause to become effective, with the Commission a registration statement and such amendments and supplements to said registration statement and the prospectus used in connection therewith as may be necessary to keep said registration statement effective until the Holder or Holders have completed the distribution described in the registration statement relating thereto (but for no more than 180 days or such lesser period until all such Registrable Securities are sold) and to comply with the provisions of the Securities Act with respect to the sale of securities covered by said registration statement for such period;

(ii)Furnish to each selling Holder a draft copy of the registration statement and such copies of each preliminary and final prospectus as such Holder may reasonably request to facilitate the public offering of its Registrable Securities;

(iii)Enter into and perform its obligations under any reasonable underwriting agreement required by the proposed underwriter, if any, in such form and containing such terms as are customary;

(iv)Use its commercially reasonable efforts to register or qualify the securities covered by said registration statement under the securities or “blue sky” laws of such

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jurisdictions as any selling Holder may reasonably request provided the Company shall not be required to qualify to do business or file a general consent to service of process in connection therewith; 

(v)Cause upon or immediately after the effectiveness of a registration all such Registrable Securities to be listed on each securities exchange or quotation system on which the Common Stock of the Company is then listed or quoted;

(vi)notify each Holder of Registrable Securities covered by a registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of (A) the issuance of any stop order by the Commission in respect of such registration statement, or (B) the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and

(vii)provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(b)With a view to making available to the Holders the benefits of Rule 144, the Company agrees to:

(i)make and keep public information available, as those terms are understood and defined in Rule 144;

(ii)file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, if any; and

(iii)furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (A) a written statement by the Company that it has complied with the information and reporting requirements of Rule 144(c) and (B) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company.

(c)From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration statement filed under Section 2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included.

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4.Payment of Expenses by, Cooperation by, and Obligations of, Prospective Sellers. 

(a)Notwithstanding any other provision in this Agreement to the contrary, the Company and the Holders shall each pay one-half of all expenses of any registration effected pursuant to Section 2(a) hereof and the Holders shall pay in full any incremental expenses of including the Holders’ Registrable Securities in a Piggyback Registration pursuant to Section 2(b) hereof, including, without limitation, all legal and accounting fees, printing costs, listing fees and miscellaneous expenses, but excluding underwriters’ commissions or discounts attributable to the Registrable Securities being offered and sold by the Holders, which shall be borne exclusively by the Holders.

(b)Each prospective seller of Registrable Securities shall furnish to the Company in writing such information as the Company may reasonably request from such seller in connection with any registration statement with respect to such Registrable Securities.

(c)The failure of any prospective seller of Registrable Securities to furnish any information or documents in accordance with any provision contained in this Agreement shall not affect the obligations of the Company under this Agreement to any remaining sellers who furnish such information and documents unless, in the reasonable opinion of counsel to the Company and/or the underwriters, such failure impairs or adversely affects the offering or the legality of the registration statement or causes the request not to meet the requirements of Section 2 of this Agreement.

(d)Upon receipt of a notice (telephonic or written) from the Company or the underwriter of the happening of an event which makes any statement made in a registration statement or related prospectus covering Registrable Securities untrue or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading, the Holders of Registrable Securities included in such registration statement shall discontinue disposition of such Registrable Securities pursuant to such registration statement until such Holders’ receipt of copies of the supplemented or amended prospectus or until advised by the Company or the underwriters that dispositions may be resumed.

(e)Each Holder of Registrable Securities included in any registration statement will effect sales of such securities in accordance with the plan of distribution given to the Company.

(f)At the end of any period during which the Company is obligated to keep any registration statement current and effective as provided in this Agreement, the Holders of Registrable Securities included in such registration statement shall discontinue sales of shares pursuant to such registration statement, unless they receive notice from the Company of its intention to continue effectiveness of such registration statement with respect to such shares which remain unsold and such Holders shall notify the Company of the number of shares

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registered which remain unsold promptly upon expiration of the period during which the Company is obligated to maintain the effectiveness of the registration statement. 

(g)No Person may participate in any underwritten registration pursuant to this Agreement unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements made with respect to such registration and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required by the terms of such underwriting arrangements.

5.Indemnification; Contribution.

(a)Incident to any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless each Holder who offers or sells any such Registrable Securities in connection with such registration statement (including its partners (including partners of partners and stockholders of any such partners), and directors, officers, employees, representatives and agents of any of them, and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, reasonable expenses and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, as the same are incurred), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement (including any related preliminary or definitive prospectus, or any amendment or supplement to such registration statement or prospectus) or (ii) any omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading; provided, however, that the Company will not be liable to the extent that (1) such loss, claim, damage, expense or liability arises from and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by or on behalf of such Holder in accordance with Section 4(b) of this Agreement for use in such registration statement, or (2) in the case of a sale directly by such Holder (including a sale of Registrable Securities through any underwriter retained by such Holder to engage in a distribution solely on behalf of such Holder), such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final or amended prospectus, and such Holder failed to deliver a copy of the final or amended prospectus at or prior to the confirmation of the sale of the Registrable Securities to the Person asserting any such loss, claim, damage or liability in any case where such delivery is required by the Securities Act or any state securities laws.  With respect to such untrue statement or omission or alleged untrue statement or omission in the information furnished in writing to the Company by or on behalf of such Holder in accordance with Section 4(b) of this Agreement for use in such registration statement, such Holder, on a several and not joint basis, will indemnify and hold harmless the Company (including its directors, officers, employees, representatives and agents), each other Holder (including its partners (including partners of partners and stockholders of such partners) and directors, officers, employees, representatives and agents of any of them, and each person who controls any of them

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within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, reasonable expenses and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, as the same are incurred), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise. 

(b)If the indemnification provided for in Section 5(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an indemnified party in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each indemnifying party under this Section 5, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the other Holders from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the other Holders in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Company and the Holders shall be deemed to be in the same respective proportions that the net proceeds from the offering received by the Company and the Holders, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities.  The relative fault of the Company and the Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by or on behalf of the Company or the Holders and the Parties’ relative intent, knowledge and access to information.

The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5(b) were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(c)The amount paid by an indemnifying party or payable to an indemnified party as a result of the losses, claims, damages and liabilities referred to in this Section 5 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, payable as the same are incurred.  The indemnification and contribution provided for in this Section 5 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any officer, director, employee, agent or controlling person of the indemnified parties.  No indemnifying party, in the defense of any such claim or litigation, shall enter into a consent of entry of any judgment or enter into a settlement without the consent of the indemnified party, which consent will not be unreasonably withheld.  Any indemnified party that proposes to assert the right to be indemnified under this

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Section 5 will, promptly after receipt of notice of commencement or threat of any claim or action against such party in respect of which a claim is to be made against an indemnifying party under this Section 5 notify the indemnifying party in writing (such written notice, an “Indemnification Notice”) of the commencement or threat of such action, enclosing a copy of all papers served or notices received (if applicable), but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability that the indemnifying party may have to any indemnified party under the foregoing provisions of this Section 5 unless, and only to the extent that, such omission results in the forfeiture of substantive rights or defenses by the indemnifying party.  The indemnified party will have the right to retain its own counsel in any such action if (i) the employment of counsel by the indemnified party has been authorized by the indemnifying party, (ii) the indemnified party’s counsel, with the concurrence of indemnifying party’s counsel, shall have reasonably concluded that there is a substantial likelihood of a conflict of interest between the indemnifying party and the indemnified party in the conduct of the defense of such action or (iii) the indemnifying party shall not in fact have employed counsel to assume the defense of such action within a reasonable period of time following its receipt of the Indemnification Notice, in each of which cases the fees and expenses of the indemnified party’s separate counsel shall be at the expense of the indemnifying party; provided, however, that the indemnified party shall agree to repay any expenses so advanced hereunder if it is ultimately determined by a court of competent jurisdiction that the indemnified party to whom such expenses are advanced is not entitled to be indemnified; and provided, further, that so long as the indemnified party has reasonably concluded that no conflict of interest exists, the indemnifying party may assume the defense of any action hereunder with counsel reasonably satisfactory to the indemnified party. 

(d)In the event of an underwritten offering of Registrable Securities under this Agreement, the Company and the Holders shall enter into standard indemnification and underwriting agreements with the underwriter thereof.  To the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the provisions of this Section 5, the provisions in the underwriting agreement shall control.

(e)The obligation of the Company and Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a registration statement under Section 2, and otherwise.

6.Market Standoff Agreement.  Each Holder agrees that in the event the Company proposes to offer for sale to the public any of its equity securities, and if (i) such Holder holds beneficially or of record 5% or more of the outstanding equity securities of the Company, (ii) such Holder is requested by the Company and the managing underwriter of Common Stock or other securities of the Company to sign, and (iii) all other such 5% Holders are requested by the Company and such underwriter to sign, and actually do sign, a similar or more restrictive agreement restricting the sale or other transfer of shares of the Company, then such Holder will not, directly or indirectly, offer, sell, pledge, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of any securities of the Company held by it (except for any securities sold pursuant to such registration statement), for a period of 90 days (or such longer period, not to exceed 180 days, that the managing underwriter specifies is required for successful completion of the offering) following the effective date of such registration statement. Such

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agreement shall be in writing and in form and substance reasonably satisfactory to the Holders, the Company and such underwriter and pursuant to customary and prevailing terms and conditions. 

7.Transferability of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to Section 2(a) or Section 2(b) hereof may be assigned (but only with all related obligations) by a Holder to a transferee of such Registrable Securities that is an affiliate, partner, member, limited partner, retired partner, retired member, or stockholder of a Holder; provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such registration rights are being transferred; and (y) such transferee agrees in writing to be bound by and subject to the terms and conditions of this Agreement.  For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee that is an affiliate, limited partner, retired partner, member, retired member, or stockholder of a Holder shall be aggregated together and with those of the transferring Holder.

8.Miscellaneous.

(a)Notices.  Except as otherwise expressly provided herein, all notices, requests, demands, claims, and other communications hereunder will be in writing.  Any such notice, request, demand, claim, or other communication hereunder shall be deemed duly given (a) upon confirmation of facsimile, (b) one business day following the date sent when sent by overnight delivery and (c) five business days following the date mailed when mailed by registered or certified mail return receipt requested and postage prepaid at the addresses specified on the signature pages hereto (or such other address for a Party as shall be specified by such Party by like notice).

(b)Entire Agreement.  This Agreement, together with the instruments and other documents hereby contemplated to be executed and delivered in connection herewith, contains the entire agreement and understanding of the parties hereto, and supersedes any prior agreements or understandings between or among them, with respect to the subject matter hereof.

(c)Successors and Assigns.  The parties intend that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than Parties hereto and their respective successors and permitted assigns.

(d)Amendments and Waivers.  Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holders of at least a majority of the Registrable Securities.  All Parties hereby acknowledge and agree that significant modifications may be made to this Agreement without the consent of each of the Holders due to the operation of this Section 8(d) which does not require the consent of each Holder for an amendment hereto.  No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

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(e)Counterparts; Facsimile Execution.  This Agreement may be executed in multiple counterparts, each of which shall constitute an original but all of which shall constitute but one and the same instrument.  One or more counterparts of this Agreement may be delivered via telecopier, with the intention that they shall have the same effect as an original counterpart hereof.  Facsimile execution and delivery of this Agreement is legal, valid and binding for all purposes. 

(f)Captions.  The captions of the sections, subsections and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part of this Agreement.

(g)Severability.  Each provision of this Agreement shall be interpreted in such manner as to validate and give effect thereto to the fullest lawful extent, but if any provision of this Agreement is determined by a court of competent jurisdiction to be invalid or unenforceable under applicable law, such provision shall be ineffective only to the extent so determined and such invalidity or unenforceability shall not affect the remainder of such provision or the remaining provisions of this Agreement; provided, however, that the Company and a majority of Holders shall negotiate in good faith to attempt to implement an equitable adjustment in the provisions of this Agreement with a view toward effecting the purposes of this Agreement by replacing the provision that is invalid or unenforceable with a valid and enforceable provision the economic effect of which comes as close as possible to that of the provision that has been found to be invalid and unenforceable.

(h)Governing Law.  This Agreement and the rights and obligations of the Parties hereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware.

(i)Submission to Jurisdiction.

(i)The Parties agree that any suit, action or proceeding with respect to any dispute, controversies or claims or any judgment entered by any court in respect thereof may be brought in any state or federal court in the State of Delaware and any appellate court thereof and irrevocably and unconditionally submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment.  Each of the Parties hereto agrees that final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Each of the Parties further submits, for the purpose of any such suit, action, proceeding or judgment brought or rendered against it, to the appropriate courts of the jurisdiction of its domicile.

(ii)The Parties agree that any suit, action or proceeding with respect to the Agreement or any judgment entered by any court in respect thereof may be brought in the competent courts of the State of Delaware, and irrevocably submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment.

(iii)Nothing herein shall in any way be deemed to limit the ability of any Party to serve any such process of summons, complaint and other legal process in any other manner permitted by applicable law or to obtain jurisdiction over, or bring any suit, action or

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proceeding against, any other Party in such other jurisdiction, and in such manner, as may be permitted by applicable law. 

(iv)The Parties also irrevocably consent, if for any reason any of the Party’s authorized agent for service of process of summons, complaint and other legal process in any action, suit or proceeding is not present in Delaware, to the service of such papers being made out of those courts by mailing copies of the papers by registered United States air mail, postage prepaid, to the Party at its address specified in Section 8(a).  In such a case, the relevant Party shall also send by facsimile, or have sent by facsimile, a copy of the papers to all Parties.

(v)Service in the manner provided in Section 8(j) in any action, suit or proceeding will be deemed personal service, will be accepted by each of the Parties as such and will be valid and binding upon such Party for all purposes of any such action, suit or proceeding.

(j)Appointment of Process Agent.  Each of the Parties hereby irrevocably appoints The Corporation Trust Company (the “Process Agent”), with an office on the date hereof at 1209 Orange Street, Wilmington, Delaware 19801, United States of America as its agent to receive on behalf of such Party service of copies of the summons and complaint and any other process which may be served in any suit, action or proceeding.  Each Party agrees that the failure of the Process Agent to give any notice of any such service of process to such Party shall not impair or affect the validity of such service or, to the extent permitted by applicable law, the enforcement of any judgment based thereon.  Such appointment shall be irrevocable as long as any amounts payable under this Agreement or the terms and conditions of this Agreement are outstanding, except that if for any reason the Process Agent appointed hereby ceases to be able to act as such, each Party shall, by an instrument reasonably satisfactory to the other Parties, appoint another Person in the State of Delaware as such Process Agent subject to the approval (which approval shall not be unreasonably withheld) of the other Parties.  Each of the Holders covenants and agrees that it shall take any and all reasonable action, including the execution and filing of any and all documents, that may be necessary to continue the designation of a Process Agent pursuant to this Section 8(j) in full force and effect and to cause the Process Agent to act as such.

(k)Other Methods of Service.  Nothing herein shall in any way be deemed to limit the ability of any Party to serve any such process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over, or bring any suit, action or proceeding against, the other Parties in such other jurisdictions, and in such manner, as may be permitted by applicable law.

(l)Waiver of Inconvenient Forum, Etc.  Each of the Parties hereby irrevocably waives any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any state or federal court in the State of Delaware, United States of America, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  A final judgment (in respect of which time for all appeals has elapsed) in any such suit, action or proceeding shall be conclusive and may be enforced in any court to the jurisdiction of which the Parties are or may be subject, by suit upon judgment.

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(m)Waiver of Jury Trial.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (i) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 

[Signature page follows]

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{COMPANY SIGNATURE PAGE}

IN WITNESS WHEREOF, the Parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

COMPANY:APTEVO THERAPEUTICS INC.

Address:

APTEVO BIOTHERAPEUTICS INC.
2401 4th Ave. Suite 1050
Seattle, Washington 98121
Attention: General Counsel
Telephone: (206) 838-0500
Facsimile No.: 206-838-0503

[Signature Page to Registration Rights Agreement]

 

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{STOCKHOLDER SIGNATURE PAGE}

IN WITNESS WHEREOF, the Parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

INTERVAC, L.L.C.

Address for Notices:

13675 Vanderbilt Drive #710

Naples, Florida 34110

[Signature Page to Registration Rights Agreement]

 

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{STOCKHOLDER SIGNATURE PAGE}

IN WITNESS WHEREOF, the Parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

BIOVAC, L.L.C.

Address for Notices:

13675 Vanderbilt Drive #710

Naples, Florida 34110

 

 

[Signature Page to Registration Rights Agreement]

 

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EXHIBIT A

 

 

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Exhibit 10.1

 

NON-NEGOTIABLE PROMISSORY NOTE

July 29, 2016

 

 

FOR VALUE RECEIVED, Emergent BioSolutions Inc., a Delaware corporation (“Maker”), promises to pay to Aptevo Therapeutics Inc., a Delaware corporation (“Holder”), by wire transfer of immediately available funds to an account designated in writing by Holder at least two Business Days prior to the Payment Date (as defined below), the principal sum of $20,000,000, payable on the Payment Date.  “Payment Date”  means a date specified in a written notice delivered by Holder to Maker that is (a) at least 60 days after the date of delivery of such written notice and (b) between the date that is six (6) months after the Distribution Date and the first (1^st) anniversary of the Distribution Date.  Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Separation Agreement (as defined below).  

No interest shall accrue on this Note.

This Note shall become immediately due and payable without notice or demand upon the occurrence at any time of any of the following events of default (individually, “an Event of Default” and collectively, “Events of Default”):

This Note may be prepaid in whole or in part at any time or from time to time.  Any such prepayment shall be without premium or penalty.

The provisions of Article VIII and Article XI (except Section 11.3) of the Separation and Distribution Agreement entered into or to be entered into between Maker and Holder (the “Separation Agreement”) are incorporated herein by this reference, as if set forth in full herein, mutatis mutandis.  This Note constitutes an Ancillary Agreement, and the remedies expressly set forth in the Separation Agreement shall be the sole and exclusive remedies of the parties with respect to this Note.  If the Distribution Date does not occur by December 31, 2016, this Note shall be null and void ab initio.

 

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Holder may not assign or transfer this Note (or any interest herein). Subject to the preceding sentence, this Note will be binding upon and inure to the benefit of the parties hereto and their respective successors.

[SIGNATURE PAGE FOLLOWS]

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Note as of the date first written above.

 

 

 

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[Signature Page to Promissory Note – Step 12]

Exhibit 10.2

 

TRANSITION SERVICES AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

 

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TABLE OF CONTENTS

 

i

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ii

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iii

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TRANSITION SERVICES AGREEMENT

This TRANSITION SERVICES AGREEMENT, dated as of July 29, 2016 (this “Agreement”), is entered into by and between Emergent BioSolutions Inc., a Delaware corporation (“Emergent”), and Aptevo Therapeutics Inc., a Delaware corporation (“Aptevo”).  Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Separation and Distribution Agreement, dated as of the date hereof, by and between Emergent and Aptevo (as amended, modified or supplemented from time to time in accordance with its terms, the “SDA”).

RECITALS

WHEREAS, the board of directors of Emergent has determined that it is in the best interests of Emergent and its shareholders that the Aptevo Business be operated by a newly incorporated publicly traded company;

WHEREAS, Emergent and Aptevo have entered into the SDA;

WHEREAS, in order to facilitate and provide for an orderly transition under the SDA, the Parties (as defined herein) desire to enter into this Agreement to set forth the terms and conditions pursuant to which members of the Emergent Group shall provide to members of the Aptevo Group the Services (as defined herein) for a transitional period; and

WHEREAS, the SDA requires execution and delivery of this Agreement by Emergent and Aptevo on or prior to the Distribution Date.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE I
DEFINITIONS

The following capitalized terms used in this Agreement shall have the meanings set forth below:

“Agreement” shall have the meaning set forth in the Preamble.

“Additional Services” shall have the meaning set forth in Section 2.04.

“Aptevo” shall have the meaning set forth in the Preamble.

“Aptevo Local Service Manager” shall have the meaning set forth in Section 8.08(b).

“Aptevo Services Manager” shall have the meaning set forth in Section 8.08(b).

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Emergent” shall have the meaning set forth in the Preamble.

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“Emergent Local Service Manager” shall have the meaning set forth in Section 8.08(a).

“Emergent Services Manager” shall have the meaning set forth in Section 8.08(a).

“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version thereof or any similar non-U.S. law), any current or future regulations or official interpretations thereof (including any Revenue Ruling, Revenue Procedure, Notice or similar guidance issued by the IRS thereunder as a precondition to relief or exemption from taxes under such provisions), and any intergovernmental agreements and any agreements entered into pursuant to Section 1471(b) of the Code.

“Interest Payment” shall have the meaning set forth in Section 4.01(d).

“Party” shall mean Emergent and Aptevo individually, and “Parties” means Emergent and Aptevo collectively, and, in each case, their permitted successors and assigns.

“Provider” shall mean any member of the Emergent Group providing (or causing to be provided) a Service under this Agreement.

“Provider Host Systems” shall mean the information technology systems and platforms of the Provider.

“Provider Indemnified Party” shall have the meaning set forth in Section 6.05.

“Provider Individual User” shall mean those employees and contractors of the Provider who have a need to access the Recipient Host Systems in order to provide the Services.

“Quality Agreement” shall mean the Quality Agreement by and between Aptevo and Emergent attached hereto as Exhibit B.

“Recipient” shall mean any member of the Aptevo Group to whom a Service under this Agreement is being provided.

“Recipient Host Systems” shall mean the information technology systems and platforms of the Recipient.

“Recipient Indemnified Party” shall have the meaning set forth in Section 6.06.

“Recipient Individual User” shall mean those employees and contractors of the Recipient who have a need to access the Provider Host Systems in order to receive the Services.

“Reimbursement Charges” shall have the meaning set forth in Section 4.01(c).

“Schedule(s)” shall have the meaning set forth in Section 2.01.

“SDA” shall have the meaning set forth in the Preamble.

“Service Charges” shall have the meaning set forth in Section 4.01(a).

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“Services” shall have the meaning set forth in Section 2.01.

“Tax” or “Taxes” shall have the meaning set forth in the Tax Matters Agreement.

“Term” shall have the meaning set forth in Section 7.01(a).

“Transfer Taxes” shall have the meaning set forth in Section 4.02(a).

“VAT” shall have the meaning set forth in Section 4.02(a).

ARTICLE II
SERVICES, DURATION AND SERVICES MANAGERS

Section 2.01.Services.  Subject to the terms and conditions of this Agreement, Emergent shall use commercially reasonable efforts to provide or cause to be provided to the Recipient the services (the “Services”) listed on Schedules A-1 through A-14 (each a “Schedule”, and collectively, the “Schedules”) in accordance with the terms and conditions of this Agreement. For the avoidance of doubt, Services provided in different regions or countries (as indicated by such Services being listed on different subparts of the Schedules hereto) shall be considered separate Services hereunder, notwithstanding that such Services may be similar in nature. All of the Services shall be for the sole use and benefit of the respective Recipient and the members of its Group. Emergent shall be responsible for all actions and omissions of each Provider under this Agreement, and Aptevo shall be responsible for all actions and omissions of each Recipient under this Agreement. The Quality Agreement shall, together with this Agreement, apply to the provision of any Service solely to the extent such Service relates to quality assurance matters and is within the subject matter of the Quality Agreement. In the event of any conflict or inconsistency between the Quality Agreement and this Agreement solely with respect to quality assurance matters, the Quality Agreement shall control. In the event of any other conflict or inconsistency (including, for the avoidance of doubt, with respect to the respective remedies of the parties with respect to any Service), this Agreement shall control.

Section 2.02.Duration of Services.  Subject to the terms of this Agreement, Emergent shall use commercially reasonable efforts to provide or cause to be provided to the respective Recipient each Service until the earlier to occur of, with respect to each such Service, (a) the expiration of the term for such Service as set forth on the applicable Schedule or (b) the date on which such Service is terminated under Section 7.01(b).

Section 2.03.Services Not Included.  It is not the intent of the Provider to render, nor of the Recipient to receive from the Provider, professional advice or opinions, whether with regard to Tax, legal or intellectual property matters.  The Recipient shall not rely on, or construe, any Service rendered by or on behalf of the Provider as such Tax, legal or intellectual property professional advice or opinions, and the Recipient shall seek all third-party professional advice and opinions with respect to such matters.  The Parties expressly agree that no Provider shall have any Liability under any professional code of conduct or other professional standards, duties or responsibilities.

Section 2.04.Additional Services.  During the Term, the Recipient may identify additional services it wishes to receive that are not set forth in the Schedule, provided that such

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services were provided to the Aptevo Business as of the Effective Time and are necessary for its operation as conducted as of the Effective Time, (collectively, the “Additional Services”). If the Provider agrees (in its sole discretion) to provide Additional Services, the Parties shall work together in good faith to determine the associated price, terms and conditions with respect to the performance of each Additional Service. Upon written agreement to such terms, such Additional Services shall be deemed Services hereunder and the Parties shall execute a written amendment to the then-current Schedules to reflect such Additional Service.  Notwithstanding the foregoing, the Provider will not have any obligation to agree to provide any Additional Services. 

Section 2.05.Personnel.

(a)The Provider of any Service will have the right, in its sole discretion, to (i) designate which personnel it will assign to perform any Service unless specific personnel are identified as the personnel to be providing the applicable Service in the Schedules and (ii) remove and replace such personnel at any time; provided, however, that, in the event of any such replacement, the Provider shall use commercially reasonable efforts to replace any such personnel with personnel of similar expertise, education, training, qualification and seniority (in each case to the extent such concepts are relevant to the delivery of the applicable Service) and any such removal or replacement shall not relieve the Provider of its obligation to provide any Service hereunder on the timeline set forth in the Schedules; and provided, further, that the Provider will use its commercially reasonable efforts to take such actions as may be reasonably necessary to limit the disruption to the Recipient in the transition of the Services to different personnel.  If the Recipient, in its reasonable discretion and following discussions with the Provider, requests the Provider to remove and/or replace any such personnel from their roles in respect of the Services provided by the Recipient, the Provider shall consider such request in good faith, and if such personnel are removed or replaced pursuant to the Recipient’s request, then the Provider shall be under no obligation to provide the Services previously provided by such personnel. Without limiting the foregoing, the Recipient shall have the right to remove or require the removal of any Provider personnel, agents or representatives from its premises whom the Recipient believes in good faith are in violation of applicable Law, the terms of this Agreement, or the Recipient’s reasonable policies generally applicable to its employees or other service providers and of which the Provider has knowledge based on written copies of such policies previously provided to the Provider by the Recipient.

(b)In the event that the provision of any Service by the Provider requires the cooperation and services of the personnel of the Recipient, the Recipient will use commercially reasonable efforts to make available to the Provider such personnel (who shall be appropriately qualified for purposes of so supporting the provision of such Service by the Provider) as may be necessary for the Provider to provide such Service, provided that nothing in this Agreement shall be construed as an obligation of the Provider or the Recipient to hire, or maintain the employment of, any individuals. If the Provider, in its reasonable discretion and following discussions with the Recipient, requests the Recipient to remove and/or replace any such personnel from their roles in respect of the Services being provided by the Provider, the Recipient shall consider such request in good faith.

(c)No Provider shall be liable under this Agreement for any Liabilities incurred by the Recipient Indemnified Parties that are primarily attributable to, or that are a

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consequence of, any actions or inactions of the personnel of the Recipient, except for any such actions or inactions undertaken pursuant to the written direction of the Provider. 

(d)A Provider may hire or engage one or more subcontractors to perform any or all of its obligations under this Agreement; provided, however, that (i) the Provider shall use the same degree of care in selecting any such subcontractor as it would if such subcontractor was being retained to provide similar services to the Provider and (ii) any contract with a subcontractor pertaining to the provision of any Service by such subcontractor will be consistent with the provisions of this Agreement. Without limitation of the foregoing, the Provider agrees that any subcontract relationship that is evidenced by a written agreement will obligate the subcontractor to provisions regarding standards of service, compliance with applicable Law, inspection, Intellectual Property and confidentiality no less stringent than those contained in this Agreement.  The engagement of any subcontractor in compliance with this Section 2.05(d) will not relieve the Provider of its obligations under this Agreement or any other Ancillary Agreement, including without limitation, with respect to the scope of the Services, the standard for services as set forth in ARTICLE V and the content of the Services provided to the Recipient.

(e)Nothing in this Agreement shall grant any Party, or its employees, agents, third-party providers and other Representatives, the right directly or indirectly to control or direct the employees, business or operations of the other Party or any member of its Group.  The employees, agents, third-party providers and other Representatives of a Party shall not be required to report to the management of the other Party nor be deemed to be under the management or direction of the other Party.  The Recipient acknowledges and agrees that, except as may be expressly set forth herein as a Service or in the Schedules or otherwise expressly set forth in the SDA, another Ancillary Agreement or any other applicable agreement, no Provider or any member of its Group shall be obligated to provide, or cause to be provided, any service or goods to any Recipient or any member of its Group.

ARTICLE III
ADDITIONAL ARRANGEMENTS

Section 3.01.Software and Software Licenses.

(a)If and to the extent requested by the Provider, the Recipient shall use commercially reasonable efforts to assist the Provider in the Provider’s efforts to obtain licenses (or other appropriate rights) to use, duplicate and distribute, as necessary and applicable, certain computer software necessary for the provision of Services and the Recipient shall be responsible for any fees, payments or other Liabilities incurred by or on behalf of the Provider in connection with obtaining any such license or rights to the extent such license or rights relate exclusively to the provision of Services. The Parties acknowledge and agree that there can be no assurance that such efforts will be successful.  In the event that the Provider is unable to obtain such software licenses, the Parties shall work together using commercially reasonable efforts to obtain an alternative software license to allow the Provider to provide the applicable Services, and the Parties shall negotiate in good faith an amendment to the applicable Schedule to reflect any such new arrangement.

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(b)Without limitation of anything in Section 3.01(a), in the event that there are any costs associated with obtaining software licenses in accordance with Section 3.01(a), such costs shall be borne by the Recipient. 

Section 3.02.Computer-Based and Other Resources.  From and after the date of this Agreement, each Party and its Affiliates shall cause all of their personnel having access to the computer software, networks, hardware, technology or computer based resources of the other Party pursuant to the SDA, or any Ancillary Agreement, or in connection with performance, receipt or delivery of a Service, to comply with all security guidelines (including physical security, network access, internet security, confidentiality and personal data security guidelines) of such other Party to the extent made known to the first Party.  Each Party shall ensure that the access contemplated by this Section 3.02 shall be used by its personnel only for the purposes contemplated by, and subject to the terms of, this Agreement.  Without limiting the foregoing, subject to the terms and conditions of this Agreement, during the Term, (a) the Recipient shall permit the Provider and authorized Provider Individual Users to access the Recipient Host Systems for the sole purpose of providing the Services in accordance with the terms and conditions expressly stated in this Agreement and (b) the Provider shall permit the Recipient and authorized Recipient Individual Users to access the Provider Host Systems for the sole purpose of receiving the Services in accordance with the terms and conditions expressly stated in this Agreement.  Notwithstanding anything else to the contrary in this Agreement, (x) Emergent shall not permit any party (including contractors) other than Provider Individual Users to access the Recipient Host Systems without Aptevo’s prior written consent, which consent may be withheld in Aptevo’s sole discretion and (y) Aptevo shall not permit any party (including contractors) other than Recipient Individual Users to access the Provider Host Systems without Emergent’s prior written consent, which consent may be withheld in Emergent’s sole discretion.

Section 3.03.Connectivity to Host Systems.

(a)The Provider shall, at its sole expense, provide all equipment and network connectivity necessary for each of its Representatives and each Provider Individual User to connect to the Recipient Host Systems.

(b)The Recipient shall, at its sole expense, provide all equipment and network connectivity necessary for each of its Representatives and each Recipient Individual User to connect to the Provider Host Systems.

Section 3.04.Access to Facilities.  

(a)Subject to Section 2.05(a), Aptevo shall, and shall cause its Subsidiaries to, allow Emergent and its Representatives reasonable access to the facilities of Aptevo necessary (including if more efficient) for Emergent to provide the Services in accordance with this Agreement.  Such access shall be conditioned on compliance with applicable Laws, the terms of this Agreement, and Aptevo’s reasonable policies generally applicable to its service providers or visitors of which the Provider has knowledge based on written copies of such policies previously provided to the Provider by the Recipient.

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(b)Notwithstanding the other rights of access of the Parties under this Agreement, each Party shall, and shall cause its Subsidiaries to, afford the other Party, its Subsidiaries and Representatives, following not less than ten (10) business days’ prior written notice from the other Party, reasonable access during normal business hours to the facilities, information, systems, infrastructure, and personnel of the relevant Providers as reasonably necessary for the other Party to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided, however, that such access shall not unreasonably interfere with any of the business or operations of such Party or its Subsidiaries.  

(c)Except as otherwise permitted by the other Party in writing, each Party shall permit only its authorized Representatives, contractors, invitees or licensees to access the other Party’s facilities, and shall permit such access only to the extent necessary to perform obligations under this Agreement.

Section 3.05.Cooperation.  It is understood that it will require the significant efforts of both Parties to implement this Agreement and to ensure performance of this Agreement by the Parties at the agreed-upon levels in accordance with all of the terms and conditions of this Agreement.  The Parties will cooperate, acting in good faith and using commercially reasonable efforts, to permit the Provider to provide the relevant Services and to effect a smooth and orderly transition of the Services provided under this Agreement from the Provider to the Recipient; provided, however, that this Section 3.05 shall not require either Party to incur any out-of-pocket costs or expenses exceeding one thousand dollars ($1,000) during any one (1) month period.

Section 3.06.License Grants.  Subject to the terms and conditions of this Agreement, Aptevo hereby grants to Emergent a non-exclusive, non-sublicenseable (except to those other members of the Emergent Group or third-party service providers performing the Services on behalf of Emergent), non-transferable (except in accordance with Section 9.10), limited license, to use during the Term the intellectual property that is owned or controlled by Aptevo now or in the future, solely to the extent necessary or reasonably useful for Emergent to perform the Services.

Section 3.07.Data Protection.  The Provider shall only process personal data which it may receive from the Recipient, while carrying out its duties under this Agreement: (a) in such a manner as is necessary to carry out those duties and (b) in accordance with the instructions of the Recipient.

ARTICLE IV
COSTS AND DISBURSEMENTS

Section 4.01.Costs and Disbursements.

(a)Except as otherwise provided in this Agreement, Aptevo shall pay, or cause to be paid, to the Provider of Services the fee for the Services (or category of Services, as applicable) (each fee constituting the “Service Charge” and, collectively, “Service Charges”) as listed on Schedule B; provided, that, Emergent shall give written notice to Aptevo when, in its

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reasonable business judgment, Emergent believes in good faith that it is likely that Aptevo will request that Services be provided by Emergent during any contract year after the Effective Time exceeding the number of hours in the “Annual Services Work Hours Cap” set forth on Schedule C. Emergent shall neither have any obligation to provide nor have any right to charge for such Services above such Annual Services Work Hours Cap without the prior written consent of Aptevo. With respect to each Service or category of Services, the applicable Schedule shall set forth (i) the Recipient that will be invoiced the Service Charge for such Service or category of Services and (ii) the Provider that will be paid such Service Charge. 

(b)In addition, during the Term, the amount of a Service Charge for any Services (or category of Services, as applicable) may increase: (i) as expressly set forth on the applicable Schedule, (ii) as mutually agreed to by the Parties in writing in advance of any such increase, provided that Aptevo may withhold such agreement in its sole discretion, (iii) to the extent of any increase in the Provider’s actual and direct costs of providing a Service are increased as a result of any increase in the rates or charges imposed by any unaffiliated third-party provider that is providing Services or (iv) to reflect the removal or replacement of personnel pursuant to Section 2.05(a), prorated with respect to the portion of Services provided under this Agreement; provided that, with respect to foregoing clause (iii), the Provider shall provide the Recipient with reasonably detailed written documentation evidencing the increased fees from the applicable third-party provider and setting forth the calculation of the Provider’s increased direct costs of providing the applicable Service.

(c)Notwithstanding Section 3.05, the Recipient shall reimburse the Provider for reasonable out-of-pocket costs and expenses exceeding $1,000 during any one (1) month period incurred by the Provider or its Affiliates in connection with providing the Services (including necessary travel-related expenses) (each such cost or expense, a “Reimbursement Charge” and, collectively, “Reimbursement Charges”); provided, however, that any such cost or expense that is materially inconsistent with the Provider’s historical practice for any Service (including business travel and related expenses) shall require advance approval of the Recipient.

(d)The Service Charges and Reimbursement Charges due and payable hereunder shall be invoiced and paid in the currency expressly applicable to such Service in the relevant Schedule hereto.  Each month the Provider shall provide to the Recipient an invoice setting forth the Service Charges and Reimbursement Charges for the immediately preceding month, and the Recipient shall pay the amount of each monthly invoice by wire transfer (or such other method of payment as may be agreed between the Parties) to the Provider within forty-five (45) days of the receipt of each such invoice.  Each invoice provided by the Provider to the Recipient shall also include reasonably detailed documentation to support the calculation of such Service Charges and Reimbursement Charges. In the absence of a timely notice of a billing dispute in accordance with the provisions of Article VIII of the SDA, if the Recipient fails to pay such amount by the due date, the Recipient shall be obligated to pay to the Provider, in addition to the amount due, interest at an annual default interest rate of twelve percent (12%), or the maximum legal rate, whichever is lower (the “Interest Payment”), accruing from the date the payment was due through the date of actual payment.  In the event of any billing dispute, the Recipient shall promptly pay any undisputed amount.

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(e)Subject to the confidentiality provisions set forth in Section 9.03, Emergent shall, and shall cause its Affiliates to, provide, upon ten (10) business days’ prior written notice from Aptevo, any information within Emergent’s or the Provider’s possession or control that Aptevo reasonably requests in connection with any Services being provided to Aptevo by an unaffiliated third-party provider, including any applicable invoices, agreements documenting the arrangements between such third-party provider and the Provider and other supporting documentation. 

(f)If any amount to be paid under this Agreement is originally stated or expressed in a currency other than United States Dollars, then, for the purpose of determining the amount to be so paid, such amount shall be converted into United States Dollars at the exchange rate between those two currencies most recently quoted in The Wall Street Journal in New York as of the business day immediately prior to (or, if no such quote exists on such business day, on the closest business day prior to) the day on which the Party is required to make such payment.

Section 4.02.Tax Matters.

(a)Without limiting any provisions of this Agreement, the Recipient shall be responsible for (i) all excise, sales, use, transfer, stamp, documentary, filing, recordation and other similar Taxes, (ii) any value added, goods and services or similar recoverable indirect Taxes (“VAT”) and (iii) any related interest and penalties (collectively, “Transfer Taxes”), in each case imposed or assessed as a result of the provision of Services by the Provider.  In particular, but without prejudice to the generality of the foregoing, all amounts payable pursuant to this Agreement are exclusive of amounts in respect of VAT.  Where any taxable supply for VAT purposes is made pursuant to this Agreement by the Provider to the Recipient, the Recipient shall either (i) on receipt of a valid VAT invoice from the Provider, pay to the Provider such additional amounts in respect of VAT as are chargeable on the supply of the services at the same time as payment is due for the supply of the services; or (ii) where required by legislation to do so, account directly to the relevant Governmental Authority for any such VAT amounts.  The Party required to account for Transfer Tax shall provide to the other Party evidence of the remittance of the amount of such Transfer Tax to the relevant Governmental Authority, including, without limitation, copies of any Tax returns remitting such amount.  The Provider agrees that it shall take commercially reasonable actions to cooperate with the Recipient in obtaining any refund, return, rebate, or the like of any Transfer Tax, including by filing any necessary exemption or other similar forms, certificates, or other similar documents.  The Recipient shall promptly reimburse the Provider for any costs incurred by the Provider or its Affiliates in connection with the Recipient obtaining a refund or overpayment of refund, return, rebate, or the like of any Transfer Tax.  For the avoidance of doubt, any applicable gross receipts-based or net income-based Taxes shall be borne by the Provider.

(b)The Recipient shall be entitled to deduct and withhold Taxes required by any Governmental Authority to be withheld on payments made pursuant to this Agreement.  To the extent any amounts are so withheld, except for amounts withheld (i) attributable to the failure of the Provider to comply with the next sentence of this Section 4.02(b), (ii) attributable to backup withholding under Section 3406 of the Code or any similar provision of state, local, or non-U.S. law, or (iii) pursuant to FATCA, the Recipient shall (A) pay, in addition to the amount otherwise due to the Provider under this Agreement, such additional amount as is necessary to

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ensure that the net amount actually received by the Provider will equal the full amount the Provider would have received had no such deduction or withholding been required, (B) pay such deducted and withheld amount to the proper Governmental Authority, and (C) promptly provide to the Provider evidence of such payment to such Governmental Authority.  The Provider shall, prior to the date of any payment to be made pursuant to this Agreement, at the request of the Recipient, use commercially reasonable efforts to provide the Recipient any certificate or other documentary evidence that (1) is required by a Governmental Authority and/or (2) the Provider is entitled by a Governmental Authority to provide in order to reduce the amount of any Taxes that may be deducted or withheld from such payment and the Recipient agrees to accept and act in reliance on any such duly and properly executed certificate or other applicable documentary evidence. 

(c)If the Provider (i) receives any refund (whether by payment, offset, credit or otherwise) or (ii) utilizes any overpayment, of Taxes that are borne by Recipient pursuant to this Agreement, then the Provider shall promptly pay, or cause to be paid, to the Recipient the amount of such refund or overpayment (including, for the avoidance of doubt, any interest or other amounts received with respect to such refund or overpayment), net of any additional Taxes the Provider incurs or will incur as a result of the receipt of such refund or such overpayment.

ARTICLE V
STANDARD FOR SERVICE

Section 5.01.Standard for Service.  

(a)The Provider agrees (i) to perform the Services with at least substantially the same nature, quality, standard of care and service levels at which the same or similar services were performed by or on behalf of the Provider prior to the Effective Time or, if not so previously provided, then substantially similar to that which are applicable to similar services provided to the Provider’s Affiliates or other business components; and (ii) upon receipt of written notice from the Recipient identifying any outage, interruption or other failure of any Service, to respond to such outage, interruption or other failure of such Service in a manner that is at least substantially similar to the manner in which such Provider or its Affiliates responded to any outage, interruption or other failure of the same or similar services prior to the Effective Time.  The Parties acknowledge that an outage, interruption or other failure of any Service shall not be deemed to be a breach of the provisions of this Section 5.01 so long as the applicable Provider complies with the foregoing clause (ii). In addition, the Provider will perform all Services in a professional and workmanlike manner.

(b)Nothing in this Agreement shall require the Provider to perform or cause to be performed any Service to the extent the manner of such performance would constitute a violation of applicable Law or any existing contract or agreement with a third-party.  If the Provider is or becomes aware of any such potential violation on the part of the Provider, the Provider shall promptly send a written notice to the Recipient of any such potential violation.  The Parties each agree to cooperate and use commercially reasonable efforts to obtain any necessary third-party consents required under any existing contract or agreement with a third-party to allow the Provider to perform or cause to be performed any Service in accordance with the standards set forth in this Section 5.01. Any costs and expenses incurred by either Party in

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connection with obtaining any such third-party consent that is required to allow the Provider to perform or cause to be performed any Service shall be solely the responsibility of the Recipient.  If, with respect to a Service, the Parties, despite the use of such commercially reasonable efforts, are unable to obtain a required third-party consent or the performance of such Service by the Provider would continue to constitute a violation of applicable Laws, the Provider shall use commercially reasonable efforts in good faith to provide such Services in a manner as closely as possible to the standards described in this Section 5.01. 

Section 5.02.Disclaimer of Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PARTIES ACKNOWLEDGE AND AGREE THAT THE SERVICES ARE PROVIDED AS-IS, THAT EACH RECIPIENT ASSUMES ALL RISKS AND LIABILITY ARISING FROM OR RELATING TO ITS USE OF AND RELIANCE UPON THE SERVICES AND EACH PARTY, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, MAKES NO OTHER REPRESENTATION OR WARRANTY WITH RESPECT THERETO.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICES, WHETHER EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, INCLUDING ANY REPRESENTATION OR WARRANTY IN REGARD TO QUALITY, PERFORMANCE, NONINFRINGEMENT, COMMERCIAL UTILITY, MERCHANTABILITY OR FITNESS OF ANY SERVICE FOR A PARTICULAR PURPOSE.

Section 5.03.Compliance with Laws and Regulations.  Each Party shall be responsible for its own compliance and its subcontractors’ compliance with any and all Laws applicable to its performance under this Agreement.  No Party will knowingly take any action in violation of any such applicable Law that results in liability being imposed on the other Party.

ARTICLE VI
REPRESENTATIONS; LIMITED LIABILITY AND INDEMNIFICATION

Section 6.01.Representations. The Provider represents, warrants and covenants with respect to itself and the Recipient represents, warrants and covenants with respect to itself:

(a)this Agreement is a legal and valid obligation binding upon such Person and enforceable in accordance with its terms, and that such Person will undertake and perform all of its obligations as set forth in this Agreement; and

(b)all of such Person’s personnel are, and shall at all times during the Term remain, sufficient in number and qualification to perform or receive, as applicable, the Services.

Section 6.02.Consequential and Other Damages.  Notwithstanding anything to the contrary contained in the SDA or this Agreement, the Provider shall not be liable to the Recipient or any of its Affiliates or Representatives, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, for any special, indirect, incidental, punitive or consequential damages whatsoever (including lost profits or damages calculated on multiples of earnings approaches), which in any way arise out of, relate to or are a consequence

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of, the performance or nonperformance by the Provider (including any Affiliates and Representatives of the Provider and any unaffiliated third-party providers, in each case, providing the applicable Services) under this Agreement or the provision of, or failure to provide, any Services under this Agreement, including with respect to loss of profits, business interruptions or claims of customers.   

Section 6.03.Limitation of Liability.  The Liabilities of each PARTY and its Affiliates and Representatives, collectively, under this Agreement for any act or failure to act in connection herewith (including the performance or breach of this Agreement), or from the sale, delivery, provision or use of any Services provided under or contemplated by this Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, shall not exceed the total aggregate Amounts PAID OR PAYABLE to EMERGENT by APTEVO pursuant to this Agreement during the one (1) year preceding the event that gave rise to such LIABILITY.

Section 6.04.Obligation To Reperform; Liabilities.  In the event of any breach of this Agreement by any Provider with respect to the provision of any Services (with respect to which the Provider can reasonably be expected to re-perform in a commercially reasonable manner), the Provider shall (a) promptly correct in all material respects such error, defect or breach or re-perform in all material respects such Services at the request of the Recipient and at the sole cost and expense of the Provider and (b) subject to the limitations set forth in Section 6.02 and Section 6.03, reimburse the Recipient and its Affiliates and Representatives for Liabilities attributable to such breach by the Provider.  The remedy set forth in this Section 6.04 shall be the sole and exclusive remedy of the Recipient for any such breach of this Agreement.  Any request for re-performance in accordance with this Section 6.04 by the Recipient must be in writing and specify in reasonable detail the particular error, defect or breach, and such request must be made no more than two (2) months from the date such error, defect or breach becomes apparent or should have reasonably become apparent to the Recipient.

Section 6.05.Release and Recipient Indemnity.  Subject to Section 6.02, each Recipient hereby releases the applicable Provider and its Affiliates and Representatives (each, a “Provider Indemnified Party”), and each Recipient hereby agrees to indemnify, defend and hold harmless each such Provider Indemnified Party from and against (a) all Liabilities arising from, relating to or in connection with, in each case to the extent suffered, sustained or incurred by the Provider Indemnified Party pursuant to a Third-Party Claim, the provision of any Services by Provider hereunder or the use of any Services by any Recipient or any of its Affiliates, Representatives or other Persons, except in each case to the extent that such Liabilities arise out of, relate to or are a consequence of the applicable Provider Indemnified Party’s bad faith, gross negligence or willful misconduct, and (b) all Liabilities arising from, relating to or in connection with a breach by any Recipient of its obligations under this Agreement.

Section 6.06.Provider Indemnity.  Subject to Section 6.02, each Provider hereby agrees to indemnify, defend and hold harmless the applicable Recipient and its Affiliates and Representatives (each a “Recipient Indemnified Party”), from and against all Liabilities arising from, relating to or in connection with, in each case to the extent suffered, sustained or incurred

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by the Recipient Indemnified Party pursuant to a Third-Party Claim, the provision of any Services by Provider hereunder or the use of any Services by any Recipient or any of its Affiliates, Representatives or other Persons, in each case to the extent that such Liabilities arise out of, relate to or are a consequence of the applicable Provider’s bad faith, gross negligence or willful misconduct. 

Section 6.07.Indemnification Procedures.  The provisions of Sections 4.4 and 4.5 of the SDA shall govern claims for indemnification under this Agreement.

Section 6.08.Liability for Payment Obligations.  Nothing in this ARTICLE VI shall be deemed to eliminate or limit, in any respect, Aptevo’s express obligation in this Agreement to pay Service Charges and Reimbursement Charges for Services rendered in accordance with this Agreement.

Section 6.09.Exclusion of Other Remedies.  Notwithstanding anything to the contrary contained in the SDA, the provisions of Section 6.04, Section 6.05 and Section 6.06 of this Agreement shall, to the maximum extent permitted by applicable Law, be the sole and exclusive remedies of the Provider Indemnified Parties and the Recipient Indemnified Parties, as applicable, for any claim, loss, damage, expense or liability, whether arising from statute, principle of common or civil law, principles of strict liability, tort, contract or otherwise under this Agreement.

Section 6.10.Confirmation.  Neither Party excludes responsibility for any liability which cannot be excluded pursuant to applicable Law.

ARTICLE VII
TERM AND TERMINATION

Section 7.01.Term and Termination.  

(a)This Agreement shall commence immediately upon the Effective Time and shall terminate upon the earliest to occur of: (i) the second anniversary of the Effective Time, (ii) the last date on which either Party is obligated to provide any Service to the other Party in accordance with the terms of this Agreement and the Schedules or (iii) the mutual written agreement of the Parties to terminate this Agreement in its entirety (the “Term”).

(b)Without prejudice to a Recipient’s rights with respect to a Force Majeure, a Recipient may from time to time terminate this Agreement with respect to any individual Service or a portion thereof:

(i)for any reason or no reason, upon providing the requisite prior written notice to the Provider pursuant to the Schedules and in any event, at least thirty (30) days’ prior notice; provided, however, that the Recipient shall pay to the Provider the necessary and reasonable documented out-of-pocket costs incurred prior to Provider’s receipt of such notice or in connection with the wind down of such Service other than any employee severance and relocation expenses; or

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(ii)if the Provider of such Service has failed to perform any of its material obligations under this Agreement with respect to such Service, and such failure continues to exist forty-five (45) days after receipt by the Provider of written notice of such failure from the Recipient. 

(c)Without prejudice to a Provider’s rights with respect to a Force Majeure, Provider may terminate this Agreement with respect to the entirety of any individual Service but not a portion thereof if the Recipient of such Service (i) has failed to pay Service Charges or Reimbursement Charges or any other amounts due under this Agreement with respect to such Service, and such failure shall continue to exist twenty (20) business days after receipt by the Recipient of written notice of such failure to pay from the Provider, or (ii) has failed to perform any of its other material obligations under this Agreement with respect to such Service, and such failure shall continue to exist forty-five (45) days after receipt by the Recipient of written notice of such failure from the Provider.

In the event that any Service is terminated other than at the end of a month, the Service Charge associated with such Service shall be pro-rated appropriately.  The Parties acknowledge that there may be interdependencies among the Services being provided under this Agreement that may not be identified on the applicable Schedules and agree that, if the Provider’s ability to provide a particular Service in accordance with this Agreement is materially and adversely affected by the termination of another Service in accordance with Section 7.01(b)(i), then the Parties shall negotiate in good faith to amend the Schedule relating to such affected continuing Service, which amendment shall be in writing and consistent with the terms of, and the pricing methodology used for, comparable services.

Section 7.02.Effect of Termination.  Upon termination of any Service pursuant to this Agreement, the Provider of the terminated Service will have no further obligation to provide the terminated Service, and the relevant Recipient will have no obligation to pay any future Service Charges relating to any such Service; provided, however, that the Recipient shall remain obligated to the relevant Provider for the (a) Service Charges and Reimbursement Charges owed and payable in respect of Services provided prior to the effective date of termination and (b) any applicable charges described in Section 7.01(b)(i), which charges shall be payable only in the event that the Recipient terminates any Service pursuant to Section 7.01(b)(i).  In connection with the termination of any Service, the provisions of this Agreement not relating solely to such terminated Service shall survive any such termination, and in connection with a termination of this Agreement, ARTICLE I, Section 4.02, Section 5.02, ARTICLE VI (including liability in respect of any indemnifiable Liabilities under this Agreement arising or occurring on or prior to the date of termination), ARTICLE VII, ARTICLE VIII, all confidentiality obligations under this Agreement and liability for all due and unpaid Service Charges and Reimbursement Charges and any applicable charges payable pursuant to Section 7.01(b)(i), shall continue to survive indefinitely.

Section 7.03.Force Majeure.  

(a)Neither Party (nor any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented,

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frustrated, hindered or delayed as a consequence of a Force Majeure; provided, however, that (i) such Party (or such Person) shall have exercised commercially reasonable efforts to minimize the effect of such Force Majeure on its obligations; and (ii) the nature, quality and standard of care that the Provider shall provide in delivering a Service after a Force Majeure shall be substantially the same as the nature, quality and standard of care that the Provider provides to its Affiliates with respect to such Service.  In the event of an occurrence of a Force Majeure, the Party whose performance is affected thereby shall give notice of suspension as soon as reasonably practicable to the other stating the date and extent of such suspension and the cause thereof, and such Party shall resume the performance of such obligations as soon as reasonably practicable after the removal of such cause. 

(b)During the period of a Force Majeure affecting the Provider, the Recipient shall be entitled to permanently terminate such Service(s) (and, in any event, shall be relieved of the obligation to pay Service Charges and Reimbursement Charges for such Services(s) throughout the duration of such Force Majeure) if a Force Majeure shall continue to exist for more than twenty (20) consecutive days, it being understood that the Recipient shall not be required to provide any advance notice of such termination to the Provider or pay any charges in connection therewith.

ARTICLE VIII
DISPUTE RESOLUTION; SERVICES MANAGERS

Notwithstanding anything to the contrary in the SDA, any Dispute (as defined below) shall be resolved exclusively in accordance with the following provisions of this ARTICLE VIII:

Section 8.01.Disputes.  Any controversy or claim arising out of or relating to this Agreement, or the breach hereof (a “Dispute”), shall be resolved: (a) first, by negotiation between the applicable Emergent Local Service Manager and the Aptevo Local Service Manager, then (if there remains a Dispute) negotiation between the Emergent Services Manager and the Aptevo Services Manager (each as defined below), and then (if there remains a Dispute) negotiation by and among the members of the Transition Committee, with the possibility of mediation as provided in Section 8.02; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 8.03. Each Party agrees on behalf of itself and each of its Subsidiaries that the procedures set forth in this ARTICLE VIII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.

Section 8.02.Negotiation and Mediation.  If either Party serves written notice of a Dispute upon the other party (a “Dispute Notice”), the Parties will first attempt to resolve such Dispute by direct discussions and negotiation (including as set forth in Section 8.01). If the parties to the Dispute agree, the Parties may also attempt to resolve the Dispute by a mediation administered by the International Institute for Conflict Prevention & Resolution (“CPR”) under its Mediation Procedure.

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Section 8.03.Arbitration.  

(a)If a Dispute is not resolved within forty-five (45) days (or later if mutually agreed by the Parties) after the service of a Dispute Notice, either Party shall have the right to commence arbitration. The arbitration shall be administered by the CPR pursuant to its Arbitration Rules and Procedures. References herein to any arbitration rules or procedures mean such rules or procedures as amended from time to time, including any successor rules or procedures, and references herein to the CPR include any successor thereto. The arbitration shall be before three (3) arbitrators. Each Party shall designate one arbitrator in accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Rules. The two Party-appointed arbitrators will select the third, who will serve as the panel’s chair or president. This arbitration provision, and the arbitration itself, shall be governed by the Laws of the State of Delaware and the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

(b)Consistent with the expedited nature of arbitration, each Party will, upon the written request of the other Party, promptly provide the other with copies of documents on which the producing Party may rely in support of or in opposition to any claim or defense. At the request of a Party, the arbitrators shall have the discretion to order examination by deposition of witnesses to the extent the arbitrator deems such additional discovery relevant and appropriate. Depositions shall be limited to a maximum of five (5) per Party and shall be held within forty-five (45) days of the grant of a request. Additional depositions may be scheduled only with the permission of the arbitrators, and for good cause shown. Each deposition shall be limited to a maximum of one (1) day’s duration. All objections are reserved for the arbitration hearing except for objections based on privilege and proprietary or confidential information. The Parties shall not utilize any other discovery mechanisms, including international processes and U.S. federal statutes, to obtain additional evidence for use in the arbitration. Any Dispute regarding discovery, or the relevance or scope thereof, shall be determined by the arbitrators, which determination shall be conclusive. All discovery shall be completed within sixty (60) days following the appointment of the arbitrators. All costs and fees relating to the retrieval, review and production of electronic discovery shall be paid by the Party requesting such discovery.

(c)The panel of arbitrators shall have no power to award non-monetary or equitable relief of any sort. The arbitrators shall have no power or authority, under the CPR Rules for Non-Administered Arbitration or otherwise, to relieve the Parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this Agreement. The award of the arbitrators shall be final, binding and the sole and exclusive remedy to the Parties. Either Party may seek to confirm and enforce any final award entered in arbitration, in any court of competent jurisdiction.

(d)Absent fraud or manifest error, any arbitral award issued hereunder shall be final and binding on the Parties.

(e)Except as may be required by Law or any applicable rules and regulations of any stock exchange, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both Parties.

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Section 8.04.Interim Relief.  At any time during the resolution of a Dispute between the Parties, either Party has the right to apply to any court of competent jurisdiction for interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the Parties’ rights or to maintain the Parties’ relative positions until such time as the arbitration award is rendered or the Dispute is otherwise resolved. 

Section 8.05.Remedies.  The arbitrators shall have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement nor any right or power to award punitive, exemplary or treble damages (or other multiple damages that are not actual damages).

Section 8.06.Expenses.  Each Party shall bear its own costs, expenses and attorneys’ fees in pursuit and resolution of any Dispute; provided, however, that, in the event of any arbitration with respect to any Dispute pursuant to Section 8.03 in which the arbitrator issues an arbitral award in an amount that is within ten percent (10%) of the amount of the most recent bona fide written settlement offer submitted by a Party and rejected by a Party in connection with such Dispute, then the Party that rejected such settlement offer shall bear both Parties’ costs, expenses and attorneys’ fees incurred in connection with such arbitration (including the fees and expenses of any arbitrator).

Section 8.07.Continuation of Services and Commitments.  Unless otherwise agreed in writing, the Parties shall, and shall cause their respective Subsidiaries to, continue to honor all commitments under this Agreement to the extent required by this Agreement during the course of dispute resolution pursuant to the provisions of this ARTICLE VIII with respect to all matters related to such Dispute.

Section 8.08.Transition Services Managers.  

(a)Emergent hereby appoints and designates the individual holding the Emergent position set forth on Exhibit A to act as its initial services manager (the “Emergent Services Manager”), who will be directly responsible for coordinating and managing the delivery of the Services and have authority to act on Emergent’s behalf with respect to matters relating to the provision of Services under this Agreement.  The Emergent Services Manager will be a member of the Transition Committee established pursuant to Section 2.14 of the SDA.  The Emergent Services Manager will work with the personnel of the Emergent Group to periodically address issues and matters raised by Aptevo relating to the provision of Services under this Agreement.  Notwithstanding the requirements of Section 9.06, all communications from Aptevo to Emergent pursuant to this Agreement regarding routine matters involving a Service shall be made through the individual specified as the local service manager (the “Emergent Local Service Manager”) with respect to such Service on the applicable Schedule or such other individual as may be specified by the Emergent Services Manager in writing and delivered to Aptevo by email or facsimile transmission with receipt confirmed.  Emergent shall notify Aptevo of the appointment of a different Emergent Services Manager or Emergent Local Service Manager(s), if necessary, in accordance with Section 9.06.

(b)Aptevo hereby appoints and designates the individual holding the Aptevo position set forth on Exhibit A to act as its initial services manager (the “Aptevo Services

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Manager”), who will be directly responsible for coordinating and managing the receipt of the Services and have authority to act on Aptevo’s behalf with respect to matters relating to this Agreement.  The Aptevo Services Manager will be a member of the Transition Committee established pursuant to Section 2.14 of the SDA.  The Aptevo Services Manager will work with the personnel of the Aptevo Group to periodically address issues and matters raised by Emergent relating to this Agreement.  Notwithstanding the requirements of Section 9.06, except for in-person communications made during the course of performing and receiving the Services, all communications from Emergent to Aptevo pursuant to this Agreement regarding routine matters involving a Service shall be made through the individual specified as the local service manager (the “Aptevo Local Service Manager”) with respect to such Service on the applicable Schedule or as specified by the Aptevo Services Manager in writing and delivered to Emergent by email or facsimile transmission with receipt confirmed.  Aptevo shall notify Emergent of the appointment of a different Aptevo Services Manager or Aptevo Local Service Manager(s), if necessary, in accordance with Section 9.06. 

ARTICLE IX
GENERAL PROVISIONS

Section 9.01.Provisions from the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and, therefore, that certain provisions of the SDA apply hereto (including any capitalized terms used but not defined herein), provided, however, that if there is any conflict between the terms of this Agreement and the terms of the SDA, the terms of this Agreement apply with respect to the subject matter hereof.  Sections 11.1 (Counterparts; Entire Agreement; Corporate Power), 11.2 (Governing Law), 11.6 (Severability), 11.10 (Headings), 11.11 (Survival of Covenants), 11.12 (Waivers of Default), 11.14 (Amendments) and 11.16 (No Set Off) of the SDA are incorporated herein by reference, mutatis mutandis.  

Section 9.02.No Agency.  Nothing in this Agreement shall be deemed in any way or for any purpose to constitute any Party an agent of an unaffiliated party in the conduct of such other party’s business.  A Provider of any Service under this Agreement shall act as an independent contractor and not as the agent of the Recipient in performing such Service, maintaining control over its employees, its subcontractors and their employees and complying with all withholding of income at source requirements, whether federal, national, state, local or foreign.

Section 9.03.Treatment of Confidential Information.  Each Party shall, and shall cause its Affiliates and its and their Representatives to, treat all Confidential Information of the other Party in accordance with Section 7.7 of the SDA.  For the avoidance of doubt, all proprietary or Confidential Information of (a) Aptevo or any Recipient that is received or accessed by any Provider or its personnel, agents or Representatives in the course of performing obligations under this Agreement constitutes Aptevo’s Confidential Information and (b) Emergent or any Provider that is received or accessed by any Recipient or its personnel, agents or Representatives in the course of performing obligations under this Agreement constitutes Emergent’s Confidential Information.

Section 9.04.Further Assurances.  Each Party covenants and agrees that, without any additional consideration, it shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate this Agreement.

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Section 9.05.Dispute Resolution.  Any Dispute shall be resolved in accordance with the procedures set forth in Article VIII of the SDA, which shall be the sole and exclusive procedures for the resolution of any such Dispute unless otherwise specified herein or in Article VIII of the SDA. 

Section 9.06.Notices.  Except with respect to routine communications by the Emergent Services Manager, Aptevo Services Manager, Emergent Local Services Manager and Aptevo Local Services Manager under Section 8.08, all notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.06):

(i)if to Emergent:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

 

(ii)if to Aptevo:

General Counsel
2401 4th Avenue
Suite 1050
Seattle, WA  98121

Section 9.07.Entire Agreement.  This Agreement, together with the documents referenced herein (including the SDA, the Quality Agreement and any other Ancillary Agreements) contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein.

Section 9.08.No Third-Party Beneficiaries.  Except as provided in ARTICLE VI with respect to Provider Indemnified Parties and Recipient Indemnified Parties, (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

Section 9.09.Interpretation.  Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and

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vice versa and words of one gender shall be held to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto and thereto) and not to any particular provision of this Agreement; (c) Article, Section, Exhibit and Schedule references are to the Articles, Sections, Exhibits and Schedules to this Agreement unless otherwise specified; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”; (f) the word “or” shall not be exclusive; (g) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to July 29, 2016, regardless of any amendment or restatement hereof; (h) the verb “will” means “shall”; (i) except where the context otherwise requires, references to Subsidiaries of Aptevo refers to Persons that will be Subsidiaries of Aptevo upon consummation of the Distribution; (j) Emergent and Aptevo have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; (k) a reference to any Person includes such Person’s successors and permitted assigns; (l) any reference to “days” means calendar days unless business days are expressly specified; and (m) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded, and if the last day of such period is not a business day, the period shall end on the next succeeding business day. 

Section 9.10.Assignability.  This Agreement shall not be assigned by operation of Law or otherwise without the prior written consent of Emergent and Aptevo, except that each Party may:

(a)assign all of its rights and obligations under this Agreement to any of its Subsidiaries (so long as it remains a Subsidiary); provided, that in connection with any such assignment, the assigning Party provides a guarantee to the non-assigning Party (in a form reasonably agreed upon) for any liability or obligation of the assignee under this Agreement; and

(b)in connection with the sale, transfer or other divestiture to an acquiror (that, in the case of an assignment by a Recipient, is not a competitor of the Provider) of all or substantially all of an entire product line, division or other business unit to which this Agreement relates, assign to the acquiror of such product line, division or other business unit its rights and obligations as a Recipient (in the case of an assignment by a Recipient) or a Provider (in the case of an assignment by a Provider) under this Agreement to the extent related to such product line, division or other business unit; provided that (i) in connection with any such assignment, the assigning Party provides a guarantee to the non-assigning Party (in a form reasonably agreed upon) for any liability or obligation of the assignee under this Agreement, (ii) any and all costs and expenses incurred by either Party in connection with such assignment (including in connection with clause (iii) of this proviso) shall be borne solely by the assigning Party, and (iii) the Parties shall in good faith negotiate any amendments to this Agreement, including the Schedules hereto, that may be necessary or appropriate in order to assign such Services.

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Section 9.11.Non-Recourse.  No past, present or future director, officer, employee, incorporator, member, partner, shareholder, Affiliate, agent, attorney or representative of either Emergent or Aptevo or their Affiliates shall have any liability for any Liabilities of Emergent or Aptevo, respectively, under this Agreement or for any claims based on, in respect of, or by reason of, the transactions contemplated by this Agreement. 

Section 9.12.Expenses.  Except as expressly set forth in this Agreement, all fees, costs and expenses incurred in connection with the preparation, execution, delivery and implementation of this Agreement will be borne by the Party incurring such fees, costs or expenses.

[The remainder of this page is intentionally left blank.]

 

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their respective duly authorized officers.

 

 

 

 

 

[Signature Page to Transition Services Agreement]

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Exhibit A

Services Managers

 

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Exhibit B

Quality Agreement

 

 

Exhibit 10.3

TAX MATTERS AGREEMENT

This Tax Matters Agreement (the “Agreement”) is entered into as of the 29th day of July, 2016, between Emergent BioSolutions Inc. (“EBSI”), a Delaware corporation, by and on behalf of itself and each Affiliate of EBSI, and Aptevo Therapeutics Inc. (“Aptevo” and, together with EBSI, the “Parties”), a Delaware corporation, by and on behalf of itself and each Affiliate of Aptevo.

R E C I T A L S:

WHEREAS, EBSI’s board of directors has determined that it is appropriate and advisable to: (i) separate the Aptevo Business from EBSI’s remaining businesses (the “Separation”), which will include the transfer of the assets (including interests in intangible assets and stock of subsidiaries) used in connection with the Aptevo Business to Aptevo (the “Contribution”); and (ii) following the Separation, make a distribution, on a pro rata basis, to holders of shares of common stock, par value $0.001 per share of EBSI (“EBSI Common Stock”), of all of the outstanding shares of common stock, par value $0.001 per share, of Aptevo (“Aptevo Common Stock”) owned by EBSI (the “Distribution” and, together with the Separation, the “Transactions”) (the date of such Distribution, the “Distribution Date”);

WHEREAS, EBSI and Aptevo intend that the Contribution and Distribution and certain other transactions effected as part of the Separation qualify for Tax-Free Status;

WHEREAS, as of the date hereof, EBSI is the common parent of an affiliated group of domestic corporations, including Aptevo, that has elected to file consolidated U.S. federal Income Tax Returns and, as a result of the Distribution, neither Aptevo nor any of its Affiliates will be a member of such group after the close of the Distribution Date; and

WHEREAS, in contemplation of the Distribution, EBSI and Aptevo desire to set forth their agreement on the rights and obligations of EBSI and Aptevo and their respective Affiliates with respect to the responsibility, handling and allocation of federal, state, local, and non-U.S. Taxes, and various other Tax matters;

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, EBSI and Aptevo (and their respective Affiliates) hereby covenant and agree as follows:

ARTICLE I

DEFINITIONS

For purposes of this Agreement (including the recitals hereof), the following terms have the following meaning, and capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings assigned to them in the Distribution Agreement.

 

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“Active Trade or Business” means the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder) by Aptevo and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) of the Non-Cangene Biosciences Component as conducted immediately prior to the Distribution.

“Affiliate” means any corporation, partnership, limited liability company, or other entity directly or indirectly Controlled by the entity in question; provided, however, that no member of the Aptevo Group shall be treated as an Affiliate of EBSI or any member of the EBSI Group.

“Agreement” has the meaning set forth in the Preamble.

“Aptevo” has the meaning set forth in the Preamble.

“Aptevo Business” has the meaning set forth in the Distribution Agreement.

“Aptevo Capital Stock” means all classes or series of capital stock of Aptevo, including (a) the Aptevo Common Stock, (b) all options, warrants and other rights to acquire such capital stock and (c) all instruments properly treated as stock in Aptevo for U.S. federal Income Tax purposes.

“Aptevo Common Stock” has the meaning set forth in the Recitals.

“Aptevo Group” means Aptevo and all Affiliates of Aptevo, as determined immediately after the Distribution.

“Aptevo Separate Return” means any Tax Return of or including any member of the Aptevo Group (including any consolidated, combined or unitary return) that is not a Joint Return.

“bioPharma” means bioPharma, Inc., a Delaware corporation.

“bioPharma Liquidation” has the meaning set forth in the IRS Ruling Request.

“Board Certificate” has the meaning set forth in Section 4.02(d) of this Agreement.

“Business” means the Emergent Business or Aptevo Business, as the case may be.

“Cangene Biosciences Component” has the meaning set forth in the IRS Ruling Request.

“Cangene US Liquidation” has the meaning set forth in the IRS Ruling Request.

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

“Contribution” has the meaning set forth in the Recitals.

“Control” means the ownership of stock or other securities possessing at least 50% of the total combined voting power of all classes of securities entitled to vote.

“Distribution” has the meaning set forth in the Recitals.

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“Distribution Agreement” means the Separation and Distribution Agreement entered into by and between EBSI and Aptevo on the date hereof, as the same may be amended.

“Distribution Date” has the meaning set forth in the Recitals.

“Distribution Losses” means (a) all Taxes (including interest and penalties thereon) imposed on EBSI (or any member of the EBSI Group) or Aptevo (or any member of the Aptevo Group) pursuant to any settlement, Final Determination, judgment or otherwise; (b) all accounting, legal and other professional fees, and court costs incurred in connection with such Taxes; and (c) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by EBSI (or any member of the EBSI Group) or Aptevo (or any member of the Aptevo Group) in respect of the liability of shareholders, whether paid to shareholders as a result of a settlement, judgement or similar action related to a stockholder litigation or controversy or to the IRS or any other Tax Authority in settlement or determination of the liability of shareholders, in each case, resulting from the failure of the Transactions to have Tax-Free Status.

“Distribution Tax Contest” means a Tax Contest with the purpose or effect of determining or redetermining Taxes that could give rise to Distribution Losses.

“EBSI” has the meaning set forth in the Preamble.

“EBSI Affiliated Group” means the affiliated group (as that term is defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which EBSI is the common parent.

 

“EBSI Capital Stock” means all classes or series of capital stock of EBSI, including (a) the EBSI Common Stock, (b) all options, warrants and other rights to acquire such capital stock and (c) all instruments properly treated as stock in EBSI for U.S. federal Income Tax purposes.

“EBSI Common Stock” has the meaning set forth in the Recitals.

“EBSI Federal Consolidated Income Tax Return” means any United States federal Income Tax Return for the EBSI Affiliated Group.

“EBSI Group” means EBSI and all Affiliates of EBSI, excluding any entity that is a member of the Aptevo Group.

“EBSI Separate Return” means any Tax Return of or including any member of the EBSI Group (including any consolidated, combined or unitary return) that is not a Joint Return.

“Emergent Business” has the meaning set forth in the Distribution Agreement.

“Employee Matters Agreement” means the Employee Matters Agreement entered into by and between EBSI and Aptevo on the date hereof, as the same may be amended.

“Employment Taxes” means any Tax the liability or responsibility for which is allocated pursuant to the Employee Matters Agreement.

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“Fifty-Percent or Greater Interest” has the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code, which generally means stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote or at least 50% of the total value of shares of all classes of stock.

“Final Determination” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the Laws of a state, local, or non-U.S. taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of Law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of a state, local, or non-U.S. taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (e) by a final settlement resulting from a treaty-based competent authority determination; or (f) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

“Income Tax” means any Tax which is based upon, measured by, or calculated with respect to income or net worth, including, without limitation, franchise or other similar taxes based upon, measured by, or calculated with respect to gross receipts, revenue, or other similar factors or activities.

“Income Tax Return” means any Tax Return relating to Income Taxes.

“Indemnifying Party” means a Party that has an obligation to make an Indemnity Payment.

“Indemnitee” means a Party that is entitled to receive an Indemnity Payment.

“Indemnity Payment” means an indemnity payment contemplated by this Agreement.

“IRS” means the United States Internal Revenue Service.

“IRS Ruling” means the private letter ruling issued by the IRS, on December 29, 2015, to EBSI in connection with the Transactions.

“IRS Ruling Request” means any letter filed by EBSI with the IRS requesting the IRS Ruling regarding certain Tax consequences of the Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter.

“Joint Return” means any Tax Return that actually includes, by election or otherwise, one or more members of the EBSI Group together with one or more members of the Aptevo Group.

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“License” means a license of intangible property, such as intellectual property, that is treated as a sale, transfer or assignment of such property for U.S. federal Income Tax purposes, such as an exclusive license of all substantial rights to such property to the licensee.

“Newco LLC” means Aptevo BioTherapeutics LLC.

“Non-Cangene Biosciences Component” has the meaning set forth in the IRS Ruling Request.

“Non-Income Tax” means any Tax that is not an Income Tax.

“Non-Income Tax Return” means any Tax Return relating to Non-Income Taxes.

“Notified Action” has the meaning set forth in Section 4.04(a).

“Parties” has the meaning set forth in the Preamble.

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. federal Income Tax purposes.

“Post-Distribution Tax Period” means any Tax Period beginning after the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Distribution Date.

“Pre-Distribution Tax Period” means any Tax Period ending on or before the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Distribution Date.

“Proposed Acquisition Transaction” means a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulation Section 1.355-7, or any other Treasury Regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by Aptevo management or shareholders, is a hostile acquisition, or otherwise, as a result of which Aptevo would merge or consolidate with any other Person or as a result of which one or more Persons would (directly or indirectly) acquire, or have the right to acquire, from Aptevo and/or one or more holders of outstanding shares of Aptevo Capital Stock, a number of shares of Aptevo Capital Stock that would, when combined with any other direct or indirect acquisitions (including issuances) of Aptevo Capital Stock in the four-year period beginning two years prior to the Distribution Date (other than acquisitions in the Transactions), comprise 40% or more of (a) the value of all outstanding shares of stock of Aptevo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (b) the total combined voting power of all outstanding shares of voting stock of Aptevo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include, and the following shall not be treated as acquisitions of Aptevo Capital Stock for purposes of determining whether the 40% threshold has been achieved, (x) the adoption by Aptevo of a shareholder rights plan, (y) issuances by Aptevo that satisfy Safe Harbor VIII

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(relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulation Section 1.355-7(d), and (z) acquisitions that satisfy Safe Harbor VII (relating to acquisitions in the public market) of Treasury Regulation Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof are intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in this definition and its interpretation.

“Records” has the meaning set forth in Section 5.01(a).

“Refund Recipient” has the meaning set forth in Section 2.06.

“Representation Letters” means the representation letters and any other materials (including, without limitation, the IRS Ruling Request and any Supplemental Ruling Request) delivered or deliverable by EBSI and others in connection with the rendering by Wilmer Cutler Pickering Hale and Dorr LLP or any other Tax Advisor, and/or the issuance by the IRS or any other Tax Authority, of the Tax Opinions/Rulings.

“Rulings” means, collectively, the IRS Ruling and any Supplemental Ruling and “Ruling” means any one of them.

“Section 336(e) Election” has the meaning set forth in Section 4.07.

“Section 4.02(d) Acquisition Transaction” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 30% instead of 40%.

“Separate Return” means an EBSI Separate Return or an Aptevo Separate Return, as the case may be.

“Separation” has the meaning set forth in the Recitals.

“Separation Taxes” means any Taxes (including, for the avoidance of doubt, Income Taxes and Transfer Taxes) imposed on any member of the EBSI Group or Aptevo Group arising from, or attributable to, any transfer of assets or liabilities in the Separation that are incurred on or prior to the Distribution Date, or that otherwise relate to transactions occurring on or prior to the Distribution Date; provided, however, that Separation Taxes shall not include any Distribution Losses.

“Straddle Period” means any Tax Period that begins on or before and ends after the Distribution Date.

“Supplemental Ruling” means a supplemental ruling issued by the IRS to EBSI or any other member of the EBSI Group in connection with the Transactions and any other ruling (other than

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the IRS Ruling) issued by a Tax Authority pursuant to a ruling request filed by or on behalf of the EBSI Group with respect to the Transactions.

“Supplemental Ruling Request” means any letter filed by EBSI with the IRS or any other Tax Authority requesting a Supplemental Ruling regarding certain Tax consequences of the Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendment or supplement to such ruling request letter.

“Tax” or “Taxes” means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, value added, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax), imposed by any governmental entity or political subdivision thereof, and any interest, penalty, additions to tax, or additional amounts in respect of the foregoing.

“Tax Advisor” means, with respect to U.S. Tax matters, a U.S. Tax counsel or accountant of recognized national standing, and, with respect to non-U.S. Tax matters, a local Tax counsel or accountant of recognized national standing in the relevant jurisdiction.

“Tax Attribute” means a net operating loss, net capital loss, overall foreign loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit, research and development credit or any other Tax Item that could reduce a Tax or create a Tax benefit.

“Tax Authority” means, with respect to any Tax, the governmental authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such authority or subdivision.

“Tax Benefit” means, with respect to a Tax Period, the amount by which the cash Tax liability of an entity (or of the consolidated or combined group of which it is a member) is reduced solely as a result of a Tax Item, or the amount of an actual Tax refund that is generated solely as a result of such Tax Item (plus any related interest received from any Tax Authority), in either case, by comparing the cash Tax liability or actual Tax refund on the applicable Tax Return that would arise with and without the Tax Item potentially giving rise to the Tax Benefit.

“Tax Contest” means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of determining or redetermining any Tax (including any administrative or judicial review of any claim for refund).

“Tax-Free Status” means the qualification of (I) the Contribution and the Distribution, taken together, (a) as a reorganization described in Sections 355(a) and 368(a)(1)(D) of the Code, and (b) as a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(d), 355(e) and 361(c) of the Code, and (II) each of the bioPharma Liquidation and Cangene US Liquidation as a complete liquidation described in Section 332 of the Code.

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“Tax Incentive” means any Tax exemption, Tax holiday, Tax incentive, preferential Tax treatment, Tax credit, or other Tax reduction agreement with a Tax Authority relating to the EBSI Group or the Aptevo Group.

“Tax Item” means any item of income, gain, loss, deduction, credit, recapture of credit, or any other item (including the basis or adjusted basis of property) which increases or decreases Taxes paid or payable in any Tax Period.

“Tax Law” means the Law of any governmental entity or political subdivision thereof relating to any Tax.

“Tax Opinion” means the written opinion on the U.S. federal Income Tax consequences of certain aspects of the Transactions provided by Wilmer Cutler Pickering Hale and Dorr LLP to EBSI on the date hereof.

“Tax Opinions/Rulings” means the Tax Opinion, any Unqualified Tax Opinion and/or the Rulings deliverable to any member of the EBSI Group in connection with the Transactions.

“Tax Period” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

“Tax Return” means any report of Tax due, any claims for refund of Tax paid, any information return with respect to Tax, any election made with respect to Tax, or any other similar report, statement, declaration, or document required to be filed under the Code or other Law with respect to Tax, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing for any taxpayer or consolidated, combined, or unitary group of taxpayers.

“Tax Return Preparer” means (i) with respect to any Tax Return that EBSI is responsible for preparing under Section 3.01(a), EBSI, and (ii) with respect to any Tax Return that Aptevo is responsible for preparing under Section 3.01(b), Aptevo.

“Transactions” has the meaning set forth in the Recitals.

“Transfer Taxes” means all transfer, sales, use, excise, stock, stamp, stamp duty, stamp duty reserve, stamp duty land, documentary, filing, recording, registration, value-added and other similar Taxes (excluding, for the avoidance of doubt, any income, gains, profit or similar Taxes, however assessed).

“Treasury Regulations” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

“Unqualified Tax Opinion” means an unqualified “will” opinion of a Tax Advisor, which Tax Advisor is reasonably acceptable to EBSI, on which EBSI may rely to the effect that a transaction will not affect the Tax-Free Status. Any such opinion may assume that the Transactions would have qualified for Tax-Free Status if the transaction in question did not occur.

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ARTICLE II

RESPONSIBILITY FOR TAX

Section 2.01 General Rule.

(a) EBSI Liability. Each member of the EBSI Group, jointly and severally, shall be liable for, and shall indemnify and hold harmless the Aptevo Group from and against any liability for, Taxes which are allocated to EBSI under this Article II.

(b) Aptevo Liability. Each member of the Aptevo Group, jointly and severally, shall be liable for, and shall indemnify and hold harmless the EBSI Group from and against any liability for, Taxes which are allocated to Aptevo under this Article II.

Section 2.02 Income Taxes. Except as provided in Section 2.04, all Income Taxes of the EBSI Group and Aptevo Group shall be allocated as follows:

(a) Pre-Distribution Income Taxes. EBSI shall be responsible for any and all Income Taxes imposed on the EBSI Group or the Aptevo Group with respect to any Pre-Distribution Tax Period (whether or not such Income Taxes are due and owing on any originally filed or amended Income Tax Return or as a result of any Final Determination or other adjustment made by a Tax Authority), including (i) any Income Taxes due and owing with respect to any Joint Return and (ii) any Income Taxes due and owing with respect to any Aptevo Separate Return to the extent attributable to the Pre-Distribution Tax Period, determined in accordance with Section 2.05 in the case of a Straddle Period.

(b) Post-Distribution Income Taxes. EBSI shall be responsible for any and all Income Taxes imposed on the EBSI Group for any Post-Distribution Tax Period (whether or not such Income Taxes are due and owing on any originally filed or amended Income Tax Return or as a result of any Final Determination or other adjustment made by a Tax Authority). Aptevo shall be responsible for any and all Income Taxes imposed on the Aptevo Group for any Post-Distribution Tax Period (whether or not such Income Taxes are due and owing on any originally filed or amended Income Tax Return or as a result of any Final Determination or other adjustment made by a Tax Authority), including any Income Taxes due and owing with respect to any Straddle Period to the extent attributable to the Post-Distribution Tax Period, determined in accordance with Section 2.05.

Section 2.03 Non-Income Taxes. Except as provided in Section 2.04, all Non-Income Taxes of the EBSI Group and Aptevo Group shall be allocated as follows:

(a) Pre-Distribution Non-Income Taxes. For all Pre-Distribution Tax Periods, EBSI shall be responsible for any and all Non-Income Taxes that are attributable to either the Emergent Business or the Aptevo Business.

(b) Post-Distribution Non-Income Taxes. For all Post-Distribution Tax Periods, (i) EBSI shall be responsible for any and all Non-Income Taxes attributable to the Emergent Business and (ii) Aptevo shall be responsible for any and all Non-Income Taxes attributable to the Aptevo Business.

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Section 2.04 Certain Transaction Taxes and Breaches of Covenants.

(a) The Parties acknowledge and agree that this Agreement, including Article II, shall not apply with respect to any and all Employment Taxes for which the Employee Matters Agreement shall govern.

(b) Any Separation Taxes shall be allocated to EBSI.

(c) EBSI shall be responsible for (i) any and all Distribution Losses for which EBSI is responsible pursuant to Section 4.05 of this Agreement and (ii) any and all Taxes resulting from a breach by any member of the EBSI Group of any covenant in this Agreement.

(d) Aptevo shall be responsible for (i) any and all Distribution Losses for which Aptevo is responsible pursuant to Section 4.05 of this Agreement and (ii) any and all Taxes resulting from a breach by any member of the Aptevo Group of any covenant in this Agreement.

Section 2.05 Proration of Taxes for Straddle Periods.

(a) For U.S. federal Income Tax purposes, the Tax Period of each member of the Aptevo Group that joined in the filing of the EBSI Federal Consolidated Income Tax Return will close as of the end of the Distribution Date, and Tax Items of the Aptevo Group shall be allocated on a closing of the books basis. No election under Treasury Regulation Section 1.1502-76(b)(2)(ii) relating to ratable allocation of a year’s items (or any analogous provision of state, local or non-U.S. Income Tax Laws) shall be made. EBSI and Aptevo shall take all commercially reasonable actions necessary or appropriate to close the taxable year of each member of the Aptevo Group for state, local or non-U.S. Income Tax purposes as of the end of the Distribution Date to the extent permitted by applicable Law; provided that this Section 2.05(a) shall not be construed to require EBSI to change any of its Tax Periods.

(b) For any Straddle Period, Taxes for the Pre-Distribution Tax Period shall be computed (i) in the case of Taxes imposed on a periodic basis (such as real, personal and intangible property Taxes), on a daily pro rata basis and (ii) in the case of other Taxes generally, as if the Tax Period ended as of the close of business on the Distribution Date and, in the case of any such other Taxes that are attributable to the ownership of any equity interest in a partnership, other “flowthrough” entity or “controlled foreign corporation” (within the meaning of Section 957(a) of the Code or any comparable state, local or non-U.S. Tax Law), as if the Tax Period of that entity ended as of the close of business on the Distribution Date (whether or not such Taxes arise in a Straddle Period of the applicable owner).

Section 2.06 Tax Refunds and Other Tax Benefits.

(a) Subject to Section 2.07, if EBSI, Aptevo or any of their respective Affiliates receives any refund of any Taxes which are allocated to the other Party under this Article II (a “Refund Recipient”), such Refund Recipient shall pay to the other Party the entire amount of the refund (including interest received from the relevant Tax Authority, but net of any Taxes imposed with respect to such refund and any other reasonable costs) within 10 business days of receipt thereof; provided, however, that the other Party, upon the request of such Refund Recipient, shall repay, within 10 business days of such request, the amount paid to the other Party (plus any penalties,

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interest or other charges imposed by the relevant Tax Authority) in the event such Refund Recipient is required by applicable Law to repay such refund. In the event a Party would be a Refund Recipient but for the fact it elected to apply a refund to which it would otherwise have been entitled against a Tax liability arising in a subsequent Tax Period, then such Party shall be treated as a Refund Recipient and the amount credited against such Tax liability shall be treated as a refund, and shall be paid within 10 business days of the due date of the Tax Return (including a Tax Return relating to estimated Taxes) to which such refund is applied to reduce the subsequent Tax liability.

(b) If a member of the Aptevo Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination to any Taxes for which a member of the EBSI Group is liable hereunder (or any Tax Attribute of a member of the EBSI Group) and such Tax Benefit would not have arisen but for such adjustment (determined on a “with and without” basis), or if a member of the EBSI Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination to any Taxes for which a member of the Aptevo Group is liable hereunder (or any Tax Attribute of a member of the Aptevo Group) and such Tax Benefit would not have arisen but for such adjustment (determined on a “with and without” basis), Aptevo or EBSI, as the case may be, shall make a payment to the other Party, within 30 days following such actual realization of the Tax Benefit, in an amount equal to such Tax Benefit actually realized in cash (including any Tax Benefit actually realized as a result of the payment). The payment shall be accompanied by a written calculation of the amount of the Tax Benefit payable to such other Party by EBSI or Aptevo pursuant to this Section 2.06(b).

Section 2.07 Carrybacks and Claims for Refund

(a) Aptevo hereby agrees that if a Tax Return of a member of the Aptevo Group for a Post-Distribution Tax Period reflects any Tax Attribute, then the applicable member of the Aptevo Group shall elect to relinquish, waive or otherwise forgo the right to carry back any such Tax Attribute to a Pre-Distribution Tax Period to the extent permissible under applicable Law. Such elections shall include, but not be limited to, the election described in

Treasury Regulation Section 1.1502-21(b)(3)(ii)(B), and any analogous election under state, local, or non-U.S. Income Tax Laws, to waive the carryback of net operating losses or other Tax Attributes for U.S. federal Income Tax and applicable state, local or non-U.S. Income Tax purposes.

(b) If, notwithstanding the provisions of Section 2.07(a), Aptevo is required to carry back a Tax Attribute to a Pre-Distribution Tax Period, EBSI shall remit to Aptevo any Tax Benefit that the EBSI Group actually realizes with respect to any such carryback within 30 days following such actual realization of the Tax Benefit.

(c) If Aptevo has a Tax Attribute that must be carried back to any Pre-Distribution Tax Period, Aptevo shall notify EBSI in writing that such Tax Attribute must be carried back. Such notification shall include a description in reasonable detail of the basis for any Tax Benefit and the amount thereof, and a certification by an appropriate officer of Aptevo setting forth Aptevo’s belief (together with supporting analysis) that the carryback of such Tax Attribute (including the amount of the carryback) is more likely than not correct.

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(d) If EBSI pays any amount to Aptevo under Section 2.07(b) and, as a result of a subsequent Final Determination, a Tax Benefit that gave rise to such payment is subsequently disallowed, EBSI shall notify Aptevo of the amount of the Tax Benefit disallowed, and Aptevo shall then repay, within 10 business days of such notification, such amount to EBSI, together with any interest, fines, additions to Tax, penalties or any additional amounts imposed by a Tax Authority relating thereto.

(e) For purposes of this Agreement, a Tax Benefit shall be deemed to have been realized at the time any actual refund of Taxes is received or applied against other cash Taxes due, or at the time of filing a Tax Return (including a Tax Return relating to estimated Taxes) on which a Tax Item is applied in reduction of cash Taxes that would otherwise be payable.

Section 2.08 Allocation of Earnings and Profits and Tax Attributes.

(a) The allocation of earnings and profits between EBSI and Aptevo shall be reasonably determined by EBSI pursuant to Section 312(h) of the Code and the relevant Treasury Regulations under the Code. EBSI shall provide Aptevo with a preliminary allocation of earnings and profits within 180 days of the Distribution Date.

(b) EBSI shall in good faith advise Aptevo in writing of the portion, if any, of the Tax Attributes, including overall foreign loss or consolidated, combined or unitary attributes, which EBSI determines shall be allocated or apportioned to the Aptevo Group under applicable Law. EBSI and all members of the Aptevo Group shall prepare all Tax Returns in accordance with such written notice.

(c) The allocations made under this Section 2.08 shall be revised by EBSI to reflect each subsequent Final Determination that affects such allocations. Each revised calculation shall be provided to Aptevo within 120 days of the Final Determination to which the revision relates.

 

ARTICLE III

TAX RETURNS, TAX CONTESTS AND

OTHER ADMINISTRATIVE MATTERS

Section 3.01 Responsibility for Preparing Tax Returns.

(a) Except as described in Section 3.01(b), EBSI shall timely prepare (i) any Joint Returns or Separate Returns that are required or permitted to be filed for any Tax Period beginning on or before the Distribution Date (including Straddle Periods), and (ii) any Joint Returns or EBSI Separate Returns that are required or permitted to be filed for any Tax Period beginning after the Distribution Date. If Aptevo is responsible for filing any such Tax Return under Section 3.03(a), EBSI shall, subject to Section 3.01(c), promptly deliver such prepared Tax Return to Aptevo reasonably in advance of the applicable filing deadline.

(b) Aptevo shall timely prepare any Aptevo Separate Returns that are required or permitted to be filed for any Tax Period beginning after the Distribution Date. If EBSI is responsible for filing any such Tax Return under Section 3.03(a), Aptevo shall, subject to Section 3.01(c), promptly

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deliver such prepared Tax Return to EBSI reasonably in advance of the applicable filing deadline.

(c) Subject to Section 3.01(d), to the extent that any Tax Return described in Section 3.01(a) or 3.01(b) directly relates to matters for which another Party may have an indemnification obligation to the Tax Return Preparer or an obligation to pay Taxes directly to a Tax Authority for which it is not indemnified pursuant to this Agreement, or that may give rise to a refund to which that other Party would be entitled under this Agreement, the Tax Return Preparer shall (i) prepare the relevant portions of the Tax Return on a basis consistent with past practice, except (A) as required by applicable Law or to correct any clear error, or (B) as mutually agreed by the Parties; (ii) notify the other Party of any such portions not prepared on a basis consistent with past practice; (iii) provide the other Party a reasonable opportunity to review the relevant portions of the Tax Return; (iv) consider in good faith any reasonable comments made by the other Party; and (v) use commercially reasonable efforts to incorporate, in the portion of such Tax Return related to the other Party’s potential indemnification obligation (or refund entitlement), any reasonable comments made by the other Party relating to the Tax Return Preparer’s compliance with clause (i). The Parties shall attempt in good faith to resolve any issues arising out of the review of any such Tax Return.

(d) EBSI shall have the exclusive right with respect to any Joint Return for Income Taxes to determine (i) the manner in which such Tax Return shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (ii) whether any extensions may be requested, (iii) the elections that will be made by any member of the group, and (iv) whether any amended Tax Returns should be filed. Aptevo hereby irrevocably designates, and agrees to cause each member of the Aptevo Group to so designate, EBSI as its sole and exclusive agent and attorney-in-fact to take such actions (including execution of documents) as EBSI, in its sole discretion, may deem appropriate in any and all matters relating to any Joint Return. Without limiting the foregoing, Aptevo and the members of the Aptevo Group shall file any and all consents, elections or other documents and take any other actions necessary or appropriate to file any Joint Return.

(e) Absent a change of Law or an applicable Final Determination otherwise, EBSI and Aptevo shall prepare all Tax Returns of the EBSI Group and/or Aptevo Group in accordance with and consistent with the IRS Ruling and Tax Opinion and any Supplemental Ruling or Unqualified Tax Opinion.

Section 3.02 Information Packages. Each Party (i) shall provide to the other Party (in the format reasonably determined by the other Party) all information and assistance requested by the other Party as reasonably necessary to prepare any Tax Return described in Section 3.01(a) or Section 3.01(b) on a timely basis consistent with past practices in preparing such Tax Returns and (ii) in so providing such information and assistance, shall use any systems and third party service providers as are consistent with past practices in preparing Tax Returns.

Section 3.03 Filing of Tax Returns and Payment of Taxes.

(a) Subject to Section 3.03(c), each Party shall execute and timely file each Tax Return that it is responsible for filing under applicable Law and shall timely pay to the relevant Tax Authority

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any amount shown as due on each such Tax Return. The obligation to make payments pursuant to this Section 3.03(a) shall not affect a Party’s right, if any, to receive payments under Section 3.03(b) or otherwise be indemnified with respect to that Tax liability.

(b) In addition to its obligations under Section 3.01(c), the relevant Tax Return Preparer shall, no later than 5 business days before the due date (including extensions) of any Tax Return described in Section 3.01(a) or Section 3.01(b), notify the other Party of any amount (or any portion of any such amount) shown as due on that Tax Return for which the other Party must indemnify the Tax Return Preparer under this Agreement. Such notice shall describe in reasonable detail how the indemnification amount was determined and copies of information supporting such determination shall be attached thereto. The other Party shall pay such amount to the Tax Return Preparer no later than the due date (including extensions) of the relevant Tax Return. A failure by an Indemnitee to give notice as provided in this Section 3.03(b) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(c) Aptevo shall not file (or allow any member of the Aptevo Group to file) any amended Tax Return (including any Joint Return or Aptevo Separate Return) for any Pre-Distribution Tax Period without the consent of EBSI, which consent shall not be unreasonably withheld, conditioned or delayed.

Section 3.04 Tax Contests

(a) EBSI or Aptevo, as applicable, shall, within 10 business days of becoming aware of any Tax Contest (including a Distribution Tax Contest) that could reasonably be expected to cause the other Party to have an indemnification obligation under this Agreement, notify the other Party of such Tax Contest and thereafter promptly forward or make available to the Indemnifying Party copies of notices and communications relating to the relevant portions of such Tax Contest. A failure by an Indemnitee to give notice as provided in this Section 3.04(a) (or to promptly forward any such notices or communications) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(b) Subject to Section 3.04(c), EBSI and Aptevo each shall have the exclusive right to control the conduct and settlement of any Tax Contest, other than a Distribution Tax Contest, relating to any Tax Return that it is responsible for preparing pursuant to Section 3.01. Notwithstanding the foregoing, if the conduct or settlement of any portion or aspect of any such Tax Contest could reasonably be expected to cause the other Party to have an indemnification obligation under this Agreement or an obligation to pay Taxes directly to a Tax Authority for which it is not indemnified pursuant to this Agreement, then (i) the other Party shall have the right to share joint control over the conduct and settlement of that portion or aspect and (ii) whether or not the other Party exercises that right, the Tax Return Preparer shall not accept or enter into any settlement with respect to such portion or aspect without the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed.

(c) EBSI shall have the exclusive right to control the conduct and settlement of any Tax Contest relating to any Joint Return for Income Taxes.

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(d) EBSI shall have the exclusive right to control the conduct and settlement of any Distribution Tax Contest; provided that if the conduct or settlement of any portion or aspect of any such Tax Contest could reasonably be expected to cause the Aptevo Group to have an indemnification obligation under this Agreement, then (i) EBSI shall provide Aptevo with a reasonable opportunity to participate in such Tax Contest, including a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest and providing Aptevo with copies of any written materials relating to such Tax Contest received from the relevant Tax Authority and (ii) EBSI shall not accept or enter into any settlement without the consent of Aptevo, which shall not be unreasonably withheld, conditioned or delayed.

(e) In any case where the Parties control jointly the conduct and settlement of any Tax Contest (or portion or aspect thereof): (i) neither Party shall accept or enter into any settlement of such Tax Contest (or the relevant portion or aspect thereof) without the consent of the other Party, which shall not be unreasonably withheld, conditioned or delayed, (ii) both Parties shall have a right to review and consent to, which consent shall not be unreasonably withheld, conditioned or delayed, any correspondence or filings to be submitted to any Tax Authority with respect to such Tax Contest (or the relevant portion or aspect thereof) and (iii) both Parties shall have the right to attend any formally scheduled meetings or hearings with any Tax Authority.

Section 3.05 Reliance by EBSI. If any member of the Aptevo Group supplies information to a member of the EBSI Group in connection with a Tax liability and an officer of a member of the EBSI Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the EBSI Group identifying the information being so relied upon, the chief financial officer of Aptevo (or any officer of Aptevo as designated by the chief financial officer of Aptevo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. Each member of the Aptevo Group, jointly and severally, agrees to indemnify and hold harmless each member of the EBSI Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the Aptevo Group having supplied, pursuant to this Article III, a member of the EBSI Group with inaccurate or incomplete information in connection with a Tax liability.

Section 3.06 Reliance by Aptevo. If any member of the EBSI Group supplies information to a member of the Aptevo Group in connection with a Tax liability and an officer of a member of the Aptevo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Aptevo Group identifying the information being so relied upon, the chief financial officer of EBSI (or any officer of EBSI as designated by the chief financial officer of EBSI) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. Each member of the EBSI Group, jointly and severally, agrees to indemnify and hold harmless each member of the Aptevo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the EBSI Group having supplied, pursuant to this Article III, a member of the Aptevo Group with inaccurate or incomplete information in connection with a Tax liability.

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Section 3.07 Tax Incentives. EBSI or Aptevo, as applicable, shall (i) provide written notice to the other Party describing any proposed action that could reasonably be expected to cause the other Party to lose all or any part of, or otherwise affect the terms and conditions of, any Tax Incentive granted to the other Party by any Tax Authority, or that could reasonably be expected to cause the other Party to repay any Tax Incentive previously granted by any Tax Authority and (ii) shall consult with the other Party regarding any such proposed action reasonably in advance of taking such action.

Section 3.08 Expenses and Applicability. After the Distribution, each Party shall bear its own expenses for preparing any Tax Returns that it is responsible for preparing pursuant to Section 3.01 and related to any Tax Contest, other than expenses included in the definition of Distribution Losses.

Section 3.09 Option Deductions.

(a) The EBSI Group shall be entitled to claim any Income Tax deduction attributable to the vesting, exercise, disqualifying disposition, payment or other relevant taxable event, as appropriate, in respect of restricted stock, options, or other equity awards with respect to EBSI Capital Stock, and no member of the Aptevo Group shall attempt to claim any such Tax deduction. The EBSI Group shall withhold applicable Taxes and satisfy applicable Tax reporting requirements with respect to such equity awards.

(b) The Aptevo Group shall be entitled to claim any Income Tax deduction attributable to the vesting, exercise, disqualifying disposition, payment or other relevant taxable event, as appropriate, in respect of restricted stock, options, or other equity awards with respect to Aptevo Capital Stock, and no member of the EBSI Group shall attempt to claim any such Tax deduction. Aptevo shall withhold applicable Taxes and satisfy applicable Tax reporting requirements with respect to such equity awards.

(c) To the extent any Tax deduction claimed by any member of the EBSI Group in accordance with this Section is disallowed to any and all members of the EBSI Group and a Tax Authority makes a Final Determination that a member of the Aptevo Group is entitled to such deduction, EBSI shall notify Aptevo of the receipt of such Final Determination, promptly after receipt thereof, and Aptevo shall pay to EBSI the amount of its Tax Benefit resulting from such deduction within 30 days after notification from EBSI or, if later, realization of such Tax Benefit. To the extent any Tax deduction claimed by any member of the Aptevo Group in accordance with this Section is disallowed to any and all members of the Aptevo Group and a Tax Authority makes a Final Determination that a member of the EBSI Group is entitled to such deduction, Aptevo shall notify EBSI of the receipt of such Final Determination, promptly after receipt thereof, and EBSI shall pay to Aptevo the amount of its Tax Benefit resulting from such deduction within 30 days after notification from Aptevo or, if later, realization of such Tax Benefit.

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ARTICLE IV

TAX-FREE STATUS

Section 4.01 Tax Opinion/Rulings and Representation Letters. Each of EBSI and Aptevo hereby represents and agrees that (i) it has read the Representation Letters delivered to Wilmer Cutler Pickering Hale and Dorr LLP in connection with the rendering of the Tax Opinion on the date of this Agreement and has read the Representation Letters (including the IRS Ruling Request) delivered to the IRS in connection with obtaining the IRS Ruling and (ii) subject to any qualifications therein, all information contained in such Representation Letters and the IRS Ruling that concerns or relates to such Party or its Affiliates is true, correct and complete as of the date hereof.

Section 4.02 Restrictions on Aptevo.

(a) Aptevo agrees that it will not take or fail to take, or permit any member of the Aptevo Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material, information, covenant or representation in any Representation Letters or Tax Opinions/Rulings. Aptevo agrees that it will not take or fail to take, or permit any member of the Aptevo Group to take or fail to take, any action which prevents or could reasonably be expected to prevent the Tax-Free Status of the Transactions, including issuing any Aptevo Capital Stock that would prevent the Distribution from qualifying as a tax-free distribution with respect to EBSI pursuant to Section 355(e) of the Code.

(b) Aptevo agrees that, from the date hereof until the first day after the two-year anniversary of the Distribution Date, it will (i) maintain its status as a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code and (ii) not engage in any transaction that would result in it ceasing to be a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, in each case, taking into account Section 355(b)(3) of the Code.

(c) Aptevo agrees that, from the date hereof until the first day after the two-year anniversary of the Distribution Date, it shall not (and shall not cause or permit any of its Affiliates to), in a single transaction or series of transactions:

(i) enter into any Proposed Acquisition Transaction or, to the extent Aptevo has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (A) redeeming rights under a shareholder rights plan, (B) finding a tender offer to be a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction, (C) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the Delaware General Corporation Law or any similar corporate statute, any “fair price” or other provision of Aptevo’s charter or bylaws or otherwise, or (D) amending its certificate of incorporation to declassify its board of directors or approving any such amendment, or otherwise);

(ii) liquidate, partially liquidate, merge or consolidate with any other Person that was not already wholly owned by a member of the Aptevo Group prior to such transaction;

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(iii) (A) sell, transfer, assign or License all or substantially all of the assets that were transferred to Aptevo as part of the Contribution or (B) sell, transfer, assign or License 25% or more of the gross assets of the Active Trade or Business conducted by Aptevo and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) (such percentage to be measured based on fair market value as of the Distribution Date);

(iv) redeem or otherwise repurchase (directly or through an Affiliate) any Aptevo Capital Stock, or rights to acquire Aptevo Capital Stock, except to the extent such repurchases satisfy the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48), which are set forth on Schedule I;

(v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of Aptevo Capital Stock (including, without limitation, through the conversion of one class of Aptevo Capital Stock into another class of Aptevo Capital Stock);

(vi) elect to treat Newco LLC as a corporation under Treasury Regulation Section 301.7701-3 or otherwise transfer the assets of bioPharma transferred to Newco LLC in the Transactions to a corporation (other than Aptevo) for U.S. federal Income Tax purposes;

(vii) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation made in the Representation Letters or the Tax Opinions/Rulings) which in the aggregate (and taking into account any other transactions described in this subparagraph (c)) would be reasonably likely to have the effect of causing or permitting one or more Persons (whether or not acting in concert) to acquire directly or indirectly stock representing a Fifty-Percent or Greater Interest in Aptevo or otherwise jeopardize the Tax-Free Status of the Transactions;

unless, prior to taking any such action set forth in the foregoing clauses (i) through (vii), (A) Aptevo shall have requested that EBSI obtain a Supplemental Ruling in accordance with Section 4.04 of this Agreement to the effect that such action will not affect the Tax-Free Status of the Transactions and EBSI shall have received such a Supplemental Ruling in form and substance reasonably satisfactory to EBSI (and in determining whether a Supplemental Ruling is reasonably satisfactory, EBSI may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations made in connection with such Ruling), (B) Aptevo shall provide EBSI with an Unqualified Tax Opinion in form and substance reasonably satisfactory to EBSI (and in determining whether an opinion is reasonably satisfactory, EBSI may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the opinion and EBSI may determine that no opinion would be acceptable to EBSI) or (C) EBSI shall have waived in writing the requirement to obtain such Supplemental Ruling or Unqualified Tax Opinion.

(d) If Aptevo proposes to enter into any Section 4.02(d) Acquisition Transaction or, to the extent Aptevo has the right to prohibit any Section 4.02(d) Acquisition Transaction, proposes to permit any Section 4.02(d) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first day after the two-year anniversary of the Distribution Date, Aptevo

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shall provide EBSI, no later than 10 days prior to the signing of any written agreement with respect to the Section 4.02(d) Acquisition Transaction, with a written description of such transaction (including the type and amount of Aptevo Capital Stock to be issued or acquired in such transaction) and a certificate of the board of directors of Aptevo to the effect that the Section 4.02(d) Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 4.02(c) apply (a “Board Certificate”).

(e) Aptevo agrees that, from the date hereof until the first day after the six-month anniversary of the Distribution Date, it shall not (and shall not cause or permit any of its Affiliates to) sell, transfer, assign or License or negotiate or otherwise pursue (e.g., by engaging investment bankers) the sale, transfer, assignment or License of all or substantially all of the assets of the Cangene Biosciences Component to any Person (other than its Affiliates) unless, prior to taking any such action, (A) Aptevo shall have requested that EBSI obtain a Supplemental Ruling in accordance with Section 4.04 of this Agreement to the effect that such action will not affect the Tax-Free Status of the Transactions and EBSI shall have received such a Supplemental Ruling in form and substance reasonably satisfactory to EBSI (and in determining whether a Supplemental Ruling is reasonably satisfactory, EBSI may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations made in connection with such Ruling), (B) Aptevo shall provide EBSI with an Unqualified Tax Opinion in form and substance reasonably satisfactory to EBSI (and in determining whether an opinion is reasonably satisfactory, EBSI may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the opinion and EBSI may determine that no opinion would be acceptable to EBSI) or (C) EBSI shall have waived in writing the requirement to obtain such Supplemental Ruling or Unqualified Tax Opinion.

Section 4.03 Restrictions on EBSI. EBSI agrees that it will not take or fail to take, or permit any member of the EBSI Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material, information, covenant or representation in any Representation Letters or Tax Opinions/Rulings. EBSI agrees that it will not take or fail to take, or permit any member of the EBSI Group to take or fail to take, any action which prevents or could reasonably be expected to prevent the Tax-Free Status of the Transactions, including issuing any EBSI Capital Stock that would prevent the Distribution from qualifying as a tax-free distribution with respect to EBSI pursuant to Section 355(e) of the Code.

Section 4.04 Procedures Regarding Opinions and Rulings.

(a) If Aptevo notifies EBSI that it desires to take one of the actions described in clauses (i) through (vii) of Section 4.02(c) or Section 4.02(e) (a “Notified Action”), EBSI and Aptevo shall reasonably cooperate to attempt to obtain the Supplemental Ruling or Unqualified Tax Opinion referred to in Section 4.02(c) or Section 4.02(e), unless EBSI shall have waived the requirement to obtain such Supplemental Ruling or Unqualified Tax Opinion. In no event shall EBSI be required to file any Supplemental Ruling Request under this Section 4.04(a) unless Aptevo represents that (i) it has read the Supplemental Ruling Request, and (ii) all information and representations, if any, relating to any member of the Aptevo Group contained in the Supplemental Ruling Request documents are (subject to any qualifications therein) true, correct and complete. Aptevo shall reimburse EBSI for all reasonable costs and expenses incurred by the

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EBSI Group in obtaining a Supplemental Ruling or Unqualified Tax Opinion requested by Aptevo within 10 business days after receiving an invoice from EBSI therefor.

(b) EBSI shall have the right to obtain a Supplemental Ruling or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If EBSI determines to obtain a Supplemental Ruling or an Unqualified Tax Opinion, Aptevo shall (and shall cause each Affiliate of Aptevo to) cooperate with EBSI and take any and all actions reasonably requested by EBSI in connection with obtaining the Supplemental Ruling or Unqualified Tax Opinion, including, without limitation, by making any representation or covenant or providing any materials or information, in each case as reasonably requested by the IRS or Tax Advisor; provided that Aptevo shall not be required to make (or cause any Affiliate of Aptevo to make) any representation or covenant that is inconsistent with historical facts or any covenant as to future matters or events over which it has no control. EBSI and Aptevo shall each bear its own costs and expenses in obtaining a Supplemental Ruling or an Unqualified Tax Opinion requested by EBSI.

(c) Aptevo hereby agrees that EBSI shall have sole and exclusive control over the process of obtaining any Supplemental Ruling, and that only EBSI shall apply for a Supplemental Ruling. In connection with obtaining a Supplemental Ruling pursuant to Section 4.04(a), (i) EBSI shall keep Aptevo informed in a timely manner of all material actions taken or proposed to be taken by EBSI in connection therewith; (ii) EBSI shall (A) reasonably in advance of the submission of any Supplemental Ruling Request documents provide Aptevo with a draft copy thereof, (B) reasonably consider Aptevo’s comments on such draft copy, and (C) provide Aptevo with a final copy; and (iii) EBSI shall provide Aptevo with notice reasonably in advance of, and Aptevo shall have the right to attend, any formally scheduled meetings with the IRS (subject to the approval of the IRS) that relate to such Ruling. Neither Aptevo nor any Affiliates of Aptevo shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning the Transactions.

Section 4.05 Liability for Distribution Losses.

(a) Notwithstanding anything in this Agreement or the Distribution Agreement to the contrary, subject to Section 4.05(c), each member of the Aptevo Group, jointly and severally, shall be responsible for, and shall indemnify and hold harmless EBSI and each of its Affiliates and each of their respective officers, directors and employees from and against, 100% of any Distribution Losses that are attributable to or result from any one or more of the following: (i) the acquisition (other than pursuant to the Transactions) of all or a portion of the stock and/or assets of Aptevo and/or any member of the Aptevo Group by any means whatsoever by any Person, (ii) any negotiations, understandings, agreements or arrangements by Aptevo with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly Aptevo Capital Stock representing a Fifty-Percent or Greater Interest therein, (iii) any act or failure to act by Aptevo or any member of the Aptevo Group described in Section 4.02 (regardless of whether such act or failure to act is covered by a Supplemental Ruling, Unqualified Tax Opinion or waiver described in clause (A), (B) or (C) of Section 4.02(c) or Section 4.02(e) or a Board Certificate described in Section 4.02(d)) or (iv) any breach by Aptevo of its agreement and representation set forth in Section 4.01.

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(b) Notwithstanding anything in this Agreement or the Distribution Agreement to the contrary, subject to Section 4.05(c), each member of the EBSI Group, jointly and severally, shall be responsible for, and shall indemnify and hold harmless Aptevo and its Affiliates and each of their respective officers, directors and employees from and against, 100% of any Distribution Losses that are attributable to or result from any one or more of the following: (i) the acquisition (other than pursuant to the Transactions) of all or a portion of the stock and/or assets of EBSI and/or any member of the EBSI Group by any means whatsoever by any Person, (ii) any negotiations, understandings, agreements or arrangements by EBSI with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly EBSI Capital Stock representing a Fifty-Percent or Greater Interest therein, (iii) any act or failure to act by EBSI or any member of the EBSI Group described in Section 4.03, or (iv) any breach by EBSI of its agreement and representation set forth in Section 4.01.

(c)

(i) To the extent that any Distribution Loss is subject to indemnity under both Section 4.05(a) and Section 4.05(b), responsibility for such Distribution Loss shall be shared by EBSI and Aptevo according to relative fault. For the avoidance of doubt, if neither EBSI nor Aptevo is responsible for any Distribution Loss pursuant to this Section 4.05, EBSI shall be responsible, pursuant to Section 2.02 of this Agreement, for such Distribution Loss to the extent such loss is comprised of Taxes imposed on EBSI (or any member of the EBSI Group) or Aptevo (or any member of the Aptevo Group) and costs incurred in connection with such Taxes.

(ii) For purposes of calculating the amount and timing of any Distribution Loss for which any member of the Aptevo Group is responsible under this Section 4.05, Distribution Losses shall be calculated by assuming that EBSI, the EBSI Affiliated Group and each member of the EBSI Group (I) pay Tax at the highest marginal corporate Tax rates in effect in each relevant Tax Period and (II) have no Tax Attributes in any relevant Tax Period.

(iii) Notwithstanding anything in Section 4.05(b) or Section 4.05(c)(i) or any other provision of this Agreement or the Distribution Agreement to the contrary, with respect to (I) any Distribution Loss resulting from the application of Section 355(e) of the Code as a result of an acquisition of a Fifty-Percent or Greater Interest in Aptevo and (II) any other Distribution Loss resulting (for the absence of doubt, in whole or in part, if such Distribution Loss would not have resulted but for such acquisition) from an acquisition after the Distribution of any stock or assets of Aptevo (or any member of the Aptevo Group) by any means whatsoever by any Person, each member of the Aptevo Group, jointly and severally, shall be responsible for, and shall indemnify and hold harmless EBSI and its Affiliates and each of their respective officers, directors and employees from and against, 100% of such Distribution Loss.

(iv) Notwithstanding anything in Section 4.05(a) or Section 4.05(c)(i) or any other provision of this Agreement or the Distribution Agreement to the contrary, with respect to (I) any Distribution Loss resulting from the application of Section 355(e) of the Code as a result of an acquisition of a Fifty-Percent or Greater Interest in EBSI and (II) any other Distribution Loss resulting (for the

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absence of doubt, in whole or in part, if such Distribution Loss would not have resulted but for such acquisition) from an acquisition after the Distribution of any stock or assets of EBSI (or any member of the EBSI Group) by any means whatsoever by any Person, each member of the EBSI Group, jointly and severally, shall be responsible for, and shall indemnify and hold harmless Aptevo and its Affiliates and each of their respective officers, directors and employees from and against, 100% of such Distribution Loss.

Section 4.06 Reporting. EBSI and Aptevo shall (i) timely file any appropriate information and statements (including as required by Section 6045B of the Code and Treasury Regulation Section 1.355-5 and, to the extent applicable, Treasury Regulation Section 1.368-3) to report each step of the Transactions as qualifying for its Tax-Free Status and (ii) absent a change of Law or an applicable Final Determination otherwise, not take any position on any Tax Return or in any Tax Contest that is inconsistent with such qualification.

Section 4.07 Section 336(e) Election. If EBSI determines, in its sole discretion, that a protective election under Section 336(e) of the Code (a “Section 336(e) Election”) shall be made with respect to the Distribution, Aptevo shall join with EBSI in the making of such election and shall take any action reasonably requested by EBSI or that is otherwise necessary to give effect to such election (including making any other related election). If a Section 336(e) Election is made with respect to the Distribution, in the event the Contribution and Distribution fail to have Tax-Free Status and EBSI is not entitled to indemnification for the Distribution Losses arising from such failure, Aptevo shall pay over to EBSI any Tax Benefits realized by any member of the Aptevo Group arising from the step-up in Tax basis resulting from the Section 336(e) Election net of any costs related to realizing such Tax Benefits; provided, however, that Aptevo shall not be required to pay EBSI for any Tax Benefits realized after December 31, 2036.

ARTICLE V

PROCEDURAL MATTERS

Section 5.01 Cooperation. Each Party shall cooperate with reasonable requests from the other Party in matters covered by this Agreement, including in connection with the preparation and filing of Tax Returns, the calculation of Taxes, the determination of the proper financial accounting treatment of Tax Items and the conduct and settlement of Tax Contests. Such cooperation shall include:

(a) retaining until the expiration of the relevant statute of limitations (including extensions) records, documents, accounting data, computer data and other information (“Records”) necessary for the preparation, filing, review, audit or defense of all Tax Returns relevant to an obligation, right or liability of either Party under this Agreement;

(b) providing the other Party reasonable access to Records and to its personnel (ensuring their cooperation) and premises during normal business hours to the extent relevant to an obligation, right or liability of the other Party under this Agreement or otherwise reasonably required by the other Party to complete Tax Returns or to compute the amount of any payment contemplated by this Agreement; and

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(c) notifying the other Party prior to disposing of any relevant Records and affording the other Party the opportunity to take possession or make copies of such Records at its discretion.

Section 5.02 Interest. Any payments required pursuant to this Agreement that are not made within the time period specified in this Agreement shall bear interest from the end of that period. Interest required to be paid pursuant to this Agreement shall, unless otherwise specified, accrue interest at a rate per annum equal to the Prime Rate plus 5% (or, if lower, the maximum rate permitted by applicable Law).

Section 5.03 Indemnification Claims and Payments.

(a) An Indemnitee shall be entitled to make a claim for payment with respect to damages, including Taxes, under this Agreement when the Indemnitee determines that it is entitled to such payment and is able to calculate with reasonably accuracy the amount of such payment. Except as otherwise provided in Section 3.03(b), the Indemnitee shall provide to the Indemnifying Party notice of such claim within 60 business days of the first date on which it so becomes entitled to make such claim. Such notice shall include a description of such claim and a detailed calculation of the amount claimed.

(b) Except as otherwise provided in Section 3.03(b) or otherwise in this Agreement, the Indemnifying Party shall make the claimed payment to the Indemnitee within 30 business days after receiving such notice, unless the Indemnifying Party reasonably disputes its liability for, or the amount of, such payment.

(c) A failure by an Indemnitee to give notice as provided in Section 3.03(b) or 5.03(a) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(d) Nothing in this Section 5.03 shall prejudice a Party’s right to receive payments pursuant to Section 3.03(b).

(e) Any Indemnity Payment under this Agreement shall be determined taking into account any Tax Benefits resulting from the payment of such damages by the Indemnitee (for example, the deductibility of state taxes) in the Tax Period the Indemnity Payment is made or any prior Tax Period.

Section 5.04 Treatment of Indemnity Payments. In the absence of any change in Tax treatment under the Code or other applicable Tax Law and except as provided in Section 5.02, any payments made by a Party under this Agreement shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the Distribution (but only to the extent that the payment does not relate to a Tax allocated to the payor in accordance with Section 1552 of the Code or the Treasury Regulations thereunder or Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws)) or as payments of an assumed or retained liability.

Section 5.05 Tax Gross-Up. If (i) notwithstanding the manner in which any payment under this Agreement is reported, there is a Final Determination with respect to the Tax liability of a Party as a result of its receipt of a payment pursuant to this Agreement or (ii) any deduction or

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withholding is required by Law to be made from any payment (other than an interest payment) under this Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof or the amount of all deduction or withholding required by Law with respect to such payment, as applicable (in each case, taking into account all correlative Tax Benefits resulting from the payment, or deduction or withholding, of such Income Taxes), shall equal the amount of the payment which the Party receiving such payment would otherwise be entitled to receive pursuant to this Agreement.

Section 5.06 Dispute Resolution. Subject to Section 6.06, Section 6.07, and Section 6.16, any and all disputes between EBSI and Aptevo arising out of any provision of this Agreement shall be resolved through the procedures provided in Article VIII of the Distribution Agreement; provided, however, that any disputes between EBSI and Aptevo relating to Distribution Losses shall be settled in a court of law or as otherwise agreed to by the Parties.

ARTICLE VI

MISCELLANEOUS

Section 6.01 Termination. This Agreement will terminate without further action at any time before the Distribution upon termination of the Distribution Agreement. If terminated, no Party will have any Liability of any kind to the other Party or any other Person on account of this Agreement, except as provided in the Distribution Agreement.

Section 6.02 Survival. Except as expressly set forth in this Agreement, the covenants and indemnification obligations in this Agreement shall survive the Distribution and shall remain in full force and effect.

Section 6.03 Distribution Agreement. The Parties agree that, in the event of a conflict between the terms of this Agreement and the Distribution Agreement with respect to the subject matter hereof, the terms of this Agreement shall govern.

Section 6.04 Confidentiality. Each Party hereby acknowledges that Confidential Information of such Party or its Affiliates may be exposed to employees and agents of the other Party or its Affiliates as a result of the activities contemplated by this Agreement. Each Party agrees, on behalf of itself and its Affiliates, that such Party’s obligations with respect to Confidential Information and data of the other Party or its Affiliates shall be governed by the Distribution Agreement.

Section 6.05 Counterparts; Entire Agreement.

(a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and a facsimile or PDF signature shall constitute an original for all purposes.

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(b) This Agreement, the Distribution Agreement, the other Ancillary Agreements and the Appendices, Exhibits and Schedules hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein.

 

Section 6.06 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws and principles of the State of Delaware, as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies.

Section 6.07 Waiver of Jury Trial; Choice of Venue. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES THAT JURISDICTION AND VENUE IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY ANY PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT (INCLUDING ANY SUIT, ACTION OR PROCEEDING SEEKING EQUITABLE RELIEF) SHALL PROPERLY AND EXCLUSIVELY LIE IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE (THE “COURT OF CHANCERY”) OR, TO THE EXTENT THE COURT OF CHANCERY DOES NOT HAVE SUBJECT MATTER JURISDICTION, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE AND THE APPELLATE COURTS HAVING JURISDICTION OF APPEALS IN SUCH COURTS (THE “DELAWARE FEDERAL COURT”) OR, TO THE EXTENT NEITHER THE COURT OF CHANCERY NOR THE DELAWARE FEDERAL COURT HAS SUBJECT MATTER JURISDICTION, THE SUPERIOR COURT OF THE STATE OF DELAWARE (COLLECTIVELY, THE “CHOSEN COURTS”). EACH PARTY HERETO FURTHER AGREES NOT TO BRING ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY COURT OTHER THAN THE CHOSEN COURTS, AS APPLICABLE, PURSUANT TO THE FOREGOING SENTENCE (OTHER THAN UPON APPEAL). BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE CHOSEN COURTS, AS APPLICABLE, FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO SUCH SUIT, ACTION OR PROCEEDING. THE PARTIES HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN EACH OF THE CHOSEN COURTS, AS

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APPLICABLE, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH CHOSEN COURT, AS APPLICABLE, IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH SUIT, ACTION OR PROCEEDING.

Section 6.08 No Double Recovery. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged Party has been fully compensated under any other provision of this Agreement or under any other agreement or action at Law or equity. Unless expressly required in this Agreement, a Party shall not be required to exhaust all remedies available under other agreements or at Law or equity before recovering under the remedies provided in this Agreement.

Section 6.09 Assignability. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by either Party without the express written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, no such consent shall be required for the assignment of the rights and obligations of EBSI or any EBSI Affiliate under this Agreement (i) in connection with the merger of such Party, or the sale, transfer or other divestiture of all or substantially all of an entire product line, Affiliate, division or other business unit of such Party, or (ii) to any Affiliate of such Party; provided, however, that in connection with any assignment or delegation by EBSI, EBSI provides a guarantee to the non-assigning Party for any liability or obligation assigned or delegated pursuant to this Section 6.09.

Section 6.10 Authority. EBSI represents on behalf of itself and each other member of the EBSI Group, and Aptevo represents on behalf of itself and each other member of the Aptevo Group, as follows: (i) each such Person has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by such Person have been duly authorized by all necessary corporate or other action, (c) such Person has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against such Person in accordance with its terms.

Section 6.11 Third-Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Parties hereto and their respective Affiliates and are not intended to confer upon any other Person any rights or remedies hereunder. This Agreement shall not provide any third Person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

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Section 6.12 Notices. Any notice required or permitted to be given by a Party under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, or by facsimile (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this section):

If to Emergent, to:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

If to Aptevo to:

General Counsel
2401 4th Avenue
Suite 1050
Seattle, WA  98121

A Party may change the address for receiving notices under this Agreement by providing written notice of the change of address to the other.

Section 6.13 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.

 

Section 6.14 Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 6.15 Waivers of Default. Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

Section 6.16 Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, EBSI shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement,

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in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. Aptevo shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at Law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived. The Parties acknowledge and agree that the right of specific enforcement is an integral part of this Agreement and without that right, EBSI would not have entered into this Agreement.

Section 6.17 Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by either Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.

Section 6.18 Compliance by Affiliates. The Parties shall cause their respective Affiliates to comply with this Agreement.

Section 6.19 Aptevo Subsidiaries. If, at any time, Aptevo acquires or creates one or more subsidiaries that are includable in the Aptevo Group, they shall be subject to this Agreement and all references to the Aptevo Group herein shall thereafter include a reference to such subsidiaries.

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IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the day and year first written above.

 

[Signature Page to Tax Matters Agreement]

 

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Schedule I

 

 

30

Exhibit 10.4

 

EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.  

AND

APTEVO THERAPEUTICS INC.  

DATED AS OF JULY 29, 2016

 

 

 

 

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TABLE OF CONTENTS

 

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Schedules

 

 

 

 

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EMPLOYEE MATTERS AGREEMENT

This EMPLOYEE MATTERS AGREEMENT, dated as of July 29, 2016 (this Agreement”), is made and entered into by and between Emergent BioSolutions Inc., a Delaware corporation (“Emergent”), and Aptevo Therapeutics Inc., a Delaware corporation (“Aptevo”).  Aptevo and Emergent are referred to together as the “Parties” and individually as a “Party.” Capitalized terms used herein shall have the respective meanings assigned to them in Article I or elsewhere in this Agreement and capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning assigned to them in the Separation and Distribution Agreement.

RECITALS:

WHEREAS, Emergent, directly or indirectly, currently owns and operates both the Emergent Business and the Aptevo Business;

WHEREAS, the Emergent Board has determined that it is in the best interests of Emergent and its shareholders that the Aptevo Business be operated by a newly incorporated publicly traded company;

WHEREAS, to effect the foregoing, the Separation and Distribution Agreement provides for the contribution from Emergent to Aptevo of certain Assets, the assumption by Aptevo of certain Liabilities from Emergent, the distribution by Emergent of Aptevo Common Shares to Emergent shareholders, and the execution and delivery of this Agreement and certain other agreements to facilitate and provide for the foregoing, in each case subject to the terms and conditions set forth herein and therein; and

WHEREAS, this Agreement describes the principal employment, compensation and employee benefit plan arrangements between the Parties.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows:

AGREEMENT

ARTICLE I
DEFINITIONS

Section 1.01Defined Terms.  The following capitalized terms as used in this Agreement shall have the meaning set forth below:

“Agreement” shall mean this Employee Matters Agreement and any Schedule hereto.

“Aptevo” shall have the meaning set forth in the first sentence of this Agreement.

“Aptevo 401(k) Plan” shall have the meaning set forth in Section 3.01(a).

 

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“Aptevo Benefit Plan” shall mean, following the Distribution, each Benefit Plan sponsored by, maintained by, or contributed to by the Aptevo Group.

“Aptevo Board” shall mean the board of directors of Aptevo.

“Aptevo Employee” shall mean any Employee of the Aptevo Business as of immediately prior to the Distribution Date as identified on Schedule 1.01 hereto and any other individual identified on Schedule 1.01 hereto.

“Aptevo Equity Awards” shall mean, collectively, the Aptevo Options and Aptevo RSUs.

“Aptevo Health and Welfare Plan” shall mean, following the Distribution, a Health and Welfare Plan sponsored by, maintained by, or contributed to by the Aptevo Group.

“Aptevo Price Ratio” shall mean the quotient obtained by dividing the Aptevo Stock Value by the Emergent Stock Value.

“Aptevo Share Ratio” shall mean the quotient obtained by dividing the Emergent Stock Value by the Aptevo Stock Value.

“Aptevo Stock Value” shall mean the average closing price per share of Aptevo Common Shares trading “regular way” during regular trading hours, as reported on the NASDAQ Global Select Market, for the five consecutive trading days beginning on the Distribution Date.

“Benefit Plan” shall mean any (i) “employee benefit plan,” as defined in ERISA Section 3(3) (whether or not such plan is subject to ERISA); and (ii) employment, compensation, severance, salary continuation, bonus, thirteenth month, incentive, retirement, thrift, superannuation, savings, pension, workers’ compensation, termination benefit (including termination notice requirements), termination indemnity, other indemnification, supplemental unemployment benefit, redundancy pay, profit sharing, deferred compensation, stock ownership, stock purchase, stock option, stock appreciation right, restricted stock, “phantom” stock, performance share, restricted stock unit, other stock-based incentive, change in control, paid time off, perquisite, fringe benefit, vacation, disability, life, or other insurance, death benefit, hospitalization, medical, or other compensatory or benefit plan, program, fund, agreement, arrangement, or policy of any kind (whether written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, currently effective or terminated), and any trust, escrow or similar agreement related thereto, whether or not funded, excluding any plan, program, fund, agreement, arrangement, or policy (other than for workers’ compensation Liabilities) that is mandated by and maintained solely pursuant to applicable Law.

“COBRA” shall mean coverage required by Code Section 4980B or ERISA Section 601 et.  seq.

“Code” shall mean the U.S.  Internal Revenue Code of 1986, as amended.

“Emergent” shall have the meaning set forth in the first sentence of this Agreement.

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“Emergent 401(k) Plan” shall mean the Emergent BioSolutions, Inc.  Employee Deferred Compensation Plan.  

“Emergent Benefit Plan” shall mean a Benefit Plan sponsored by, maintained by, or contributed to by the Emergent Group.

“Emergent Board” shall mean the board of directors of Emergent.

“Emergent Employee” shall mean any Employee other than an Aptevo Employee.

“Emergent ESPP” shall mean the Emergent BioSolutions Inc.  2012 Employee Stock Purchase Plan.

“Emergent Health and Welfare Plan” shall mean a Health and Welfare Plan sponsored by, maintained by, or contributed to by the Emergent Group.

“Emergent Post-Distribution Stock Value” shall mean the average closing price per share of Emergent Common Shares trading “regular way” during regular trading hours, as reported on the NYSE, for the five consecutive trading days beginning on the Distribution Date.

“Emergent Price Ratio” shall mean the quotient obtained by dividing the Emergent Post-Distribution Stock Value by the Emergent Stock Value.  

“Emergent Share Ratio” shall mean the quotient obtained by dividing the Emergent Stock Value by the Emergent Post-Distribution Stock Value.

“Emergent Stock Program” shall mean, any of, the Fourth Amended and Restated Emergent BioSolutions Inc.  2006 Stock Incentive Plan, the Emergent BioSolutions Inc.  Employee Stock Option Plan, as amended and restated, and any incentive compensation program or arrangement that governs the terms of equity-based incentive awards assumed by the Emergent Group in connection with a corporate transaction and that is maintained by the Emergent Group immediately prior to the Distribution Date, and any sub-plans established thereunder.

“Emergent Stock Value” shall mean the sum of the Emergent Post-Distribution Stock Value and the Aptevo Stock Value.

“Employee” shall mean an current or former employee of the Emergent Group or the Aptevo Group, as applicable, including any employee absent from work on account of vacation, jury duty, funeral leave, personal leave, sickness, short-term disability, long-term disability or workers’ compensation leave (in each case, unless treated as a separated employee for employment purposes), military leave, family leave, pay continuation leave, or other approved leave of absence or for whom an obligation to recall, rehire or otherwise return to employment exists under a contractual obligation or Law.

“Employee Agreement” shall mean an employment contract or other letter agreement between a member of the Emergent Group and an Aptevo Employee.

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“Employee Recoupment Asset” shall mean an employer’s right to repayment from an Employee in respect of a tax equalization payment, sign-on bonus payment, relocation expense payment, tuition payment, reimbursement, loan, or other similar item, including any agreement related thereto.

“Employment Tax” shall mean withholding, payroll, social security, workers’ compensation, unemployment, disability and any similar tax imposed by any Tax Authority or social security authority, and any interest, penalties, additions to tax, or additional amounts with respect to the foregoing imposed on any taxpayer or consolidated, combined, or unitary group of taxpayers.  With respect to any Employment Tax, the term “Tax Authority” shall mean the governmental entity or political subdivision thereof that imposes such Employment Tax, and the agency (if any) charged with the collection of such Employment Tax for such entity or subdivision.

“ERISA” shall mean the U.S.  Employee Retirement Income Security Act of 1974, as amended.

“Health and Welfare Plan” shall mean any Benefit Plan established or maintained to provide, for Employees who work primarily in the United States or their beneficiaries, through the purchase of insurance or otherwise, medical, dental, prescription, vision, short-term disability, long-term disability, death benefits, life insurance, accidental death and dismemberment insurance, business travel accident insurance, employee assistance program, group legal services, wellness, cafeteria (including premium payment, health care flexible spending account, and dependent care flexible spending account components), travel reimbursement, transportation, vacation benefits, apprenticeship or other training programs, day care centers, or prepaid legal services benefits, including any “employee welfare benefit plan” (as defined in ERISA Section 3(1)) that is not a severance plan.

“HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.

“Incurred Claim” shall mean a Liability related to services or benefits provided under a Benefit Plan, and shall be deemed to be incurred: (i) with respect to medical, dental, vision, and prescription drug benefits, upon the rendering of services giving rise to such Liability; (ii) with respect to death benefits, life insurance, accidental death and dismemberment insurance, and business travel accident insurance, upon the occurrence of the event giving rise to such Liability; (iii) with respect to disability benefits, upon the date of disability, as determined by the disability benefit insurance carrier or claim administrator, giving rise to such Liability; (iv) with respect to a period of continuous hospitalization, upon the date of admission to the hospital; and (v) with respect to tuition reimbursement, upon completion of the requirements for such reimbursement.

“Option” shall mean (i) when immediately preceded by “Emergent,” an option to purchase one or more Emergent Common Shares granted under an Emergent Stock Program and outstanding immediately prior to the Distribution Date (whether or not then exercisable); (ii) when immediately preceded by “Adjusted Emergent,” an option to purchase one or more Emergent Common Shares adjusted in accordance with Section 5.01; and (iii) when immediately

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preceded by “Aptevo,” an option to purchase one or more Aptevo Common Shares granted by Aptevo in accordance with Section 5.01.

“Party” shall have the meaning set forth in the second sentence of this Agreement.

“RSU” shall mean (i) when immediately preceded by “Emergent,” a restricted stock unit award granted pursuant to an Emergent Stock Program and outstanding immediately prior to the Distribution Date; (ii) when immediately preceded by “Adjusted Emergent,” a restricted stock unit award granted pursuant to an Emergent Stock Program adjusted in accordance with Section 5.01; and (iii) when immediately preceded by “Aptevo,” a restricted stock unit award granted by Aptevo in accordance with Section 5.01.

“Securities Act” shall mean the U.S.  Securities Act of 1933, as amended.

“Separation and Distribution Agreement” shall mean the Separation and Distribution Agreement by and between the Parties, dated as of the date hereof.

“Transferred Employee” shall have the meaning set forth in Section 2.02(a).

“Transferred Flexible Spending Account Balances” shall have the meaning set forth in Section 4.01(d)(iii).

ARTICLE II
GENERAL PRINCIPLES

Section 2.01Allocation of Liabilities.

(a)Aptevo Liabilities. Effective as of the Distribution Date, and except as expressly provided in this Agreement, Aptevo hereby assumes (or retains) and agrees to pay, perform, fulfill, and discharge all Liabilities to the extent relating to, arising out of, or resulting from:

(i)the employment (or termination of employment) of each Transferred Employee on or after the Distribution Date (including, in each case, all Liabilities relating to, arising out of, or resulting from Employment Taxes, any Emergent Benefit Plan or any Aptevo Benefit Plan);

(ii)the employment of each Aptevo Employee prior to the Distribution Date (including all Liabilities relating to, arising out of, or resulting from Employment Taxes, any Emergent Benefit Plan or any Aptevo Benefit Plan) to the extent such Liabilities have not been paid, performed, fulfilled or discharged by Emergent prior to the Distribution Date; and

(iii)obligations, Liabilities, and responsibilities expressly assumed or retained by Aptevo pursuant to this Agreement.

(b)Emergent Liabilities.  Effective as of the Distribution Date, and except as expressly provided in this Agreement, Emergent hereby retains (or assumes) and agrees to pay,

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perform, fulfill, and discharge all Liabilities to the extent relating to, arising out of, or resulting from: 

(i)the employment (or termination of employment) of each Emergent Employee prior to, on, or after the Distribution Date (including all Liabilities to the extent relating to, arising out of, or resulting from Employment Taxes or any Emergent Benefit Plan); and

(ii)obligations, Liabilities, and responsibilities expressly retained or assumed by Emergent pursuant to this Agreement.

(c)Other Liabilities.  To the extent that this Agreement does not cover particular obligations, Liabilities or responsibilities that relate to, arise out of, or result from employment (or termination of employment), Employment Taxes or any Benefit Plan and the Parties later determine that they should be allocated in connection with the Separation, such obligations, Liabilities or responsibilities shall be handled in a manner similar to the manner in which this Agreement handles comparable obligations, Liabilities or responsibilities, subject to the mutual agreement of the Parties.

Section 2.02Employment with Aptevo.

(a)Employment Transfers.  The Parties intend for Aptevo Employees to transfer to the Aptevo Group and shall use commercially reasonable efforts and cooperate with each other to effectuate this intent.  Except as otherwise mutually agreed upon by the Parties, as of the Distribution Date, the Aptevo Group shall continue to employ (on a basis consistent with Section 2.02(b)) each Aptevo Employee.  Each Aptevo Employee who continues employment with the Aptevo Group following the Distribution Date will be referred to in this Agreement as a “Transferred Employee.”

(b)Compensation and Benefits.

(i)Emergent shall use commercially reasonable efforts to provide that, except as otherwise mutually agreed upon by the Parties, no transfer of employment of an Aptevo Employee prior to the Distribution Date to an entity that will be a part of the Aptevo Group will cause such Aptevo Employee to lose coverage under any Emergent Benefit Plan prior to the Distribution Date.  Except as expressly provided in this Agreement or as required by Law, no Transferred Employee shall participate in any Emergent Benefit Plan following the Distribution Date.

(ii)Except as expressly provided in this Agreement, the Aptevo Group shall provide to each Transferred Employee as of the Distribution Date (A) base salary at at least the same rate as provided to that Transferred Employee immediately prior to the Distribution Date and (B) cash incentive compensation opportunities that are comparable in the aggregate to those cash incentive compensation opportunities offered under the corresponding Emergent Benefit Plan(s) immediately prior to the Distribution Date.

(iii)Except as expressly provided in this Agreement, the Aptevo Group shall take commercially reasonable efforts to provide the Transferred Employees with total cash

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and non-cash compensation that is substantially comparable in the aggregate to cash and non-cash compensation provided by the Emergent Group immediately prior to the Distribution Date.   

Nothing in (ii) or (iii) of this section 2.02(b) shall prevent the Aptevo Group from modifying the compensation and benefits of a Transferred Employee after the Distribution Date.

(c)Service Credit.  Except as expressly provided in this Agreement or to the extent it would result in a duplication of benefits, Aptevo and each Aptevo Benefit Plan shall give each Transferred Employee credit for all service with the Emergent Group and shall calculate such service as it would be calculated by Emergent or under the corresponding Emergent Benefit Plan as of the Distribution Date.

Section 2.03Establishment of Aptevo Plans.

(a)Generally.  Prior to the Distribution Date, except to the extent they would result in the imposition of a commercially unreasonable cost or administrative burden on Aptevo, Aptevo shall take commercially reasonable efforts to adopt Benefit Plans (and related trusts, if applicable, as determined by the Parties), and Aptevo shall take commercially reasonable efforts to provide that such Aptevo Benefit Plans have terms that are substantially similar to those of the corresponding Emergent Benefit Plans.  For the avoidance of doubt, Aptevo may limit participation in any Aptevo Benefit Plan to Transferred Employees who participated in the corresponding Emergent Benefit Plan immediately prior to the Distribution Date.

(b)Plan Information and Operation.  Aptevo shall require Transferred Employees to submit new elections with respect to the Aptevo Benefit Plans.  Except as provided in this Agreement, the Distribution and the transfer of any Employee’s employment to the Aptevo Group shall not cause a distribution from or payment of benefits under any Emergent Benefit Plan.  

ARTICLE III
U.S.  QUALIFIED RETIREMENT PLAN

Section 3.01401(k) Plan.

(a)Establishment of Aptevo 401(k) Plan.  Prior to the Distribution Date, Aptevo shall take any and all steps necessary or appropriate to establish a defined contribution plan and trust to be effective as of the Distribution Date for the benefit of Transferred Employees (the “Aptevo 401(k) Plan”).  The Aptevo Group shall be responsible for taking or causing to be taken all necessary, reasonable and appropriate action to establish, maintain, and administer the Aptevo 401(k) Plan so that it qualifies under Section 401(a) of the Code and the related trust thereunder is exempted from federal income taxation under Section 501(a)(1) of the Code.  For the avoidance of doubt, nothing in this Section 3.01 shall be construed to require Aptevo to maintain any investment option which the fiduciaries (as such term is defined in Section 3(21) of ERISA) of the Aptevo 401(k) Plan deem to be imprudent or inappropriate for the Aptevo 401(k) Plan or which cannot be maintained without commercially unreasonable cost or administrative burden for the Aptevo 401(k) Plan and its administrator.  

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(b)Assumption of Liabilities and Transfer of Assets.  

(i)Effective as of the Distribution Date or at such other time as is mutually agreed to by the Parties, but subject to the asset transfer specified in Section 3.01(b)(ii) below, the Aptevo 401(k) Plan shall assume and be solely responsible for all Liabilities for or relating to Transferred Employees under the Emergent 401(k) Plan. The Aptevo Group shall be responsible for all ongoing rights of or relating to Aptevo Employees for future participation (including the right to make contributions through payroll deductions) in the Aptevo 401(k) Plan.

(ii)Effective as of the Distribution Date or at such other time as is mutually agreed to by the Parties, Emergent shall cause the account balances (including any outstanding loan balances) in the Emergent 401(k) Plan attributable to Transferred Employees to be transferred in cash and in-kind (including, but not limited to, participant loans), to the Aptevo 401(k) Plan, and Aptevo shall cause the Aptevo 401(k) Plan to accept such transfer or accounts and underlying assets and, effective as of the date of such transfer, to assume and to fully perform pay or discharge, all obligations of the Emergent 401(k) Plans relating to the accounts of Transferred Employees (to the extent those assets related to those accounts are actually transferred from the Emergent 401(k) Plan). The transfer shall be conducted in accordance with Section 414(l) of the Code, Treasury Regulation Section 1.414(l)-1, and Section 208 of ERISA. Subject to the generally applicable requirements of this Section 3.01(b)(ii), the named fiduciaries (as such term is defined in ERISA) of the Aptevo 401(k) Plan and the Emergent 401(k) Plan shall cooperate in good faith to effect the transfers contemplated by this Section 3.01(b)(ii) in an efficient and effective manner and in the best interests of participants and beneficiaries, including, but not limited to, determining whether and to what extent any investments held under the Emergent 401(k) Plan (other than participant loans) shall be liquidated prior to the transfer date to enable the value of such investments to be transferred to the Aptevo 401(k) Plan in cash or cash equivalents.  

ARTICLE IV
WELFARE AND FRINGE BENEFIT PLANS

Section 4.01Health and Welfare Plans.

(a)Establishment of Aptevo Health and Welfare Plans.  Aptevo shall establish the Aptevo Health and Welfare Plans in accordance with Section 2.03(a) hereof.

(b)Waiver of Conditions; Benefit Maximums.  

(i)With respect to initial enrollment following the Distribution Date, Aptevo shall, to the extent commercially reasonable, cause the Aptevo Health and Welfare Plans to waive:

(A)all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any Transferred Employee, other than limitations that were in effect with respect to the Transferred Employee under the applicable Emergent Health and Welfare Plan as of immediately prior to the Distribution Date, and

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(B)any waiting period limitation or evidence of insurability requirement applicable to a Transferred Employee other than limitations or requirements that were in effect with respect to such Transferred Employee under the applicable Emergent Health and Welfare Plan as of immediately prior to the Distribution Date; and 

(ii)The Aptevo Health and Welfare Plans shall not be required to take into account:

(A)with respect to aggregate annual, lifetime, or similar maximum benefits available under the Aptevo Health and Welfare Plans, a Transferred Employee’s prior claim experience under the Emergent Health and Welfare Plans and any Benefit Plan that provides leave benefits; or

(B)any eligible expenses incurred by a Transferred Employee and his or her covered dependents during the portion of the plan year of the applicable Emergent Health and Welfare Plan ending on the Distribution Date to be taken into account under such Aptevo Health and Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such Transferred Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such Aptevo Health and Welfare Plan.

(c)Allocation of Health and Welfare Assets and Liabilities.

(i)General Principles.  Except as otherwise specifically provided in this Agreement, Emergent shall retain all Liabilities relating to Incurred Claims under the Emergent Health and Welfare Plans, and shall also retain Assets (including, without limitation, Medicare reimbursements, pharmaceutical rebates, and similar items) associated with such Incurred Claims.  Aptevo shall be responsible for all Liabilities relating to Incurred Claims under any Aptevo Health and Welfare Plan and shall also retain Assets (including, without limitation, Medicare reimbursements, pharmaceutical rebates, and similar items) associated with such Incurred Claims.

(ii)Disability Benefits.   Notwithstanding any other provision hereof, Emergent shall be responsible for Incurred Claims (including ongoing benefit payments) of Emergent Employees for short- and long-term disability benefits, regardless of when the applicable Incurred Claim is or was incurred (including either before or after the Distribution Date), and Aptevo shall be responsible for Incurred Claims (including ongoing benefit payments) of Transferred Employees for short-term disability benefits, regardless of when the applicable Incurred Claim is or was incurred (including either before or after the Distribution Date) and for long-term disability benefits to the extent the claim is incurred on or after the Distribution Date. For the avoidance of doubt, Emergent shall be responsible for the Incurred Claims of any Aptevo Employee for long-term disability benefits to the extent the claim was incurred prior to the Distribution Date and any Aptevo Employee with such an Incurred Claim for long-term disability benefits shall be eligible to receive benefits under the applicable Emergent long term disability plan notwithstanding his or her having become a Transferred Employee.  

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(iii)Flexible Spending Accounts.  The Parties shall take all actions necessary to ensure that, effective as of the Distribution Date (A) the health care and dependent care flexible spending accounts of each Transferred Employee (whether positive or negative) (collectively, the “Transferred Flexible Spending Account Balances”) under the applicable Emergent Health and Welfare Plan shall be transferred to the corresponding Aptevo Health and Welfare Plan; (B) the elections, contribution levels and coverage of the applicable Transferred Employees shall apply under the Aptevo Health and Welfare Plan in the same manner as under the corresponding Emergent Health and Welfare Plan; and (C) the applicable Transferred Employees shall be eligible for reimbursement from the Aptevo Health and Welfare Plan on the same basis and the same terms and conditions as under the corresponding Emergent Health and Welfare Plan.  As soon as practicable after the Distribution Date, and in any event within 30 business days after the amount of the Transferred Flexible Spending Account Balances is determined, Emergent shall pay Aptevo the net aggregate amount of the Transferred Flexible Spending Account Balances, if such amount is positive, and Aptevo shall pay Emergent the net aggregate amount of the Transferred Flexible Spending Account Balances, if such amount is negative.   

(d)Emergent Health and Welfare Plans after Distribution Date.  Transferred Employees shall cease to participate in the Emergent Health and Welfare Plans effective as of the Distribution Date, subject to Section 4.02 hereof.

Section 4.02COBRA and HIPAA.  Emergent shall continue to be responsible for compliance with the health care continuation requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of the Emergent Health and Welfare Plans with respect to any (a) Emergent Employees (and their covered dependents) who incur a qualifying event under COBRA on, prior to, or following the Distribution Date and (b) Aptevo Employees (and their covered dependents), with respect to qualifying events under COBRA incurred prior to or on the Distribution Date.  Aptevo shall assume responsibility for compliance with the health care continuation requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of the Aptevo Health and Welfare Plans with respect to any Transferred Employees (and their covered dependents) who incur a qualifying event or loss of coverage under the Emergent Health and Welfare Plans and/or the Aptevo Health and Welfare Plans after the Distribution Date.  The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA.

Section 4.03Vacation, Holidays and Leaves of Absence.  Effective as of the Distribution Date, Aptevo shall assume all Liabilities with respect to vacation, holiday, annual leave or other leave of absence (including unused paid-time off hours held in each Aptevo Employee’s catastrophic bank), and required payments related thereto, for each Aptevo Employee.  Emergent shall retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence (including unused paid-time off hours held in each Emergent Employee’s catastrophic bank), and required payments related thereto, for each Emergent Employee.

Section 4.04Severance and Unemployment Compensation.  Effective as of the Distribution Date, Aptevo shall be responsible for any and all Liabilities to, or relating to,

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Transferred Employees in respect of severance and unemployment compensation.  Emergent shall be responsible for any and all Liabilities to, or relating to, Emergent Employees in respect of severance and unemployment compensation, regardless of whether the event giving rise to the Liability occurred prior to, on, or following the Distribution Date. 

Section 4.05.  Workers’ Compensation.  With respect to claims for workers compensation in the United States, (a) the Aptevo Group shall be responsible for claims in respect of Transferred Employees, whether occurring on or following the Distribution Date, and (b) the Emergent Group shall be responsible for all claims in respect of Emergent Employees, whether occurring prior to, on or following the Distribution Date.

ARTICLE V
EQUITY, INCENTIVE, AND EXECUTIVE COMPENSATION PROGRAMS

Section 5.01Equity Incentive Programs.

(a)General Principles.  

(i)Except as set forth on Schedule 5.01, outstanding Emergent Options and Emergent RSUs shall be treated as set forth in this Section 5.01. The Parties shall use commercially reasonable efforts to take all actions necessary or appropriate so that each outstanding Emergent Option and Emergent RSU award granted under an Emergent Stock Program (other than the awards described on Schedule 5.01) shall be adjusted as set forth in this Section 5.01.

(ii)Following the Distribution, an Employee or other service provider who is employed (or otherwise providing services) (a “Holder”) who has outstanding awards under the Emergent Stock Program or Aptevo Equity Awards shall be considered to have been employed by or have provided services to, as the case may be, the applicable plan sponsor before and after the Distribution for purposes of vesting.  For purposes of the equity awards described in this Section 5.01, the Distribution shall not result in a termination of employment or service for any service provider.  Rather the date of termination of employment or service with the applicable plan sponsor following the Distribution shall be the Holder’s termination date for purposes of any outstanding equity awards.  For the avoidance of doubt, however, for purposes of the Emergent ESPP only, the Distribution shall result in a termination of employment or service for any service provider holding options granted under the Emergent ESPP at the Effective Time.

(iii)No award described in this Article V, whether outstanding or to be issued, adjusted, substituted or cancelled by reason of or in connection with the Distribution, shall be adjusted, settled, cancelled, or exercisable, until in the judgment of the administrator of the applicable plan or program such action is consistent with all applicable Laws, including U.S.  securities Laws.  Neither the period of exercisability nor the term of any award will be extended on account of a period during which such an award is not exercisable pursuant to the preceding sentence.  

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(iv)The adjustment or conversion of Emergent Options and Emergent RSUs shall be effectuated in a manner that is intended to avoid the imposition of any penalty or other taxes on the holders thereof pursuant to Section 409A of the Internal Revenue Code. 

(b)Options.  

(i)Each Emergent Option that is outstanding as of the Effective Time that is held by an Emergent Employee or other Emergent Business service provider shall remain an option to purchase Emergent Common Shares and shall be adjusted as described below to reflect the Distribution.  Each such Adjusted Emergent Option shall be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Emergent Option immediately prior to the Effective Time; provided, however, that from and after the Effective Time: (x) the per-share exercise price of each such Adjusted Emergent Option shall be equal to the product of (I) the per-share exercise price of the corresponding Emergent Option immediately prior to the Distribution Date multiplied by (II) the Emergent Price Ratio, rounded up to the nearest whole cent; and (y) the number of Emergent Common Shares subject to each such Adjusted Emergent Option shall be equal to the product of (I) the number of Emergent Common Shares subject to each such Adjusted Emergent Option immediately prior to the Effective Time multiplied by (II) the Emergent Share Ratio, with any fractional shares rounded down to the nearest whole share.  

(ii)Each Emergent Option that is outstanding as of the Effective Time that is held by an Aptevo Employee or other Aptevo Business service provider shall be converted into an option to purchase Aptevo Common Shares and shall be adjusted as described below to reflect the Distribution.  Each such Aptevo Option shall be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Emergent Option immediately prior to the Effective Time; provided, however, that from and after the Effective Time: (x) the per-share exercise price of each such Aptevo Option shall be equal to the product of (I) the per-share exercise price of the corresponding Emergent Option immediately prior to the Effective Time multiplied by (II) the Aptevo Price Ratio, rounded up to the nearest whole cent; and (y) the number of Aptevo Common Shares subject to each such Aptevo Option shall be equal to the product of (A) the number of Emergent Common Shares subject to the corresponding Emergent Option immediately prior to the Effective Time multiplied by (B) the Aptevo Share Ratio, with any fractional share rounded down to the nearest whole share.  

(c)RSUs.  

(i)Each award of Emergent RSUs held by an Emergent Employee or other Emergent Business service provider immediately prior to the Effective Time shall be adjusted, effective as of the Effective Time, by multiplying the number of Emergent Common Shares subject to each such award of Emergent RSUs by the Emergent Share Ratio, which product shall be rounded up to the nearest whole number of units.  Each Adjusted Emergent RSU shall be subject to the same terms and conditions after the Effective Time as the terms and conditions applicable to the corresponding Emergent RSU immediately prior to the Effective Time.

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(ii)Each award of Emergent RSUs held by an Aptevo Employee or other Aptevo Business service provider immediately prior to the Effective Time shall be converted to a restricted unit award relating to a number of Aptevo Common Shares determined by multiplying the number of Emergent Common Shares subject to each such award of Emergent RSUs by the Aptevo Share Ratio, which product shall be rounded up to the nearest whole number of Aptevo RSUs.  Except as otherwise provided herein, each Aptevo RSU shall be subject to the same terms and conditions after the Distribution as the terms and conditions applicable to the corresponding Emergent RSUs immediately prior to the Distribution. 

(d)Liabilities for Settlement of Awards.  

(i)Emergent shall be responsible for all Liabilities associated with Adjusted Emergent Options (regardless of the holder of such awards) including any option exercise, share delivery, registration or other obligations related to the exercise of the Adjusted Emergent Options.  

(ii)Emergent shall be responsible for all Liabilities associated with Adjusted Emergent RSUs (regardless of the holder of such awards) including any share delivery, registration or other obligations related to the settlement of the Adjusted Emergent RSUs.  

(iii)Aptevo shall be responsible for all Liabilities associated with Aptevo Options (regardless of the holder of such awards) including any option exercise, share delivery, registration or other obligations related to the exercise of the Aptevo Options.  

(iv)Aptevo shall be responsible for all Liabilities associated with Aptevo RSUs (regardless of the holder of such awards) including any share delivery, registration or other obligations related to the settlement of the Aptevo RSUs.  

(e)Registration and Other Regulatory Requirements.  As soon as possible following the Distribution Date, but in any case before the date of issuance of any Aptevo Common Shares pursuant to the Aptevo Therapeutics Inc. Converted Equity Awards Incentive Plan, Aptevo agrees to file a Form S-8 Registration Statement with respect to, and to cause to be registered pursuant to the Securities Act, the Aptevo Common Shares authorized for issuance under such equity plan as required pursuant to the Securities Act.  

Section 5.02Annual Incentive Plans and Executive Severance Arrangements.

(a)Annual Bonuses Generally.  The Aptevo Group shall be responsible for all annual bonus payments to Transferred Employees in respect of any plan year, the payment date for which occurs on or after the Distribution Date.

(b)Establishment of Aptevo Annual Bonus Plan for Executive Officers.  Effective as of or before the Distribution Date, Aptevo shall establish the Aptevo Annual Bonus Plan for Executive Officers with terms and conditions substantially similar to those of the Emergent Annual Bonus Plan for Executive Officers as of the Distribution Date.

(c)Establishment of Aptevo Senior Management Severance Plan.  Effective as of or before the Distribution Date, Aptevo shall establish the Aptevo Senior Management

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Severance Plan with terms and conditions similar to those of the Second Amended and Restated Emergent Senior Management Severance Plan as of the Distribution Date. 

ARTICLE VI
MISCELLANEOUS

Section 6.01Transfer of Records and Information.  Emergent shall transfer to Aptevo any and all employment records and information (including, but not limited to, any Form I-9, Form W-2 or other Internal Revenue Service forms) with respect to Transferred Employees and other records reasonably required by Aptevo to enable Aptevo properly to carry out its obligations under this Agreement.  Such transfer of records and information generally shall occur as soon as administratively practicable on or after the Distribution Date.  Each Party will permit the other Party reasonable access to Employee records and information, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder.

Section 6.02Cooperation.  Each Party shall upon reasonable request provide the other Party and the other Party’s respective Affiliates, agents, and vendors all information reasonably necessary to the other Party’s performance of its obligations hereunder.  The Parties agree to use their respective best efforts and to cooperate with each other in order to carry out their obligations hereunder and to effectuate the terms of this Agreement.

Section 6.03Employee Agreements.  As of the Distribution Date, Emergent and the applicable member of the Emergent Group hereby assign to Aptevo or another member of the Aptevo Group: (a) to the extent an Aptevo Employee did not otherwise sign an Employee Agreement to effectuate his or her transfer to and hiring by Aptevo, each Employee Agreement entered into between a member of the Emergent Group and any Aptevo Employee; and (b) all rights or obligations under any Employee Agreement relating to the Aptevo Business; provided, however, that Emergent and the Emergent Group shall retain all rights or obligations under each Employee Agreement or applicable Law to the extent that such rights or obligations are unrelated to the Aptevo Business.  After the Distribution Date, (i) the Aptevo Group shall keep secret and retain in strictest confidence, and shall not use for the benefit of itself or others, any Emergent Group confidential or proprietary information that is unrelated to the Aptevo Business, and the Aptevo Group shall ensure that its Employees are bound by a secrecy obligation in accordance with this provision, and (ii) the Emergent Group shall keep secret and retain in strictest confidence, and shall not use for the benefit of itself or others, any Aptevo Group confidential or proprietary information that is unrelated to the Emergent Business, and the Emergent Group shall ensure that its Employees are bound by a secrecy obligation in accordance with this provision.  Upon written request by Emergent or the Emergent Group, Aptevo or the Aptevo Group shall make available to Emergent or the Emergent Group the original copy of any Employee Agreement that was assigned to Aptevo or the Aptevo Group under this Agreement.

Section 6.04Repayment Assets.  Effective as of the Distribution Date, the Emergent Group shall be entitled to all Employee Recoupment Assets in respect of Emergent Employees, and the Aptevo Group shall be entitled to all Employee Recoupment Assets in respect of Aptevo Employees.  Without limiting the generality of the foregoing, the Emergent Group hereby assigns to the Aptevo Group, effective as of the Distribution Date, all rights and obligations

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relating to any Employee Recoupment Assets of the Emergent Group in respect of any Aptevo Employee. 

Section 6.05Compliance.  The agreements and covenants of the Parties hereunder shall at all times be subject to the requirements and limitations of applicable Law.  Where an agreement or covenant of a Party hereunder cannot be effected in compliance with applicable Law, the Parties agree to negotiate in good faith to modify such agreement or covenant to the least extent possible in keeping with the original agreement or covenant in order to comply with applicable Law.  Each provision of this Agreement is subject to and qualified by this Section 6.05, whether or not such provision expressly states that it is subject to or limited by applicable Law.  Each reference to the Code, ERISA, or the Securities Act or any other Law shall be deemed to include the rules, regulations, and guidance issued thereunder.

Section 6.06Preservation of Rights.  Unless expressly provided otherwise in this Agreement, nothing herein shall be construed as a limitation on the right of the Emergent Group or the Aptevo Group to (a) amend or terminate any Benefit Plan or (b) terminate the employment of any Employee.

Section 6.07Transition Services.  Except as otherwise provided in the Transition Services Agreement or as otherwise expressly provided herein, neither Party shall have any responsibility for providing services to the other Party with respect to employee or Benefit Plan matters after the Distribution Date.

Section 6.08Reimbursement.  The Parties acknowledge that the Emergent Group, on the one hand, and the Aptevo Group, on the other hand, may incur costs and expenses (including, without limitation, contributions to Benefit Plans and the payment of insurance premiums) which are, as set forth in this Agreement, the responsibility of the other Party.  Accordingly, the Parties agree to reimburse each other, as soon as practicable but in any event within 30 days after receipt from the other Party of appropriate verification, for all such costs and expenses.

Section 6.09Not a Change in Control.  The Parties acknowledge and agree that the transactions contemplated by the Separation and Distribution Agreement and this Agreement do not constitute a “change in control” or a “change of control” for purposes of any Benefit Plan.

Section 6.10Incorporation by Reference.  The following sections of the Separation and Distribution Agreement are hereby incorporated into this Agreement by reference: Section 11.1.  Counterparts; Entire Agreement; Corporate Power; Section 11.2.  Governing Law; Section 11.3.  Assignability; Section 11.4.  Third-Party Beneficiaries; Section 11.5.  Notices; Section 11.6.  Severability; Section 11.7.  Force Majeure; Section 11.8.  Publicity; Section 11.9  Expenses; Section 11.10.  Headings; Section 11.11.  Survival of Covenants; Section 11.12.  Waivers of Default; Section 11.13 Specific Performance; Section 11.14.  Amendments; Section 11.15.  Interpretation; Section 11.16  No Set Off; Section 11.17 Limitations of Liability; Section 11.18 Performance.  

Section 6.11Limitation on Enforcement.  This Agreement is an agreement solely between the Parties.  Nothing in this Agreement, whether express or implied, shall be construed to: (a) confer upon any Emergent Employee or Aptevo Employee, or any other person any rights

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or remedies, including, but not limited to any right to (i) employment or recall; (ii) continued employment or continued service for any specified period; or (iii) claim any particular compensation, benefit or aggregation of benefits, of any kind or nature; or (b) create, modify, or amend any Benefit Plan. 

Section 6.12Further Assurances and Consents.  In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties hereto shall use commercially reasonable efforts to (a) execute and deliver such further instruments and documents and take such other actions as the other Party may reasonably request to effectuate the purposes of this Agreement and carry out the terms hereof; (b) take, or cause to be taken, all actions, and do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws  and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using commercially reasonable efforts to obtain any consents and approvals and to make any filings and applications necessary or desirable to consummate the transactions contemplated by this Agreement; provided that no Party hereto shall be obligated to pay any consideration therefor (except for filing fees and other similar charges) to any third party from whom those consents, approvals and amendments are required or to take any action or omit to take any action if the taking of action or the omission to take action would be unreasonably burdensome to the Party or the business thereof.

Section 6.13Third Party Consent.  If the obligation of any Party under this Agreement depends on the consent of a third party, such as a vendor or insurance company, and that consent is withheld, the Parties shall use commercially reasonable efforts to implement the applicable provisions of this Agreement to the fullest extent practicable.  If any provision of this Agreement cannot be implemented due to the failure of a third party to consent, the Parties shall negotiate in good faith to implement the provision in a mutually satisfactory manner, taking into account the original purposes of the provision in light of the Distribution and communications to affected individuals.

Section 6.14Effect if Distribution Does Not Occur.  If the Distribution does not occur, then all actions and events that are to be taken under this Agreement, or otherwise in connection with the Distribution, shall not be taken or occur, except to the extent specifically provided by Emergent.

Section 6.15Disputes.  The Parties agree to use commercially reasonable efforts to resolve in an amicable manner any and all controversies, disputes and claims between them arising out of or related in any way to this Agreement.  The Parties agree that any controversy, dispute or claim (whether arising in contract, tort or otherwise) arising out of or related in any way to this Agreement that cannot be amicably resolved informally will be resolved pursuant to the dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement.

Section 6.16Schedules.  As of the Distribution Date, the Parties shall update any Schedules to this Agreement, as necessary.

[SIGNATURE PAGE FOLLOWS]

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The Parties have caused this Agreement to be signed by their authorized representatives as of the Distribution Date.

 

 

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Exhibit 10.5

 

MANUFACTURING SERVICES AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

 

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TABLE OF CONTENTS

 

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MANUFACTURING SERVICES AGREEMENT

This MANUFACTURING SERVICES AGREEMENT, dated as of July 29, 2016 (this “Agreement”), is made and entered into by and between Emergent BioSolutions Inc., a Delaware corporation (“Emergent”), and Aptevo Therapeutics Inc., a Delaware corporation (“Aptevo”).  Aptevo and Emergent are referred to together as the “Parties” and individually as a “Party.” Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Separation and Distribution Agreement (“SDA”) or, if not therein, in the Transition Services Agreement (“TSA”), or, if not therein, in the Canadian Distributor Agreement (“CDA”), or, if not therein, in the Product Licensing Agreement (the “PLA”), or, if not therein, in the Trademark License Agreement (“TLA”), each dated as of the date hereof, by and between Emergent and Aptevo. The Parties acknowledge and agree that this Agreement is an Ancillary Agreement under the SDA.

WHEREAS, Aptevo and Emergent have entered into the SDA, the TSA, the CDA, the TLA and the PLA;

WHEREAS, Aptevo is a therapeutics company pursuing the research, development, and commercialization of pharmaceutical products; and

WHEREAS, Emergent has the capacity to meet Aptevo’s applicable manufacturing, distribution and other needs with respect to the Products;

NOW, THEREFORE, in consideration of the mutual promises of the Parties, and of good and valuable consideration, it is agreed by and between the Parties as follows:  

ARTICLE I
DEFINITIONS

For the purpose of this Agreement, the following terms shall have the following meanings.

“3PL-Only Products” means the pharmaceutical products set forth in Item 1 of Schedule E.

“3PL Services” has the meaning set forth in ARTICLE V.

“Acceptance Criteria” means, with respect to a Product, the tests and other factors set forth in the applicable Master Batch Record that, once satisfied, require Aptevo to accept such Product as conforming to the Specifications and other requirements set forth herein.

“Acquiring Entity” means a Person that (a) (i) acquires control (as defined in the definition of Affiliate under the SDA), after the Effective Time, of Aptevo or an Aptevo Affiliate or any member of the Aptevo Group to which rights or interests under this Agreement or the PLA or with respect to any of the Products have been assigned or licensed or (ii) is assigned any right or interest under this Agreement or the PLA and (b) was a Third Party until the time of such acquisition or assignment.

“Agreement” means this agreement, including any schedules.

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“Applicable Laws” means (a) for Emergent, the Laws of the jurisdictions where the Manufacturing Facility or Storage Facilities are located, as applicable, and such other Laws as may govern Emergent’s performance of its Manufacturing services and 3PL Services under this Agreement (but in no event shall any Laws that may govern the distribution, marketing, import or export of the Products be construed as Applicable Laws with respect to Emergent under this Agreement); and (b) for Aptevo and the Products, the Laws of the United States, Canada, and any other jurisdictions where the Products are manufactured, distributed, stored or marketed.

“Aptevo Certificate of Analysis” means, with respect to a Batch of a Product, the document for such Batch of such Product prepared by Aptevo, reporting the results of testing of such Batch of Product.

“Aptevo IP” has the meaning set forth in Section 2.6.1.

“Aptevo Representative” has the meaning set forth in Section 2.1.2.

“Background Emergent IP” means any and all Intellectual Property rights owned or controlled by Emergent or any of its Affiliates as of immediately after the Effective Time or thereafter during the term of this Agreement, including its rights in its own Confidential Information, trade secrets, and the like.

“Bankruptcy Code” has the meaning set forth in Section 12.6.

“Batch” means, with respect to a Product, a uniform quantity of drug substance consisting of the Minimum Vials resulting from a single run of such Product produced by a single execution of the instructions specified in the applicable Batch Record within the meaning of 21 CFR part 210.3(b)(2) or within the meaning of 21 CFR part 600.3(x), or its successor as in effect from time to time.

“Batch Record” means, with respect to a Product, the batch production and control record containing the set of detailed processing instructions which are to be followed by Emergent to produce one Batch of the relevant Product as defined in 21 CFR part 211.188, or its successor as in effect from time to time.

“Binding Purchase Order” means any Purchase Order that is accepted by Emergent pursuant to Section 3.1.2.

“Binding Six Month Forecast” has the meaning set forth in Section 3.1.1.

“CFR” means the United States Code of Federal Regulations.

“Competing Program” means (a) the research, development, making, having made, manufacturing, using, selling, offering for sale, importing or otherwise exploiting of any product substantially similar to any of the Products, or any activity involving any process or technology that is materially related to the Manufacturing Technology, including: so-called hyperimmune products; products, either marketed or being developed as therapeutics, comprising polyclonal sera collected from persons or animals that possess antibodies with specificity against a given antigen; and products derived from blood, plasma and blood components, such as clotting factors

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and (b) the making, having made or manufacturing of any Product.  For clarity, Competing Program excludes (i) the research, development, making, having made, manufacturing, using, selling, offering for sale, importing or otherwise exploiting of any recombinant protein product that is not a hyperimmune product and (ii) the research, development, using, selling, offering for sale, importing or otherwise exploiting (but not making, having made or manufacturing) any Product.

“Conforming Product” means Product that, upon the issuance of the Emergent Release Documents with respect to such Product, meets the Specifications and was Manufactured in conformance with the terms of the Quality Agreement.

“CPR” has the meaning set forth in Section 11.1.2.

“Credit” means that Emergent shall, as applicable, (a) not invoice Aptevo for the applicable Manufacturing Fee, (b) cancel the already-issued invoice for the applicable Manufacturing Fee, or (c) credit the amount of the applicable Manufacturing Fee against any other amounts owed by Aptevo to Emergent under this Agreement.  For the avoidance of doubt, any Products for which Aptevo receives a Credit shall count towards the Minimum Annual Order.

“Current Good Manufacturing Practices” or “GMP” or “cGMP” means the regulatory requirements for the then-current good manufacturing practice as provided for (and as amended from time to time) in the Current Good Manufacturing Practice Regulations of the U.S. Code of Federal Regulations Title 21 (21 CFR §§ 210 and 211), in Part C, Division 2 of the Food and Drug Regulations (Canada) and in Commission Directive 2003/94/EC, as amended from time to time and the principles and practices set down in the current edition of the Rules Governing Medicinal Products in the European Union, Volume IV, Good Manufacturing Practice for Medicinal Products.

“Debarred Entity” has the meaning set forth in Section 7.2.4.

“Debarred Individual” has the meaning set forth in Section 7.2.3.

“Delivery” means, with respect to a Vial of Product, the earlier of (i) the Release of such Vial of such Product or (ii) fifteen (15) days after the issuance of the Emergent Release Documents with respect to such Vial of such Product.  “Deliver” shall have the corresponding meaning.

“Dispute” has the meaning set forth in Section 11.1.1.

“Dispute Notice” has the meaning set forth in Section 11.1.2.

“Distribution Destination” means, with respect to each Vial within a Purchase Order, the area within the Territory that is the final destination for such Vial.  The Distribution Destination may be one of the following three designations: (i) the United States, (ii) Canada or (iii) the rest of the world (“ROW”).

“Distributor” has the meaning set forth in Section 7.2.7.

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“Emergent Certificate of Analysis” means, with respect to a Batch of a Product, the document for such Batch of such Product prepared by Emergent, reporting the results of testing of such Batch of Product and indicating that the Batch has met the Specifications.

“Emergent Certificate of Compliance” means, with respect to a Batch of Product, a certificate from Emergent confirming that such Batch of such Product was Manufactured under Current Good Manufacturing Practices.

“Emergent-Owned IP” has the meaning set forth in Section 2.7.2.

“Emergent Release Documents” means, with respect to a Batch of Product, the following documents: (a) Emergent’s Batch Record for such Batch of such Product, (b) the Emergent Certificate of Compliance for such Batch of such Product, (c) the applicable Emergent Certificate of Analysis and (d) such other documents required by the Quality Agreement for Emergent’s release of Product.

“Expert” has the meaning set forth in Section 11.3.1.

“EXW” has the meaning set forth in INCOTERMS 2010.

“Facility Improvements” means, with respect to a Product, any improvements or changes (a) to the Manufacturing process used or services performed to Manufacture such Product that apply generally to all products Manufactured at the Manufacturing Facility and (b) that do not require updates to the regulatory dossiers for such Product or any other filings with any Regulatory Authority with respect to such Product.

“FDA” means the United States Food and Drug Administration.

“Feasibility Opinion” has the meaning set forth in Section 3.1.1.

“Field” means, with respect to the WinRho SDF® product, the therapeutic, prophylactic and diagnostic use of such Product in the Rh0(D) indication; with respect to the HepaGam B® product, the therapeutic, prophylactic and diagnostic use of such Product in the Hepatitis B indication; and with respect to the VARIZIG® product, the therapeutic, prophylactic and diagnostic use of such Product in the Varicella-zoster hyperimmune immunoglobulins indication.

“Finished Product Shipping Specifications” means the details of all required import/export or customs documentation, Aptevo’s instructions for shipping and packaging each Product and such other information as is necessary for the proper shipment of finished Products under this Agreement, as provided by Aptevo to Emergent in writing from time to time during the ordinary course of business.

“Firm Delivery Date” means, with respect to each Vial in a Purchase Order, the proposed date set forth in such Purchase Order on which Emergent is expected to issue the Emergent Release Documents with respect to such Vial, which date shall be not less than six (6) months from the date of such Purchase Order.

“Force Majeure” has the meaning set forth in Section 12.3.

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“Forecast” has the meaning set forth in Section 3.1.1.

“FTE” means the equivalent of the work of one (1) duly qualified employee of Emergent full time for one (1) year (consisting of a total of 1,950 hours per year) carrying out technology transfer work under this Agreement. Overtime, and work on weekends, holidays and the like will not be counted with any multiplier (e.g., time-and-a-half or double time) toward the number of hours that are used to calculate the FTE contribution. The portion of an FTE billable by Emergent for one (1) individual during a given accounting period will be determined by dividing the number of hours worked directly by said individual on the work to be conducted under the Agreement during such accounting period and the number of FTE hours applicable for such accounting period based on 1,950 working hours per calendar year.

“Governmental Authority” means any nation or government, any state, province, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions of, or pertaining to, government and any executive official thereof.

“Included Manufacturing Improvements” means all Facility Improvements and Platform Manufacturing Improvements.

“Indemnified Party” has the meaning set forth in Section 8.3.

“Indemnifying Party” has the meaning set forth in Section 8.3.

“Information” means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, whether or not stored in any medium that has existed, now exists or will exist, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other Software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

“Insolvency/Bankruptcy Event” shall be deemed to have occurred if a Party: (a) voluntarily consents to an order for relief by filing a petition for relief under any bankruptcy or insolvency laws of any jurisdiction; (b) seeks, consents to or does not contest the appointment of a receiver, custodian or trustee for itself or for all or any part of its property; (c) files a petition seeking relief under the bankruptcy, arrangement, reorganization or other debtor relief laws of any competent jurisdiction; (d) admits in writing that it is generally not paying its debts as those debts become due; (e) gives notice to any Governmental Authority of insolvency or pending insolvency; (f) becomes “insolvent” as that term is defined under applicable fraudulent transfer or conveyance laws or comparable foreign laws; or (g) makes an assignment for the benefit of creditors or takes any other similar action for the protection or benefit of creditors.

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“Intellectual Property” means all of the following whether arising under the Laws of the United States or of any other foreign or multinational jurisdiction: (a) patents, patent applications (including patents issued thereon) and statutory invention registrations, including reissues, divisions, continuations, continuations in part, substitutions, renewals, extensions and reexaminations of any of the foregoing, and all rights in any of the foregoing provided by international treaties or conventions (the foregoing, collectively, “Patents”), (b) trademarks, service marks, trade names, service names, trade dress, logos and other source or business identifiers, including all goodwill associated with any of the foregoing, and any and all common law rights in and to any of the foregoing, registrations and applications for registration of any of the foregoing, all rights in and to any of the foregoing provided by international treaties or conventions, and all reissues, extensions and renewals of any of the foregoing (the foregoing, collectively, “Trademarks”), (c) Internet domain names, (d) copyrightable works, copyrights, moral rights, mask work rights, database rights and design rights, in each case, other than Software, whether or not registered, and all registrations and applications for registration of any of the foregoing, and all rights in and to any of the foregoing provided by international treaties or conventions, (e) confidential and proprietary Information, including trade secrets, invention disclosures, processes and know-how, in each case, other than Software, (f) intellectual property rights arising from or in respect of any Technology, and (g) rights to enforce any past, present or infringement or misappropriation of any of the foregoing.

“Joint Steering Committee” has the meaning set forth in Section 2.1.3(a).

“Latent Defect” has the meaning set forth in Section 3.6.

“Law” means any national, supranational, federal, state, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case, enacted, promulgated, issued or entered by a Governmental Authority.

“Manufacture” means, with respect to a Product, the performance of all of the manufacturing services or a portion thereof as set out in this Agreement for the manufacture of such Product, including procuring Materials, manufacturing, packaging, labeling, filling, finishing, capping, storing, inspecting, release testing, labeling, release and stability storage and testing of such Product, and testing and release of the Materials used to make such Product. “Manufactured” and “Manufacturing” shall have comparable meanings.

“Manufacturing Facility” means Emergent’s (or its Affiliate’s, as applicable) premises and equipment located at its facility at 155 Innovation Drive, Wpg, Manitoba, CA or 1111 S. Paca St., Baltimore, Maryland, USA, as applicable.

“Manufacturing Failure” means (i) Emergent’s failure to Deliver at least fifty percent (50%) of the aggregate quantity of all Vials of Product with respect to all Binding Purchase Orders (exclusive of those Vials used as retain samples, those Vials used for the stability program as set forth in the Quality Agreement and those Vials Manufactured but not Delivered by agreement of the Parties) within a rolling twelve (12) month period in accordance with this Agreement (other than where such failure is due to a Force Majeure), provided that (a) Aptevo

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may only make the determination as to whether such failure has occurred during the prior twelve (12) months as of the end of a calendar quarter (i.e., as of March 31, June 30, September 30, or December 31, as applicable) and (b) Aptevo must provide Emergent notice in writing within fifteen (15) days of such determination; or (ii) a termination of this Agreement by Emergent pursuant to Section 9.2.5.

“Manufacturing Fee” means, with respect to a Product, the applicable fee set forth on Schedule A, as may be changed from time to time in accordance with Sections 3.15, 3.16 or 3.19.

“Manufacturing Improvements” means the Facility Improvements, Platform Manufacturing Improvements and Product-Specific Manufacturing Improvements.

“Master Batch Record” means, with respect to a Product, a master production and control record containing a written description of the procedure to be followed for processing a Batch of such Product, including a complete list of all active and inactive ingredients, components, weights and measures, descriptions of drug product containers, closures, packaging materials, and labeling and complete specifications for each, within the meaning of 21 CFR part 211.186, or its successor as in effect from time to time.

“Materials” means, with respect to a Product, the test material, and all compounds, raw and packaging materials or substances Manufactured, sourced or supplied by Emergent, excluding machinery and equipment, that Emergent requires to Manufacture such Product.

“Minimum Annual Order” has the meaning set forth in Section 3.1.5.

“Minimum Vials” means, with respect to a Product and a size (as applicable), the number of Vials with respect to such Product and size as listed in Item 1 of Schedule B.

“Non-Conforming Product” means Product Manufactured by Emergent under this Agreement that is not Conforming Product.

“Packaging Material” means, with respect to a Product, the packaging materials for such Product as designated by Aptevo to Emergent in writing, and such other packaging materials as are necessary for Emergent to Manufacture and supply the Products and perform the 3PL Services for the Products (other than the 3PL-Only Products).

“Packaging Material Baseline Inventory” means, with respect to a Product, the stock of Packaging Material sufficient for Emergent to perform all packaging and labeling services for such Product under Sections 3.11 and 3.12, which stock shall be maintained in a quantity (i) consistent with the quantity of packaging inventory that Emergent would normally maintain in the ordinary course of business with respect to its own product packaging inventory and (ii) consistent with the Binding Six Month Forecast.

“Part Number” means, with respect to a Vial of Product, the unique number (as provided in writing on a list of available Part Numbers from Emergent to Aptevo from time to time) describing the size, dosage, labeled market and other attributes of such Vial of Product.

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“Platform Manufacturing Improvements” means, with respect to a Product, any improvements or changes (a) to the Manufacturing process used or services performed to Manufacture such Product that apply generally to all products Manufactured at the Manufacturing Facility and (b) that require updates to the regulatory dossiers for such Product or any other filings with any Regulatory Authority with respect to such Product.

“Product” has the meaning set forth in the PLA.

“Product-Specific Manufacturing Improvements” means, with respect to a Product, any improvements or changes to the Manufacturing process used or services performed specifically to Manufacture such Product, but no other product.

“Product-Specific IP” means all Intellectual Property rights in or to (a) release-testing assays formulated or specific to the Products and (b) Product-Specific Manufacturing Improvements.  

“Project Manager” has the meaning set forth in Section 2.1.1.

“Purchase Order” means a document issued and signed by Aptevo, ordering a specified number of Vials of one or more Products from Emergent.  With respect to each Vial of Product ordered, each written Purchase Order will include (a) the Part Number; (b) product description; (c) the Firm Delivery Date; and (d) the Storage Facility.  The Purchase Order shall also include the Manufacturing Fee to be paid for such order pursuant to terms of this Agreement.  If any terms or requirements are included in the Purchase Order that are in addition to or in conflict with the terms of this Agreement, other than those terms set forth in this definition, then such additional or conflicting terms are of no force and effect and are superseded by the terms and requirements of this Agreement.  Emergent may propose changes to the information required to be included in a Purchase Order to Aptevo for Aptevo’s written consent, which consent shall not be unreasonably withheld or delayed.

“Purchase Order Shortfall” has the meaning set forth in Section 3.1.4.

“Quality Agreement” means the Quality Agreement between Aptevo and Emergent for the Products, effective as of the Effective Time and attached hereto at Schedule C (as may be amended or superseded from time to time by mutual agreement of the Parties or as set forth in the Quality Agreement), which specifies the respective responsibilities for quality control and quality assurance activities consistent with cGMPs with respect to the Manufacturing of the Products.

“Quality Department” means the department within Emergent responsible for quality assurance matters.

“Regulatory Approval” means all technical, medical and scientific licenses, registrations, authorizations, consents and approvals of any Regulatory Authority, necessary for the use, development, manufacture, and commercialization of a given biologic, pharmaceutical or medical device in a given regulatory jurisdiction.

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“Regulatory Authority” means the applicable Governmental Authority that has jurisdiction with respect to the Manufacture of the Products in the Territory.

“Regulatory Standards” means (a) procurement and maintenance of any and all permits, licenses, filings and certifications required by Health Canada, the FDA or other Regulatory Authorities within the Territory, and compliance with the cGMPs applicable to the Manufacturing Facility or Emergent’s processing, storage, handling or other Manufacturing of the Materials or Products at the Manufacturing Facility, and (b) any Laws of any Governmental Authority within the Territory (including, as applicable, the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Drug Enforcement Administration (DEA) and state and local authorities), that apply to the Manufacturing Facility or Emergent’s processing, storage, handling, shipment or other Manufacturing of the Materials or Products.

“Rejection Notice” has the meaning set forth in Section 3.6.

“Release” means, with respect to a Vial of Product, the delivery of all applicable Emergent Release Documents from Emergent to Aptevo in accordance with Section 3.4 and the issuance by Aptevo of the Aptevo Certificate of Analysis and such other Aptevo required release documents as are agreed by the Parties in writing from time to time.

“Second Source Manufacturer” has the meaning set forth in Section 3.22.

“Shipping Order” means a document issued by Aptevo to Emergent requesting that Emergent perform the 3PL Services in respect of a shipment to be made by Emergent to Aptevo or a third party under this Agreement, setting out detailed information regarding the shipment, including the number of Vials of each Product to be shipped, the Batch from which each Vial is being requested, the shipping destination of each Vial (including the Distribution Destination) (the “Shipping Destination”), the requested shipment date, the requested delivery date.  For clarity, each Shipping Order may only name one Distribution Destination.

“Specifications” means, with respect to a Product, the specifications required for Manufacture, including the specifications for the applicable Materials and such Product, which specifications have, as of the Effective Time, been approved by both Parties (or are thereafter amended as agreed upon by both Parties in writing) and are set forth in the Master Batch Record.

“Storage Facility” means, with respect to each Vial of Product, the Emergent (or its Affiliate’s) facility named in the applicable Purchase Order at which such Vial shall be stored pending shipment.

“Technology” means all technology, designs, formulae, algorithms, procedures, methods, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or nonpublic information, and other similar materials or Information, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein.

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“Territory” means all countries, territories and commonwealths of the world described in Section 3.13.

“Triggering Event” has the meaning set forth in Section 9.4.

“VariZig” means Varicella Zoster Immune Globulin (Human).

“Vial” means, with respect to each Product, an individual, retail-size vial of such Product (as set forth in Schedule A).

“Work-in-Process” means, with respect to a Product, all Materials that Emergent has begun to Manufacture into the relevant finished Product, but which have not yet satisfied the Specifications.

ARTICLE II
GENERAL TERMS

2.1Project Management.  

2.1.1Project Managers.  Each of the Parties shall appoint and maintain, throughout the term of this Agreement, a project manager who shall be the main contact person for such Party, respectively, with respect to commercial or business issues under this Agreement (each, a “Project Manager”); provided, however, that a Party may designate a replacement Project Manager from time to time upon notice to the other Party.  Each Project Manager shall be familiar with all aspects of this Agreement and shall be available during regular business hours to discuss, and attempt to address, any questions, concerns or issues either Party may raise regarding the Agreement.  

2.1.2Aptevo Representatives. Aptevo may appoint and maintain, throughout the term of this Agreement, a product specialist who shall be permanently staffed in the Manufacturing Facility to oversee Aptevo’s responsibilities under this Agreement (the “Aptevo Representative”), provided, however, that Aptevo may designate a replacement Aptevo Representative from time to time upon notice to Emergent.  The Aptevo Representative shall (a) be an employee of, or a consultant or contractor engaged by, Aptevo or one of its Affiliates, (b) be bound to a written confidentiality agreement, (c) comply with all rules and regulations applicable to visitors to the Manufacturing Facility, and (d) in no event be deemed an employee of Emergent or any of its Affiliates.  Aptevo shall be solely liable for the Aptevo Representative and any acts or omissions by the Aptevo Representative.  Emergent shall, at no additional cost to Aptevo, provide to the Aptevo Representative a workspace, chair, telephone and high-speed internet connection for such Aptevo Representative to carry out his or her duties.  If Aptevo does not appoint and maintain a product specialist who is permanently staffed in the Manufacturing Facility, then Section 5.3.1. of the Quality Agreement shall govern Aptevo’s rights with respect to person in plant visits.

2.1.3Joint Steering Committee.  

(a)Establishment; Membership.  Within thirty (30) days of the Effective Time, the Parties shall establish a joint steering committee (the “Joint Steering Committee”)

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composed of an equal number of appointed representatives of each of Emergent and Aptevo, with at least one (1) appointed representative of each Party having sufficient expertise and sufficient seniority and authority with respect to the applicable Party to make decisions with respect to manufacturing matters. A Party may change one or more of its representatives on the Joint Steering Committee at any time. One (1) representative from each Party shall alternate in acting as the chairperson of the Joint Steering Committee for a one (1) year-long term, with Emergent’s representative chairing the Joint Steering Committee until the first anniversary of the Effective Time. The chairperson shall not have any greater authority than any other representative on the Joint Steering Committee and shall be responsible for the following activities of the Joint Steering Committee: (i) calling meetings of the Joint Steering Committee, (ii) preparing and issuing minutes of each such meeting within fifteen (15) days thereafter, which minutes shall not be finalized until each Party reviews and confirms the accuracy of such minutes in writing (provided that any minutes shall be deemed approved unless a member of the committee objects to the accuracy of such minutes within thirty (30) days of the circulation of the minutes by the chairperson), and (iii) preparing and circulating an agenda for the upcoming meeting; provided, that the chairperson shall include any agenda items proposed by the Party of which the chairperson is not a representative. The Parties may allow additional employees to attend meetings of the Joint Steering Committee subject to the confidentiality provisions of ARTICLE VI. In addition to expertise, seniority, and authority with respect to manufacturing matters, each Party’s Joint Steering Committee members shall collectively have sufficient expertise and sufficient seniority and authority with respect to the applicable Party to make other decisions within the scope of the Joint Steering Committee’s authority, including with respect to clinical, regulatory and business matters. 

(b)Meetings; Responsibilities.  During the term of this Agreement, the Joint Steering Committee shall meet in person or by teleconference or videoconference at least once every calendar quarter. Each Party shall be responsible for all of its own expenses incurred in connection with participating in the Joint Steering Committee meetings.  The Joint Steering Committee shall discuss and decide on the issues and questions necessary to further the purposes of this Agreement, as mutually agreed upon by the Parties in writing, and subject to Section 4 of the Quality Agreement.  Quorum for such meetings shall consist of at least one (1) member of each Party attending the meeting.  Each Party will have a single vote regardless of the number of representatives of such Party in attendance and decisions shall be made by the affirmative vote of each Party through its representatives at such meetings.  Notwithstanding anything to the contrary set forth herein, the Joint Steering Committee will not have the right to make any decisions (i) in a manner that excuses a Party from any obligation specifically enumerated under this Agreement, (ii) in a manner that negates any consent right or other right specifically allocated to a Party under this Agreement, (iii) to amend or modify this Agreement or any of the Parties’ respective rights and obligations hereunder or (iv) in a manner that would require a Party to perform any act that would cause such Party to breach any of its obligations hereunder.

2.2Exclusivity. Subject to Section 2.8,  during the term of this Agreement, Emergent shall be Aptevo’s sole manufacturer of, and sole provider of all Manufacturing services with respect to, each of the Products or any variants, derivations or improved versions thereof anywhere in the world; provided, however, that the foregoing exclusivity shall terminate immediately upon the occurrence of a Triggering Event.  

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2.3Manufacturing and Product Quality. Subject to the terms and conditions of this Agreement, Emergent shall Manufacture the Products for the Territory at the Manufacturing Facility and shall produce the Products in accordance with the terms hereof and the terms of the Quality Agreement in all material respects.  For clarity, Emergent may use Aptevo’s Confidential Information to perform Emergent’s obligations under this Agreement.  

2.4Master Batch Records.  Emergent shall prepare and maintain the Master Batch Records for the Manufacturing of Products at the Manufacturing Facility.  Subject to Section 4 of the Quality Agreement, Emergent may make changes to a Master Batch Record that (i) Emergent believes in its good faith judgment are required to maintain the Manufacturing Facility’s compliance with GMP or (ii) are required by the applicable Regulatory Authority (if Emergent is so informed of such requirement by written notice from Aptevo or a Regulatory Authority). Emergent will use commercially reasonable efforts to make changes to the Master Batch Record with ample time and consideration for required filings, as applicable, to ensure Aptevo’s relevant biologics license applications remain in compliance.

2.5Improvements.  

2.5.1Facility Improvements. Subject to Section 4 of the Quality Agreement, Emergent may implement Facility Improvements upon providing written notice thereof to Aptevo, which notice shall include the timeline for implementing such Facility Improvement and an assessment of the impact of such Facility Improvement, if any, on the Products; provided that, Emergent shall consider in good faith the extent to which such Facility Improvements would have any adverse impact on the Product, including adverse impacts on Batch yield or Product safety, efficacy, stability or shelf life, before making such Facility Improvements. Emergent will bear all costs and expenses associated with Emergent’s implementation of any Facility Improvement.

2.5.2Platform Manufacturing Improvements.  Subject to Section 4 of the Quality Agreement, if Emergent seeks to implement any Platform Manufacturing Improvement, then Emergent shall present Aptevo with a written notice of such Platform Manufacturing Improvement, including the timeline for implementing such Platform Manufacturing Improvement and an assessment of the impact of such Platform Manufacturing Improvement, if any, on the Products. Emergent may implement Platform Manufacturing Improvements in its sole and absolute discretion, and such Platform Manufacturing Improvement shall become part of the process by which Emergent Manufactures the Products for Aptevo under this Agreement. Emergent shall bear all costs and expenses associated with Emergent’s implementation of any Platform Manufacturing Improvement.

2.5.3Product-Specific Manufacturing Improvements.  Subject to Section 4 of the Quality Agreement, if Emergent seeks to implement any Product-Specific Manufacturing Improvement (whether developed by Emergent or suggested to Emergent by Aptevo), then Emergent shall present Aptevo with a written notice of such Product-Specific Manufacturing Improvement, including the timeline for implementing such Product-Specific Manufacturing Improvement and an assessment of the impact of such Product-Specific Manufacturing Improvement, if any, on the Products. Both Parties must approve such Product-Specific Manufacturing Improvements in writing.  All implemented Product-Specific Manufacturing

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Improvements shall become part of the process by which Emergent Manufactures the Products for Aptevo under this Agreement. Aptevo shall pay all costs incurred by Emergent for implementing Product-Specific Manufacturing Improvements.  

2.5.4Effects of Improvements.  To the extent the implementation of any Facility Improvement or Platform Manufacturing Improvements by Emergent result in a Batch containing any Non-Conforming Product, Emergent shall Credit the Manufacturing Fee for the applicable Vials of such Non-Conforming Product. To the extent any Platform Manufacturing Improvements or Product-Specific Manufacturing Improvements require Aptevo to update or change the regulatory dossiers for its Products during the Term, Emergent shall provide all applicable updated hyperimmune regulatory dossier pages for Aptevo to review.  Such pages are provided as proposals only and Aptevo shall submit such pages or portions thereof to Regulatory Authorities at its sole discretion and bear the full responsibility for such filings.  Emergent shall provide complete, true and accurate information in such proposed dossier pages, but Aptevo is ultimately responsible for submitting and maintaining dossiers associated with its Regulatory Approvals for the Products and for the completeness and accuracy of such dossiers.

2.6Licenses

2.6.1License to Emergent.  For clarity, to the extent not already licensed under the terms of the PLA, during the term of this Agreement, and subject to the terms and conditions of this Agreement, Aptevo grants to Emergent a non‑exclusive, worldwide, sublicenseable and royalty-free license, under any Intellectual Property owned or controlled by Aptevo or any of its Affiliates (including all Product-Specific IP) (“Aptevo IP”), solely to perform the services and to comply with Emergent’s obligations under the terms and conditions of this Agreement and the Quality Agreement.

2.6.2License to Aptevo.  For clarity, to the extent not already licensed under the terms of the PLA, during the term of this Agreement, and subject to the terms and conditions of this Agreement, Emergent grants to Aptevo, effective at the Effective Time, a non-exclusive, royalty-free, worldwide, non-transferable (except as provided in this Section 2.6.2 and for certain assignments as provided in Section 12.4) license, under the Manufacturing Technology and the Included Manufacturing Improvements, to make, have made, use, sell, offer to sell, import and otherwise commercialize the Products, solely within the Field, provided that Aptevo may only exercise (and the other members of the Aptevo Group may only exercise) the rights to make and have made the Products through Emergent as contemplated by this Agreement or through a CMO pursuant to and in accordance with the PLA.

2.6.3Necessity; Trade Secrets; Confidentiality.  Aptevo acknowledges and agrees that the Manufacturing Technology and the Included Manufacturing Improvements are the proprietary, confidential know-how of Emergent of which some portions are further protected as trade secrets (as such term is defined in the Economic Espionage Act of 1996, 18 U.S.C. § 1839 or other applicable Law).  Aptevo shall consider the Manufacturing Technology and the Included Manufacturing Improvements and all trade secrets contained therein as Confidential Information under this Agreement, shall strictly adhere to its confidentiality obligations under this Agreement with respect to such Information, and hereby acknowledges and agrees that the remedy at Law for any breach of this Section 2.6.3 would be inadequate and

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that Emergent shall be entitled to injunctive relief, without the requirement of posting any bond or other security, in addition to any other remedy it may have upon breach of any provision of this Section 2.6.3, provided that Emergent shall not seek an injunction preventing the delivery of the Products into the stream of commerce unless such Products contain or otherwise transmit (in their packaging, labeling or otherwise) the Manufacturing Technology or the Included Manufacturing Improvements or any other Confidential Information of Emergent. 

2.6.4Other Licenses.  Aptevo is solely responsible for providing licenses to all Intellectual Property (other than the Licensed IP) necessary for Emergent to perform services under this Agreement, except for such licenses as would be required for any Third Party Intellectual Property rights that would be infringed by any Facility Improvement or Platform Manufacturing Improvement.  To the extent Emergent becomes aware of any Third Party Intellectual Property that is needed to perform the Manufacturing services contemplated herein, Emergent shall provide written notice of such requirement to Aptevo.

2.6.5No Other Licenses and Rights.  Except as expressly provided in this Section 2.6, no other license or right is granted to any member of the Aptevo Group under this Agreement, whether expressly or by implication, estoppel, statute or otherwise.  Neither Aptevo, nor any member of the Aptevo Group, shall have any right to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any of the Licensed IP, Manufacturing Technology or Included Manufacturing Improvements, and neither Emergent, nor any member of the Emergent Group, shall have any right to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any of the Aptevo IP.

2.6.6No Obligation to Obtain or Maintain Intellectual Property.  Neither Emergent, nor any member of the Emergent Group, is obligated to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any of the Licensed IP, Manufacturing Technology or Included Manufacturing Improvements, provided that during the term of this Agreement, Emergent shall use commercially reasonable efforts to maintain the secrecy of its trade secrets within the Manufacturing Technology and the Included Manufacturing Improvements. Neither Aptevo, nor any member of the Aptevo Group, is obligated to file, prosecute, maintain, enforce or defend any Aptevo IP.

2.7Arising Intellectual Property; Improvements.  

2.7.1As between the Parties, Aptevo will own all Product-Specific IP, whether conceived, made or reduced to practice by Aptevo, Emergent, any of their respective Affiliates, or any of their respective employees or agents, alone or jointly with others or jointly with the other Party, any of its Affiliates or any of its employees or agents.  Emergent, on behalf of itself and its Affiliates, hereby assigns to Aptevo all right, title and interest in and to the Product-Specific IP and all Intellectual Property rights therein.

2.7.2As between the Parties, Emergent will own any and all improvements and enhancements made to, and derivatives of, any of Background Emergent IP or the Manufacturing process for any of the Products (including Included Manufacturing Improvements and all Intellectual Property Rights therein), whether such improvements, enhancements or derivatives were conceived, made or reduced to practice by Aptevo, Emergent, any of their respective

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Affiliates or any of their respective employees or agents, alone or jointly with others or jointly with the other Party, any of its Affiliates or any of its employees or agents (except for Product-Specific IP) (“Emergent-Owned IP”).  Aptevo, on behalf of itself and its Affiliates, hereby assigns to Emergent all right, title and interest in and to the Emergent-Owned IP and all Intellectual Property rights therein. 

2.7.3Each Party will provide all further cooperation which the other Party reasonably determines is necessary to give effect to the ownership of the Emergent-Owned IP and Product-Specific IP set forth in Section 2.7.1 and Section 2.7.2 and to ensure the owning Party the full and quiet enjoyment of such Emergent-Owned IP and Product-Specific IP (as applicable), including executing and delivering further assignments, consents, releases and other commercially reasonable documentation, and providing good faith testimony by affidavit, declaration, deposition, in person or other proper means and otherwise assisting such other Party in support of any effort by such owning Party to establish, perfect, defend or enforce its rights in such Emergent-Owned IP or Product-Specific IP (as applicable).  

2.8Delegation.  Emergent may use any of its Affiliates or other third parties to fulfill any of its obligations under this Agreement in its sole discretion, provided that Emergent shall seek Aptevo’s written permission for any delegation for which permission is required under the Quality Agreement, which permission shall not be unreasonably withheld. To the extent Emergent retains subcontractors, such subcontractors are required to perform to the standards set forth in this Agreement and Emergent shall maintain responsibility for such subcontractors’ performance.

2.9Invoices.  All amounts invoiced under this Agreement shall be payable within forty-five (45) days of the invoice recipient’s receipt of such invoice.

ARTICLE III
MANUFACTURING SERVICES

3.1Purchases.

3.1.1Forecasts. Within thirty (30) days after the Effective Time, Aptevo will provide Emergent with a written, non-binding forecast of Batch purchases by Product by month for the following twenty-four (24) months; provided that the number of Vials of each Product forecasted for each month will be specified in integer multiples of the Minimum Batch Size as set forth on Schedule B (a “Forecast”), the first six (6) months of which shall be binding on Aptevo and cannot be changed in subsequent Forecasts (a “Binding Six Month Forecast”) and months seven (7) through nine (9) of which may be increased or decreased by Aptevo by no more than twenty-five percent (25%) of the number of Vials of Product (on a Product-by-Product basis) for the same month in the immediately preceding submitted Forecast (each, a “Semi-Binding Forecast”).  By the end of each month thereafter, Aptevo will provide a new Forecast for the twenty-four (24) months commencing with the very next calendar month (a rolling forecast), the first six (6) months of which shall be a Binding Six Month Forecast and months seven (7) through nine (9) of which will be a Semi-Binding Forecast.  If Aptevo does not provide a new Forecast by the end of a month, the last Forecast provided shall become the new and most recent Forecast, and the Binding Six Month Forecast shall be comprised of the second through seventh

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months of the prior Forecast and the Semi-Binding Forecast shall be comprised of the eighth through tenth months of the prior Forecast.  The Forecast must include sufficient detail to identify planned purchases per month for twenty four (24) months.  Upon receipt of each Forecast, Emergent will provide an indication of Emergent’s ability to meet such Forecast (a “Feasibility Opinion”) and a proposed schedule of Manufacturing dates for the following six (6) months to be updated on a monthly basis.  With respect to Emergent, all Forecasts and Feasibility Opinions are for planning purposes only and do not bind Emergent to Manufacture, except to the extent set forth in Section 3.1.2 below.  The Project Managers, or their designees within each Party’s supply chain organization management, shall meet monthly in person or by teleconference to discuss the Forecast and the Binding Six Month Forecast and the Semi-Binding Forecast. 

3.1.2Purchase Orders; Acceptance.  All purchases of Manufacturing services under this Agreement shall be effected solely pursuant to a Purchase Order and in accordance with the terms of this ARTICLE III.  Except with the written approval of Emergent, Aptevo shall submit each Purchase Order as far in advance of the Firm Delivery Date named in such Purchase Order as possible, but in any event at least six (6) months before the Firm Delivery Date named in such Purchase Order.  Emergent shall accept timely Purchase Orders that are in conformance with the applicable Feasibility Opinion, and Emergent shall use commercially reasonable efforts to accept Purchase Orders in excess of the Binding Six Month Forecast.  During each year, Emergent shall accept Purchase Orders representing at least the Minimum Annual Order for such year, and Emergent shall use commercially reasonable efforts to accept Purchase Orders in excess of the Minimum Annual Order.  Only those Purchase Orders accepted by Emergent by written notification to Aptevo after receipt of such Purchase Order shall be Binding Purchase Orders.  In the event Emergent does not respond to a Purchase Order within fifteen (15) days after receipt thereof, Emergent shall be deemed to have accepted such Purchase Order. Emergent will use commercially reasonable efforts to issue to Aptevo the Emergent Release Documents with respect to all Product ordered under a Binding Purchase Order on the Firm Delivery Date included in such Binding Purchase Order.

3.1.3Cancellations.  Aptevo may reduce the number of Vials forecasted for any month under a Binding Six Month Forecast or a Semi-Binding Forecast by providing notice to Emergent in writing, provided that, with respect to all such reductions under a Binding Six Month Forecast, and all such reductions under a Semi-Binding Forecast in excess of twenty-five percent (25%) of the number of Vials set forth therein, Aptevo shall, in each case, (a) pay a fee equal to twenty-five percent (25%) of the applicable Manufacturing Fee per canceled Vial if such cancellation occurs with respect to quantities of Product forecast in the fifth or sixth month of the immediately preceding Binding Six Month Forecast or the seventh, eighth or ninth month of the immediately preceding Semi-Binding Forecast, (b) pay a fee equal to fifty percent (50%) of the applicable Manufacturing Fee per canceled Vial if such cancellation occurs with respect to quantities of Product forecast in the third or fourth month of the immediately preceding Binding Six Month Forecast and (c) pay a fee equal to 100% of the applicable Manufacturing Fee per canceled Vial if such cancellation occurs with respect to quantities of Product forecast in the second month of the immediately preceding Binding Six Month Forecast.  Notwithstanding the foregoing, Aptevo may reduce the number of Vials forecasted for any month, or be released from its purchase obligations under a Binding Purchase Order (and Emergent shall be released from its Manufacturing and Delivery obligations under such Binding Purchase Order), if such reduction

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or cancellation arises primarily from (i) material adverse inspection or audit findings at any Manufacturing Facility, including findings by a Regulatory Authority, or (ii) recalls, Product withdrawals, field actions or other corrective actions, except to the extent such recall, Product withdrawal, field action or other corrective action was caused solely by Aptevo. At the end of each month, Aptevo shall pay the Manufacturing Fee for any amount of Product that was forecasted for such month under a Binding Six Month Forecast but neither purchased under a Purchase Order for such month nor canceled pursuant to this Section 3.1.3. 

3.1.4Filling Purchase Orders.  Emergent shall fill Binding Purchase Orders, provided that Emergent shall be under no obligation to Manufacture the Products set forth in a Binding Purchase Order if:  (i) Aptevo has been in default of its payment obligations hereunder, under the TSA or under any other Ancillary Agreement for more than forty-five (45) days from the date on which Emergent provided Aptevo with written notice of such default (which notice period shall be tolled during any bona fide dispute regarding such invoice); or (ii) Aptevo is in material breach of any of its representations, warranties, covenants, or obligations hereunder, under the TSA or under any other Ancillary Agreement.  Aptevo acknowledges and agrees that, when filling a Binding Purchase Order, Emergent may provide a number of Vials between ninety-five percent (95%) and one hundred five percent (105%) of the number of Vials ordered in such Purchase Order, (which number of Vials ordered in such Purchase Order, for purposes of determining the percentage of Vials provided by Emergent, shall not include those Vials used as retain samples and those Vials used for the stability program as set forth in the Quality Agreement or otherwise agreed to by the Parties). Without limiting the foregoing, if Emergent provides fewer Vials of Conforming Product than the number of Vials ordered in a particular Binding Purchase Order (a “Purchase Order Shortfall”), then Aptevo may require Emergent to make up such Purchase Order Shortfall in a subsequent Batch.

3.1.5Minimum Annual Order.  Each year (such year beginning and ending on an anniversary of the Effective Time), Aptevo shall purchase at least the minimum number of Batches of each Product as set forth in Item 2 of Schedule B (the “Minimum Annual Order”).  If, at the end of a given year, Aptevo has not purchased the Minimum Annual Order, Emergent shall invoice Aptevo for the difference between Aptevo’s purchases for that year and what Aptevo would have paid for the Minimum Annual Order during that year, provided that such invoice shall be reduced pro rata in to the extent Emergent could not perform services under this Agreement due to a Force Majeure.  On the second, fourth, sixth, and eighth anniversary of the Effective Time, Aptevo may change the Minimum Annual Order of each Product by written notice to Emergent, which new Minimum Annual Order shall not become effective until ninety (90) days after such notice is provided.  The Parties agree that Aptevo is not obligated to purchase a minimum number of Vials pursuant to this Agreement other than pursuant to the terms of this Section 3.1.5, provided; however, that, with respect to orders for VariZig, Aptevo shall purchase sufficient Vials of VariZig finished product in order to consume the VariZig bulk product ordered by Aptevo within eighteen (18) months after the Manufacture of such bulk product.  If VariZig bulk product is not consumed during this eighteen (18) month period (through further Manufacture into finished product), Emergent shall invoice Aptevo on a pro rata basis for the price Aptevo would have paid had Emergent Manufactured such remaining VariZig bulk product into Vials.  For clarity, the Parties agree and understand that once VariZig plasma is thawed and a Batch of VariZig bulk product is Manufactured, it is capable of being frozen and stored as bulk intermittently in conformance with the Master Batch Record.

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3.2Manufacturing.  Subject to Section 2.8, as agreed between the Parties pursuant to the Quality Agreement, Emergent shall maintain the Master Batch Records related to the Manufacturing of Products under this Agreement.  Before initiating the Manufacture of any Product, Emergent shall forward a copy of the then-current Master Batch Record to Aptevo.  Emergent shall use commercially reasonable efforts to Manufacture the applicable Products using the Materials at the Manufacturing Facility in accordance with the applicable Master Batch Record, any and all Applicable Law, the applicable Acceptance Criteria, cGMPs, the Quality Agreement, and Emergent’s quality assurance and quality control practices.   The Products shall not be Manufactured at a facility other than at the Manufacturing Facility without the prior written consent of Aptevo. 

3.3Storage, Use and Segregation of Work-in-Process and Product. Emergent shall own all Work-in-Process and shall label and store all Work-in-Process and Products in its possession until Delivery of the Products in accordance with this ARTICLE III and any storage instructions provided by Aptevo.  Without limiting the foregoing, Emergent shall use commercially reasonable efforts to store Products in labeled, segregated, temperature controlled storage location with appropriate security access restrictions, and in accordance with the Master Batch Record, cGMPs, the Quality Agreement and Emergent’s quality assurance and quality control practices.

3.4Release Documents.  Emergent shall prepare the Emergent Release Documents, and other information required by Section 3.9 of the Quality Agreement, specific to each Batch, and shall use commercially reasonable efforts to submit them to Aptevo, the Aptevo Representative (if applicable) or Aptevo’s other designated representatives as set forth in the Quality Agreement.  Notwithstanding the foregoing, the Parties acknowledge and agree that investigations and deviations may require additional time and impact timelines for completion of the Emergent Release Documents.  Emergent Release Documents shall not be considered final unless and until Emergent’s Quality Department has performed a review thereof.  Aptevo shall use commercially reasonable efforts to issue the Aptevo Certificate of Analysis and such other Aptevo required release documents as are agreed by the Parties in writing from time to time for each Batch of Product within fifteen (15) days after its receipt of the Emergent Release Documents from Emergent.

3.5[Reserved]

3.6Product Inspection; Acceptance.  Within fifteen (15) days after Aptevo’s receipt of the Emergent Release Documents for a Batch, Aptevo shall determine whether or not such Batch meets the Acceptance Criteria or is otherwise Non-Conforming Product.  For clarity, during such fifteen (15) day period, Aptevo shall have the right to inspect the Product for damage or to determine if it is Non-Conforming Product.  If within such fifteen (15) day period, Aptevo makes a determination that any Vial of Product in such Batch does not meet the Acceptance Criteria, or is otherwise Non-Conforming Product (in each case, in accordance with the acceptance procedures set forth in the Quality Agreement, if any), then Aptevo shall have the right to reject such Batch in its entirety and shall notify Emergent in writing within such fifteen (15) day period, in each case, as set forth in the Quality Agreement (a “Rejection Notice”). If Aptevo does not submit Rejection Notice within such fifteen (15) day period, then such Batch will be deemed to meet the Acceptance Criteria, be Conforming Product and have been accepted

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by Aptevo, except for Latent Defects as provided in this Section 3.6. Notwithstanding any acceptance procedure, if any, set forth in the Quality Agreement, if any Product is Non-Conforming Product for reasons that are hidden or latent and not reasonably capable of being discovered by Aptevo, then it shall be deemed a “Latent Defect.” Aptevo shall promptly notify Emergent in writing of such Latent Defect by the earlier of (a) thirty (30) days after the date Aptevo discovered or should have discovered the Latent Defect and (b) ninety (90) days after Release, including a detailed explanation of the Latent Defect in question.  If Aptevo fails to notify Emergent of a Latent Defect within such period, then such Batch will be deemed to meet the Acceptance Criteria, be Conforming Product and have been accepted by Aptevo. 

3.7Emergent Liability for Non-Conforming Batches.  If, following a Rejection Notice or any notice to Emergent of any Latent Defect, it is determined by agreement of the Parties (or in the absence of such agreement, by a qualified and independent laboratory selected jointly by Emergent and Aptevo as set forth in Section 8) that any Product Delivered to Aptevo is Non-Conforming Product and such non-conformance was not caused by Emergent’s negligence, willful misconduct, failure to follow the Master Batch Record or failure to follow cGMP, then Emergent shall have no liability to Aptevo with respect to such Product and Aptevo shall pay for such Product and for the fees associated with any dispute regarding the Product (including arbitrator and third-party laboratory fees).  Such Product shall be treated in all other respects under this Agreement as though it is Conforming Product.  However, if such non-conformance was caused by Emergent’s negligence, willful misconduct, failure to follow the Master Batch Record or failure to follow cGMP, then Emergent shall (i) dispose of such Non-Conforming Product and (ii) as soon as it is commercially practicable to do so, replace such Non-Conforming Product with Conforming Product at Emergent’s sole cost and expense if Aptevo has paid for the Non-Conforming Product.  Notwithstanding anything to the contrary contained herein, delivery of replacement Conforming Product shall be Aptevo’s sole and exclusive remedy with respect to the Non-Conforming Product, and in furtherance thereof Aptevo waives all other remedies at law or in equity.  

3.8Cooperation in Investigations; Disposition of Non-Conforming Product.  Subject to the Quality Agreement, each Party shall act in good faith and shall cooperate with the other Party, with any qualified independent Third Party laboratory in connection with an investigation, and with the arbitrator, as to the existence of or source of nonconformity with respect to a Product supplied under this Agreement.  In testing a Product, any independent Third Party laboratory shall use analytical testing methods as agreed upon by the Parties.  Emergent shall dispose of any Non-Conforming Product in accordance with all Applicable Laws with respect to such disposal, at Emergent’s cost if Emergent was liable for the nonconformity in accordance with Section 3.7 and at Aptevo’s cost if Emergent was not liable for the nonconformity in accordance with Section 3.7.

3.9Withdrawals and Recalls.

3.9.1Notification and Investigation.  In the event that either Party believes a recall or withdrawal of a Product may be necessary or appropriate, such Party shall promptly notify the other Party in writing and the procedures for, and responsibilities of the Parties with respect to, all such recalls or withdrawals will be as set forth the Quality Agreement.  

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3.9.2Costs of Recall.  Emergent shall reimburse Aptevo for all reasonable costs incurred by Aptevo in implementing a recall or withdrawal of Product resulting from the Delivery of Non-Conforming Product where such non-conformance was caused by Emergent’s negligence, willful misconduct, failure to follow the Master Batch Record or failure to follow cGMP.  If the recall or withdrawal is required for any reason not specified in the preceding sentence, then all costs of the Parties incurred in implementing the recall or withdrawal of Product shall be borne by Aptevo.  Any dispute between the Parties as to which Party is responsible for the costs of a recall or withdrawal will be governed by the laboratory investigation procedures set forth in Section 3.8 and the dispute resolution mechanism set forth in ARTICLE XI. 

3.9.3Customer Complaints.  Emergent and Aptevo will cooperate in the reporting, investigation and evaluation of customer complaints as set forth in the Quality Agreement.

3.10Title and Risk of Loss.  Title to each Vial in a Batch and risk of loss with respect to each Vial in a Batch shall pass to Aptevo upon Delivery of such Vial.

3.11Packaging.  Emergent shall use commercially reasonable efforts to purchase and maintain the Packaging Material Baseline Inventory in support of the Binding Six Month Forecast per Section 3.1.1.  If Aptevo designates any change to be made to any aspect of such Packaging Material (including a change in label, format, raw material, or other changes) such that Emergent’s existing stock of Packaging Materials in support of the Binding Six Month Forecast becomes obsolete and such that Emergent is unable to reallocate such Packaging Materials for other products, then Emergent shall invoice Aptevo for its reasonable out-of-pocket costs incurred in destroying any such Packaging Material Baseline Inventory and reasonable out-of-pocket purchase price for such obsoleted inventory, provided that Aptevo shall have no obligation to pay for any such Packaging Materials in excess of the quantities necessary to fill orders as set forth in the Binding Six Month Forecast.

3.12Labeling. For each Product that is Manufactured under this Agreement, Aptevo shall provide Emergent with labeling specifications, which shall include date of manufacture or expiration as required, Batch-specific identification and any necessary artwork and engineering drawings related thereto. All labeling specifications submitted by Aptevo shall comply with all Applicable Laws and Regulatory Standards. Notwithstanding Emergent’s acceptance of Aptevo’s labeling specifications, Emergent shall not be responsible for any loss or liability incurred by Aptevo or any third party resulting from Emergent’s compliance with Aptevo’s labeling specifications.

3.13New Jurisdictions.  This Agreement contemplates Emergent’s provision of services with respect to the jurisdictions in which the Products are currently approved for commercial sale as of the Effective Time.  If Aptevo intends to distribute Products in additional jurisdictions in which it did not distribute such Product as of the Effective Time, and if Aptevo desires for Emergent to Manufacture or otherwise provide services related to such Product for such additional jurisdiction under this Agreement, the Parties will negotiate in good faith to amend this Agreement to integrate such additional jurisdictions as appropriate.  Such amendments may contemplate changes in price as well as changes to such Product’s

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Specifications, as applicable.  Any such changes shall be agreed by both Parties in writing before becoming effective.  Aptevo will not otherwise have any right to make or have made such Product, or perform or have performed services related to such Product for any such additional jurisdiction. 

3.14Price and Payment Terms.  The price to be paid by Aptevo to Emergent for Manufacturing, all associated services contemplated by this Agreement and any additional specified activities shall be as identified in Schedule A and E, which prices may be changed in accordance with Section 3.15, 3.16 or 3.19.  Emergent shall invoice Aptevo for each Batch of Product on Delivery of such Batch, and as otherwise set forth in Schedule A or E for activities other than Manufacturing.

3.15Automatic Pricing Adjustments.  Commencing on the first anniversary of the Effective Time and on each anniversary of the Effective Time thereafter, the prices set forth in Schedule A or E (as modified from time to time pursuant to Section 3.16 or 3.19) may be increased by greater of (i) three percent (3%) or (ii) the percentage change in the index as described below, which increase shall be effective upon written notification from Emergent to Aptevo.  Any changes to the price will be based on the percentage change in the Industrial Product Price Index by North American Industry Classification System (NAICS) 329-0077 in the category Pharmaceutical and Medicine Manufacturing [3254].  For purposes of the percentage change calculation, the index value for the preceding December and the December prior will be used.  

3.16Other Pricing Adjustments.  

3.16.1Emergent may increase the pricing on Schedule A if a significant increase in direct manufacturing costs (being a verifiable increase) occurs due to a change in the cost of any specialty source plasma or chromatography resin used in the Manufacturing of a Product, due to a change required by or on behalf of Aptevo or due to a Manufacturing Improvement pursuant to Section 2.5.  Emergent will notify Aptevo in writing, will not increase the applicable pricing on Schedule A until ninety (90) days after such notification to Aptevo and, subject to confidentiality obligations to third parties, will provide suitable justification and verification data for any such increase or decrease prior to any change in pricing.

3.16.2Emergent may alter the pricing on Schedule A or E due to changes in the US dollar (USD) to Canadian dollar (CAD) foreign exchange rate, which exchange rate shall be determined at the end of each calendar quarter (March 31, June 30, September 30 and December 31) as provided by the Bank of Canada.  To the extent that the foreign exchange rate varies from the USD-to-CAD rate published by Bank of Canada as of the Effective Time, Emergent shall adjust the pricing on Schedule A and E for the next calendar quarter in accordance with the Foreign Exchange Adjustment Schedule included on Schedule A.

3.16.3Thirty (30) days before the fifth anniversary of the Effective Time, Emergent and Aptevo shall re-negotiate the prices set forth on Schedules A and E on a per-stock keeping unit basis in good faith, which re-negotiated prices shall be effective as of the fifth anniversary of the Effective Time, and which re-negotiated prices shall not be in excess of fifteen percent (15%) higher or fifteen percent (15%) lower than the prices would have been as of

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immediately after the fifth anniversary of the Effective Time pursuant to the increases contemplated in Sections 3.14, 3.15.1, 3.15.2 and 3.18.  If Emergent and Aptevo cannot agree on such prices by the fifth anniversary of the Effective Time, then they shall resolve the dispute pursuant to the terms of Section 11.3. 

3.17General Payment Terms.  All costs or fees related to bank deposits or wire transfers shall be paid by Aptevo.  Any and all late payments shall be subject to the payment of interest at the lesser of the rate of 12.0% (twelve percent) per annum or the highest rate permitted by Applicable Law.  In addition to any other remedies Emergent may have in the event Aptevo does not pay an outstanding, overdue invoice for more than forty-five (45) days from the date on which Emergent provided Aptevo with written notice of such default (which notice period shall be tolled during any bona fide dispute regarding such invoice), Emergent shall be entitled to refuse to perform any of the services contemplated by this Agreement, in its sole discretion, until all or an agreed upon portion of the aggregate amount owing has been paid, which refusal shall not be considered a Manufacturing Failure, nor shall Emergent’s non-performance pursuant to this Section 3.17 be factored in to the analysis for determining whether a Manufacturing Failure has occurred under the definition of Manufacturing Failure in ARTICLE I.

3.18Payment without Deductions.  All fees specified hereunder are expressed as net amounts and shall be paid by Aptevo free and clear of, and without reduction for, any withholding taxes.  Aptevo shall, upon request, provide Emergent with official receipts issued by the appropriate taxing authority or such other evidence as may be reasonably requested by Emergent to establish that such taxes have been paid.

3.19Stability Testing.  Emergent shall perform ongoing stability testing program services related specifically to the Products, as described in Section 3.6 of the Quality Agreement, subject to Aptevo’s timely payment of the applicable fees for such services outlined on Schedule A.  From time to time, Aptevo may reasonably request that Emergent revise its stability testing program for the Products, in which case the Parties shall negotiate in good faith with according adjustments to the pricing for such services outlined on Schedule A.   Any such changes shall be agreed by both Parties in writing before becoming effective.

3.20Regulatory Audits.  Aptevo shall bear all cost and expense related to any audit of the Manufacturing Facility conducted by a Governmental Authority that is (i) specific to the 3PL-Only Products or specific to any Product under this Agreement or (ii) a general GMP audit with respect to 3PL-Only Products or any Product under this Agreement conducted by a Governmental Authority other than those in the United States or Canada, provided that Emergent shall bear all cost and expense related to any audit of the Manufacturing Facility that is a general audit of Emergent’s Manufacturing process.  Emergent shall make the Manufacturing Facility and the relevant records available for such audits to the extent set forth in the Quality Agreement (to the extent Emergent is not bound by confidentiality restrictions with third parties with respect to such records).

3.21Disposal or Maintenance of Products and Data. Except as necessary for Manufacturing or as otherwise required under this Agreement, Emergent shall not dispose of any Products in any form or at any stage of Manufacturing without the prior written approval of Aptevo.  Emergent shall maintain and keep complete and accurate documentation of all

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validation data, stability testing data, Batch Records, quality control and laboratory testing and any other data required under cGMPs and in conformance with Emergent’s document retention policies.  Notwithstanding the foregoing, Emergent may dispose of Products and documentation in the event that such items have been stored for a forty-eight (48) month period, Emergent has provided Aptevo with notice of its intent to dispose of such items, and Aptevo has not responded to such written notice within three (3) months. 

3.22Second Source.  Aptevo may request in writing that Emergent allow a specific CMO (as such term is defined in the PLA) to serve as a second manufacturing source for the Products (such CMO, the “Second Source Manufacturer”).  Emergent may, in its sole discretion, comply with such request, in which case:

3.22.1Emergent may require such CMO to be subject to certain requirements or obligations;

3.22.2To the extent not already licensed under the terms of the PLA, Emergent shall grant to Aptevo a non-exclusive, royalty-free, worldwide, non-transferable license, under the Manufacturing Technology and the Included Manufacturing Improvements in the form in which such Manufacturing Technology and Included Manufacturing Improvements exist at the time of such grant, to make and have made the Products within the Field, solely by the Second Source Manufacturer;

3.22.3Emergent shall provide reasonable assistance in the transfer of the Manufacturing Technology to the Second Source Manufacturer in a manner and at a rate to be negotiated by Emergent and Aptevo; and

3.22.4Aptevo shall bear all costs associated with establishing the Second Source Manufacturer.

3.23Delivery Failures.  If Emergent fails to Deliver at least eighty-five percent (85%) of the aggregate quantity of all Products with respect to all Binding Purchase Orders within a rolling 12 month period in accordance with this Agreement or if Emergent fails to issue the Emergent Release Documents for at least eighty percent (80%) of the quantity of Vials ordered under a Binding Purchase Order within thirty (30) days after the Firm Delivery Date in such Binding Purchase Order, then one (1) executive vice president-level representative (or more senior representative, from Aptevo) from each Party shall meet in person or via teleconference to discuss such failures.

ARTICLE IV
PACKAGING SERVICES FOR IXINITY

Emergent and Aptevo shall enter into an agreement substantially in the form attached as Schedule D for the provision of packaging services for IXINITY.

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ARTICLE V
LOGISTICS SERVICES

5.1Scope.  Aptevo hereby engages Emergent to be its provider of the logistics services set forth on the attached Schedule E (the “3PL Services”).  For purposes of this ARTICLE V, “Products” shall also include 3PL-Only Products.  Although Emergent may provide additional related services to Aptevo for a period of time under the TSA, the 3PL Services that Emergent shall provide under this Agreement are strictly limited to such services as are specified herein.  If at any point Aptevo has terminated this Agreement with respect to the 3PL Services for a given Product, Emergent shall deliver such Product to Aptevo EXW (Manufacturing Facility) upon Delivery.

5.2Shipment of Products.  Except for deliveries made under quarantine on terms and conditions agreed by the Parties in writing from time to time, Emergent shall not ship a Product until: (a) the applicable Release of such Product (except for 3PL-Only Products); (b) such Product has been approved and released for shipment by the applicable Governmental Authority (if applicable); and (c) Emergent has received from Aptevo a Shipping Order for such Product.  Emergent shall thereafter cause the applicable Product to be delivered to the Shipping Destination EXW (Storage Facility), using Aptevo’s shipping accounts, per the terms of Schedule E. If a Shipping Order requires a Product to be exported out of the applicable country of origin, Aptevo shall be the exporter of record for such Product and shall be responsible for complying with all customs requirements and export Laws of the applicable jurisdiction.   Aptevo shall also be the importer of record (where applicable) for such Products and shall be responsible for complying with all customs requirements and import Laws of the applicable country. Aptevo shall pay all associated duties, taxes and costs for importing and exporting Products under this Agreement. Each shipment of the Product shall be accompanied by an Aptevo Certificate of Analysis, a bill of lading prepared by Emergent, and any other documents required by Regulatory Standards and reasonably requested by Aptevo.

5.3Export Documentation.  To the extent required to carry out a Shipping Order, Emergent shall prepare such documents as are necessary for the applicable Regulatory Standards and other regulations pertaining to import and export of the applicable Products, provided, however, that Aptevo is solely responsible for providing Emergent with the correct forms of each document and furnishing the necessary information required by each document, ensuring the compliance of all such documents with the applicable regulations and Aptevo shall solely bear the risk of any loss of or damage to Products, and all other liability, due to non-compliance with applicable import or export Laws, other than any such risk of loss or damage to the Products resulting solely from Emergent’s failure to follow the Finished Product Shipping Specifications or Emergent’s intentional misconduct or gross negligence.

5.4Price and Payment Terms.  The price to be paid by Aptevo to Emergent for 3PL Services shall be as identified in Schedule A.  The price to be paid by Aptevo to Emergent for each Shipping Order of Product shall be as identified in Schedule E.

5.5Delivery Loss.  In the event of partial or full loss or non-delivery of a Product, the Parties will cooperate to ensure that notification and follow-up with the involved ground and air carriers and customs or other warehouses is made in order to determine the cause of such partial

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loss, full loss or other non-delivery, including if such missing Product can be located.  The responsibility for such partial or full loss or non-delivery of a Product rests with Aptevo following Delivery thereof, except that Emergent shall be responsible for such full or partial loss as was caused by Emergent’s failure to follow the Finished Product Shipping Specifications or Emergent’s intentional misconduct or gross negligence.  For any Product which is not recovered or which is damaged or defective due to acts or omissions of the carrier, the Parties shall negotiate a schedule for the Manufacturing of additional Product by Emergent at Aptevo’s cost. 

ARTICLE VI
CONFIDENTIALITY

6.1Confidentiality Obligations under the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and that any Confidential Information exchanged under this Agreement shall be treated as Confidential Information under the SDA, subject to the exceptions therein. Sections 7.7 and 7.8 of the SDA are incorporated herein by reference, mutatis mutandis. Each Party hereby acknowledges and agrees that the remedy at Law for any breach of its confidentiality obligations under the SDA with respect to the Confidential Information exchanged under this Agreement would be inadequate and that the Disclosing Party shall be entitled to injunctive relief, without the requirement of posting any bond or other security, in addition to any other remedy it may have upon breach of any provision of this Agreement or any applicable provision of the SDA.

ARTICLE VII
REPRESENTATIONS, WARRANTIES & COVENANTS

7.1Warranties by both Parties. Each Party represents, warrants and covenants to the other Party that:  

7.1.1it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, to conduct its business as currently conducted and to enter into this Agreement, and to consummate the transactions contemplated by this Agreement;

7.1.2neither the execution, delivery nor performance of this Agreement by such Party violates or conflicts with, or will violate or conflict with, any provision of such Party’s organizational or governing documents or instruments, nor are there any inconsistencies, to the best of such Party’s knowledge, between the terms of this Agreement and any of such Party’s obligations to third parties or under Applicable Law, which bind or encumber it or its property;

7.1.3the execution, delivery and performance of this Agreement has been duly authorized by such Party’s appropriate authorizing authority or other applicable governing body and by any other necessary corporate or other legal actions of such Party, and this Agreement constitutes the valid and binding obligation of such Party, enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally;

7.1.4its performance of services under this Agreement will comply with all Applicable Laws; and

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7.1.5there are no actions, suits, claims or proceedings (pending or threatened) against, by, or affecting such Party in any court or before any arbitrator or governmental agency or authority that may have a material adverse effect on such Party’s assets, its financial condition, the operation of its business or its ability to perform its obligations under this Agreement. 

7.2Additional Warranties by Emergent.  Emergent represents, warrants and covenants to Aptevo as follows:

7.2.1with respect to each Vial of Product that is Delivered, the Manufacturing Emergent performs hereunder will be performed in accordance with the Quality Agreement, the Specifications and cGMPs;

7.2.2as of the Delivery of each Vial, such Vial is Conforming Product.

7.2.3no individual who has been debarred by the FDA (pursuant to 21 U.S.C. Section 335a) or local regulatory or federal agency from providing services in any capacity to a person that has an approved or pending drug product application (a “Debarred Individual”), or an individual or entity known to Emergent to be an employer, employee, partner or Affiliate of a Debarred Individual, will be in any manner employed or used by Emergent in the Manufacture of the Products or any related activities;

7.2.4neither Emergent, nor any Affiliate of Emergent that may be involved in the Manufacturing of the Products, is a corporation, partnership, association or other legal entity that has been debarred by the FDA (pursuant to 21 U.S.C. Section 335a) or local regulatory or federal agency from submitting or assisting in the submission of any abbreviated drug application (a “Debarred Entity”);

7.2.5as of the Delivery of each Vial of Product, Emergent has good and marketable title to such Products, and as of Delivery all Products so Delivered are free from all liens, charges, encumbrances and security interests, other than (a) licenses of Intellectual Property pursuant to this Agreement and (b) any liens that are effected by operation of law and that do not adversely affect Aptevo’s ability to own, use or sell the applicable Product (for clarity, this Section 7.2.5 shall not be interpreted to include any representation, warranty, or covenant regarding the non-infringement, non-misappropriation or non-violation of any Intellectual Property rights of any third party);

7.2.6any changes made after the Effective Time to the Manufacturing process used by Emergent to Manufacture the Products (other than Product-Specific Manufacturing Improvements proposed and approved by Aptevo) do not and will not infringe, misappropriate or otherwise violate the Intellectual Property rights or any other right of any third party;

7.2.7under this Agreement, Emergent, or any Affiliate of Emergent, will satisfy the requirements of a distributor, as such term is defined in the Good Manufacturing Process Guidelines, 2009 Edition, Version 2 (GUI-0001), as issued March 4, 2011 by Health Canada (the “Distributor”) and will act as a Distributor for Aptevo with respect to each Product under this Agreement that is distributed in Canada and will uphold any and all requirements set forth by the GMPs under Division 2, Part C of the Food and Drug Regulations (Consolidated Regulations of

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Canada, Chapter 870) as applied to an entity that does not hold the drug identification number for a product acting as a distributor for such product. 

7.3Additional Warranties by Aptevo.  Aptevo represents, warrants and covenants to Emergent as follows:

7.3.1Aptevo’s storage, labeling, distribution, use, and sale of Products and 3PL-Only Products complies and will comply with all Applicable Law;

7.3.2all necessary import and export licenses are in place or will be in place at the time of import or export (as applicable), and the import, export, distribution and sale of Products or 3PL-Only Products materially comply with all Applicable Law;

7.3.3all necessary approvals of the FDA or any other Governmental Authority, whether federal, state, local or foreign, for the purpose for which the Products and 3PL-Only Products are intended to be distributed or sold, are in place or will be in place at the time of distribution or sale; and

7.3.4Aptevo is not aware of any action or proceeding by any Regulatory Authority threatened against Aptevo relating to safety or efficacy of any of the Products or 3PL-Only Products, other than periodic discourse with the FDA or other Regulatory Authority related thereto.

7.4Disclaimer of Warranties.  EXCEPT FOR THE WARRANTIES SET FORTH IN SECTIONS 7.1, 7.2 AND 7.3, or as expressly set forth in the SDA or any Ancillary Agreement, EMERGENT HEREBY DISCLAIMS ALL CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF THE MATERIALS, THE PRODUCTS AND SERVICES PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED, CUSTOM OF THE TRADE OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO MERCHANTABILITY, NONINFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS.

ARTICLE VIII
INDEMNIFICATION AND LIMITATION ON LIABILITY

8.1Indemnification by Emergent.  Subject to the limitations set forth in Section 8.4 below, Emergent shall indemnify, defend and hold harmless Aptevo, its Affiliates and their respective directors, officers, employees, and agents, from and against any and all Liabilities arising out of Third-Party Claims to the extent as a result of (a) the failure of Emergent to perform the Manufacturing in compliance with cGMP or the Specifications, (b) the fraud, gross negligence or willful misconduct of Emergent, its directors, officers, employees or agents in the performance of its obligations under this Agreement, (c) the recall, product withdrawal or other field correction action of any Product by the FDA, other Governmental Authority or otherwise, to the extent caused by Emergent’s Delivery of Product that, as of such Delivery, does not meet Specifications, (d) any changes made after the Effective Time to the Manufacturing process used by Emergent to Manufacture the Products (except to the extent resulting solely from a Product-Specific Manufacturing Improvement proposed and approved by Aptevo) or (e) any alleged or

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actual infringement or misappropriation of Third Party Intellectual Property rights to the extent resulting from Emergent’s use of any Emergent information, data or property in the performance of this Agreement or resulting from any Facility Improvements and Platform Manufacturing Improvements. 

8.2Indemnification by Aptevo. Aptevo will indemnify, defend, and hold harmless Emergent, its Affiliates and their respective directors, officers, employees, and agents, from and against any and all Liabilities arising out of Third-Party Claims to the extent as a result of (a) the promotion, distribution, marketing, sale or use of any Product or 3PL-Only Product by Aptevo or any third party, including any product liability claim of a third party (except to the extent such claim is subject to Emergent’s indemnification obligations under Section 8.1 above), (b) the fraud, gross negligence or willful misconduct of Aptevo, its directors, officers, employees or agents in the performance of its obligations or exercise of its rights under this Agreement, (c) any alleged or actual infringement or misappropriation of third party Intellectual Property rights in the Products or 3PL-Only Products or any portion thereof (except to the extent such claim is subject to Emergent’s indemnification obligations under Section 8.1 above), or resulting from use of any Aptevo information, data or property in the performance of this Agreement, including without limitation the labeling specifications provided to Emergent by Aptevo, (d) the recall, product withdrawal or other field correction action of any Product by the FDA, other Governmental Authority or otherwise (other than recalls for which Emergent is obligated to indemnify Aptevo pursuant to Section 8.1(c)) or (e) the breach by Aptevo of its representations, warranties, obligations or covenants hereunder (except for a breach of payment obligations).

8.3Conditions. Promptly after a Party (the “Indemnified Party”) obtains knowledge of the existence or commencement of any claim or proceeding with respect to which the Indemnified Party is entitled to indemnification under Section 8.1 or 8.2, such Indemnified Party will notify the other Party (the “Indemnifying Party”) of such claim or proceeding in writing; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent that the rights of the Indemnifying Party are actually prejudiced thereby.  The Indemnifying Party will assume the defense and settlement of such claim or proceeding with counsel reasonably satisfactory to the Indemnified Party at the Indemnifying Party’s sole risk and expense; provided, however, that the Indemnified Party (i) will reasonably cooperate with the Indemnifying Party in the defense and settlement of such claim or proceeding, and (ii) may not settle any such claim or proceeding without the Indemnifying Party’s written consent (not to be unreasonably withheld or delayed).  The Indemnifying Party may not settle any such claim or proceeding without the Indemnified Party’s written consent, unless such settlement (x) includes a release of all covered claims or proceedings pending against the Indemnified Party; (y) contains no admission of liability or wrongdoing by the Indemnified Party; and (z) imposes no obligations upon the Indemnified Party.

8.4Limitation on Liability.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE SDA, THE TSA OR ANY OTHER ANCILLARY AGREEMENT:

8.4.1EXCEPT FOR BREACHES OF ARTICLE VI, SECTIONS 2.6.1, 2.6.2, 2.6.3 OR 12.4.2, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN

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NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY PARTY CLAIMING THROUGH OR UNDER SUCH OTHER PARTY FOR ANY LOST PROFITS OR REVENUES, OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING STRICT LIABILITY), BASED ON A WARRANTY, OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF THE FIRST PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; 

8.4.2EMERGENT SHALL BE ENTITLED TO SEEK LOST PROFITS, OR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, AGAINST APTEVO, ANY MEMBER OF THE APTEVO GROUP, ANY ACQUIRING PARTY OR ANY AFFILIATE OF THE FOREGOING ARISING OUT OF OR IN CONNECTION WITH ANY BREACH OF ARTICLE VI, SECTIONS 2.6.2, 2.6.3 OR 12.4.2, DIRECTLY OR INDIRECTLY, BY APTEVO OR ANY OF THE FOREGOING.

8.4.3EXCEPT FOR APTEVO’S INDEMNITY OBLIGATIONS UNDER SECTION 8.2 AND FOR EITHER PARTY’S BREACH OF ARTICLE VI, SECTIONS 2.6.1, 2.6.2, 2.6.3 OR 12.4.2, EACH PARTY’S LIABILITY FOR ALL CLAIMS ARISING UNDER THIS AGREEMENT SHALL NOT EXCEED THE AMOUNT PAID BY APTEVO TO EMERGENT UNDER THIS AGREEMENT DURING THE ONE YEAR PRECEDING THE EVENT THAT GAVE RISE TO SUCH CLAIM; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT LIMIT APTEVO’S PAYMENT OBLIGATIONS FOR PURCHASE OF PRODUCT AND SERVICES OR OTHER FEES DUE HEREUNDER, INCLUDING WITHOUT LIMITATION ANY AMOUNTS PAYABLE IN CONNECTION WITH MINIMUM ANNUAL ORDER OBLIGATIONS PURSUANT TO SECTION 3.1.5; AND

8.4.4EMERGENT’S LIABILITY FOR THE REPLACEMENT OF OR THE COST OR VALUE OF ANY MATERIALS (EXCLUDING ACTIVE PHARMACEUTICAL INGREDIENTS) OR PRODUCTION EQUIPMENT SUPPLIED TO EMERGENT HEREUNDER BY APTEVO (IF ANY), INCLUDING BUT NOT LIMITED TO ANY MATERIALS (EXCLUDING ACTIVE PHARMACEUTICAL INGREDIENTS) OR SUCH PRODUCTION EQUIPMENT LOST OR DAMAGED, SHALL BE LIMITED TO THE ACTUAL VALUE THEREOF, BUT IN ANY EVENT SHALL NOT EXCEED EMERGENT’S INSURANCE COVERAGE FOR PROPERTY OF OTHERS AND ANY RELATED LOSS OR DAMAGE.  APTEVO WILL BE RESPONSIBLE FOR PROVIDING THE VALUE OF ANY CLAIMED LOSS TO EMERGENT’S INSURANCE CARRIER FOR LOSSES COVERED BY EMERGENT’S INSURANCE POLICY.

8.5Interaction with the SDA and other Ancillary Agreements.  Notwithstanding anything to the contrary in the SDA, in no event may any claim, including any Dispute, under or with respect to the subject matter of this Agreement be the basis of an indemnification claim under Article IV of the SDA or under any other Ancillary Agreement.

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ARTICLE IX
TERM AND TERMINATION

9.1Term.  Unless terminated in accordance with the provisions of Section 9.2, the term of this Agreement shall commence on the date hereof and continue for a period of ten (10) years.

9.2Termination.  This Agreement may be terminated:

9.2.1by either Party immediately, in the event of an Insolvency/Bankruptcy Event with respect to the other Party;

9.2.2by Emergent immediately, or at Emergent’s discretion, suspended immediately, upon written notice to Aptevo if Aptevo fails to pay Emergent in full any undisputed amount due and payable in connection with this Agreement within forty-five (45) days after receipt of written notice from Emergent of such failure;

9.2.3by the non-breaching Party immediately, if the other Party has materially breached this Agreement and fails to cure such breach (a) within thirty (30) days after receipt of written notice thereof or (b) if such breach cannot be cured within such thirty (30) day period, such period of time as the breaching Party is diligently making efforts to cure such breach, but in no event more than ninety (90) days after receiving notice of such breach from the non-breaching Party;

9.2.4by Aptevo, in its entirety, by providing not less than twenty-four (24) months’ written notice;

9.2.5by Emergent, in its entirety, by providing not less than thirty-six (36) months’ written notice;

9.2.6by Aptevo, immediately upon written notice to Emergent in the event of a Manufacturing Failure; or

9.2.7by Aptevo, solely with respect to all 3PL Services, by providing not less than six (6) months’ written notice.

Notwithstanding the above, in no event shall notice or intention to terminate be deemed to waive any rights to damages or any other remedy which the Party giving notice of failure to pay or breach under Sections 9.2.2 or 9.2.3 may have as a consequence of such failure or breach.

9.3Outstanding Obligations. Termination or expiration of this Agreement, for whatever reason, shall not affect the obligation of either Party to make any payments for which it is liable prior to or upon such termination.  Upon any termination of this Agreement, Aptevo shall be responsible for any Binding Purchase Orders (although Emergent shall have the right, in its discretion, to cancel any such Purchase Order) and will purchase from Emergent, at a price equal to Emergent’s cost therefor, any Materials purchased for the Products (based on forecasts or otherwise) which Emergent has reasonably purchased or ordered which cannot be canceled.  

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Upon receipt of such payment, Emergent shall immediately deliver such Materials to Aptevo EXW (such Materials’ locations).  Section 4.4(a) of the PLA is hereby incorporated by reference. 

9.4Manufacturing Failure; CMO Appointment. If (i) a Manufacturing Failure occurs, and if Aptevo obtains the right, under Section 2.1(b) of the PLA, to exercise the right to have a Product manufactured by a CMO (as such term is defined in the PLA), or (ii) Emergent approves of a CMO in its sole and absolute discretion pursuant to Section 2.1(b) of the PLA (each, a “Triggering Event”), Emergent shall, itself or through the relevant member of the Emergent Group:

9.4.1Technology Transfer.  Provide reasonable assistance in the transfer of the Manufacturing Technology (as such term is defined in the PLA) and the Included Manufacturing Improvements to such CMO as follows: (i) Emergent will, without charge to Aptevo or the CMO, provide to such CMO the documentation of the Manufacturing Technology and the Included Manufacturing Improvements, in hard copy or electronic form, that is in Emergent’s possession and control; (ii) Emergent will provide up to seven hundred fifty (750) FTE-hours of support without charge to Aptevo or the CMO to train such CMO in using such Manufacturing Technology and Included Manufacturing Improvements; and (iii) if such CMO needs reasonable additional assistance to use the Manufacturing Technology and Included Manufacturing Improvements, beyond the seven hundred fifty (750) FTE-hours set forth in the foregoing clause (ii), then Emergent will provide such reasonably requested support for up to three (3) years after the beginning of the technology transfer process and Aptevo will reimburse Emergent for such additional support at Emergent’s then-standard rate.

9.4.2Manufacturing License.  Subject to the terms and conditions of this Agreement, grant to Aptevo a royalty-free, worldwide, non-transferable (except as provided in this Section 9.4.2 and for certain assignments as provided in Section 12.4) license, under the Included Manufacturing Improvements in the form in which such Included Manufacturing Improvements exist at the time of the Triggering Event, to make, have made, use, sell, offer to sell, import and otherwise commercialize the Products, solely within the Field, provided that Aptevo may only exercise (and the other members of the Aptevo Group may only exercise) the rights to make and have made the Products through such CMO pursuant to and in accordance with the PLA.  Sections 2.6.3, 2.6.5 and 2.6.6 of this Agreement shall apply to Aptevo with respect to such license.  Such license is subject to Aptevo’s compliance with the terms of this Section 9.4.2 and, as applicable, Section 12.4 and shall terminate (a) upon the termination of the PLA for any reason or (b) if Aptevo breaches any term of any of Sections 2.6.3, 2.6.5, 2.6.6, this 9.4.2 or 12.4 and (i) fails to cure such breach within ninety (90) days after receipt of written notice of such breach from Emergent or (ii) if such breach is incapable of cure, as determined by Emergent in Emergent’s reasonable discretion.

ARTICLE X
INSURANCE

10.1Product Liability Insurance.  Aptevo and Emergent shall each, at its own expense, maintain product liability insurance coverage, through the term of this Agreement and for a period of six (6) years thereafter, of at least ten million dollars ($10,000,000).  Aptevo and Emergent will provide a certificate of insurance to the other upon request.  Emergent shall be

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covered as an additional insured on Aptevo’s product liability policy.  If such product liability insurance is underwritten on a claims made basis, Aptevo and Emergent agree that any change of the fronting insurance carriers may require the purchase of prior acts coverage to ensure that coverage will be continuous throughout the term of this Agreement and for a period of six (6) years thereafter. 

10.2Insurance; Liability to Third Persons.  Emergent and Aptevo, each at their own expense, shall obtain and thereafter maintain during the term of this Agreement:

10.2.1workers’ compensation as required by all applicable laws and Employer’s Liability insurance with a policy limit of not less than one million dollars ($1,000,000); and

10.2.2A combination of commercial general liability insurance and excess or umbrella insurance including contractual liability with combined minimum limits of ten million dollars ($10,000,000) for each occurrence and in the aggregate.

Each Party shall immediately give the other or its representative notice of any suit or action filed, or prompt notice of any claim made, against them arising out of the performance of this Agreement.

ARTICLE XI
DISPUTE RESOLUTION

11.1Resolution Process.  Notwithstanding anything to the contrary in the SDA, any Dispute (as defined below) shall be resolved exclusively in accordance with the following provisions of this ARTICLE XI:

11.1.1Disputes.  Any controversy or claim arising after the Effective Time and arising out of or relating to this Agreement, or the breach hereof, other than an inability to reach agreement under Section 3.16.3 (a “Dispute”), shall be resolved: (a) first, by negotiation by the Project Managers, and then (if there remains a Dispute) negotiation by and among the members of the Joint Steering Committee, with the possibility of mediation as provided in Section 11.1.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 11.2. Each Party agrees on behalf of itself and each of its Subsidiaries that the procedures set forth in this ARTICLE XI shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.

11.1.2Negotiation and Mediation. If either Party serves written notice of a Dispute upon the other Party (a “Dispute Notice”), the Parties will first attempt to resolve such Dispute by direct discussions and negotiation (including as set forth in Section 11.1.1 above). If the Parties agree, the Parties may also attempt to resolve the Dispute by a mediation administered by the International Institute for Conflict Prevention & Resolution (“CPR”) under its Mediation Procedure.

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11.2Arbitration.  

11.2.1If a Dispute is not resolved within forty-five (45) days (or later if mutually agreed by the Parties) after the service of a Dispute Notice, either Party shall have the right to commence arbitration.  The arbitration shall be administered by the CPR pursuant to its Arbitration Rules and Procedures. References herein to any arbitration rules or procedures mean such rules or procedures as amended from time to time, including any successor rules or procedures, and references herein to the CPR include any successor thereto. The arbitration shall be before three (3) arbitrators. Each Party shall designate one arbitrator in accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Rules. The two Party-appointed arbitrators will select the third, who will serve as the panel’s chair or president. This arbitration provision, and the arbitration itself, shall be governed by the Laws of the State of Delaware and the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

11.2.2Consistent with the expedited nature of arbitration, each Party will, upon the written request of the other Party, promptly provide the other with copies of documents on which the producing Party may rely in support of or in opposition to any claim or defense. At the request of a Party, the arbitrators shall have the discretion to order examination by deposition of witnesses to the extent the arbitrator deems such additional discovery relevant and appropriate. Depositions shall be limited to a maximum of five (5) per Party and shall be held within forty-five (45) days of the grant of a request. Additional depositions may be scheduled only with the permission of the arbitrators, and for good cause shown. Each deposition shall be limited to a maximum of one day’s duration. All objections are reserved for the arbitration hearing except for objections based on privilege and proprietary or confidential information. The Parties shall not utilize any other discovery mechanisms, including international processes and U.S. federal statutes, to obtain additional evidence for use in the arbitration. Any dispute regarding discovery, or the relevance or scope thereof, shall be determined by the arbitrators, which determination shall be conclusive. All discovery shall be completed within 120 days following the appointment of the arbitrators. All costs and fees relating to the retrieval, review and production of electronic discovery shall be paid by the Party requesting such discovery.

11.2.3The panel of arbitrators shall have no right, power or authority, under the CPR Rules for Non-Administered Arbitration or otherwise, to (i) award non-monetary or equitable relief of any sort (except as set forth in Section 2.6.3, ARTICLE VI, and except in the event of a breach of Section 12.4.2 or as necessary to otherwise enforce Section 12.4.2); (ii) relieve the Parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this Agreement; (iii) limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement; or (iv) adjudicate any matters pertaining to the SDA or any Ancillary Agreement other than this Agreement.

11.2.4Absent fraud or manifest error, any arbitral award issued hereunder shall be final, binding and the sole and exclusive remedy to the Parties. Either Party may seek to confirm and enforce any final award entered in arbitration, in any court of competent jurisdiction.

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11.2.5Except as may be required by Law or any applicable rules and regulations of any stock exchange, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both Parties.  

11.3Expert Resolution for Lack of Agreement in Section 3.16.3.  If the Parties are unable to reach agreement within thirty (30) days of beginning discussions under Section 3.16.3, the disagreement shall be resolved pursuant to this Section 11.3.

11.3.1Any matter under this Section 11.3 shall be referred to a person suitably qualified to determine such matter who shall be jointly nominated and approved by the Parties (the “Expert”).  The Expert will act as an expert, not as an arbitrator.  Any fee due the Expert shall be shared by the Parties.  The Expert’s terms of appointment shall include: (i) a requirement that the Expert act fairly; (ii) unless otherwise agreed by the Parties, a requirement that the Expert hold adequate professional indemnity insurance both then and for at least the period of statutory limitation following the date of the Expert’s determination; (iii) confidentiality obligations reasonably acceptable to the Parties; and (iv) a commitment by the Parties to supply to the Expert all such assistance, documents and information as the Expert may reasonably require for the purpose of his or her determination.

11.3.2Within fifteen (15) days after the designation of the Expert pursuant to Section 11.3.1, the Parties shall each simultaneously submit to the Expert and one another a written statement of their respective positions on the disagreement.  Each Party shall have five (5) days from receipt of the other Party’s submission to submit to the Expert and the other Party a written response thereto, which shall include any specific financial or back-up information in support thereof.  The Expert shall have the right to meet with the Parties, either alone or together, as necessary to make a determination.

11.3.3No later than thirty (30) days after the designation of the Expert, the Parties shall each submit a final proposal to the Expert, who shall select one of such proposals based on the Expert’s opinion as to the overall fairness and reasonableness of such proposal in light of the totality of the circumstances.  The Expert shall provide the Parties with a written statement setting forth the basis of the determination.  The decision of the Expert shall be final and conclusive, absent manifest error on all such matters.

11.4Interim Relief.  At any time during the resolution of a dispute between the Parties, either Party has the right to apply to any court of competent jurisdiction for interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the Parties’ rights or to maintain the Parties’ relative positions until such time as the arbitration award is rendered or the dispute is otherwise resolved.

11.5Expenses.  Each Party shall bear its own costs, expenses and attorneys’ fees in pursuit and resolution of any dispute; provided, however, that, in the event of any arbitration with respect to any dispute pursuant to Section 11.1 in which the arbitrator issues an arbitral award in an amount that is within ten percent (10%) of the amount of the most recent bona fide written settlement offer submitted by a Party and rejected by a Party in connection with such dispute, then the Party that rejected such settlement offer shall bear both Parties’ costs, expenses

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and attorneys’ fees incurred in connection with such arbitration (including the fees and expenses of any arbitrator). 

ARTICLE XII
MISCELLANEOUS

12.1Provisions from the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and, therefore, that certain provisions of the SDA apply hereto, provided, however, that if there is any conflict between the terms of this Agreement and the terms of the SDA, the terms of this Agreement apply with respect to the subject matter hereof. Sections 11.1 (Counterparts; Entire Agreement; Corporate Power), 11.2 (Governing Law), 11.6 (Severability), 11.10 (Headings), 11.11 (Survival of Covenants), 11.12 (Waivers of Default), 11.14 (Amendments), 11.15 (Interpretation) and 11.16 (No Set Off) of the SDA are incorporated herein by reference, mutatis mutandis.

12.2Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 12.2):

If to Emergent, to:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

If to Aptevo to:

General Counsel
2401 4th Avenue
Suite 1050
Seattle, WA  98121

Any Party may, by notice to the other Party, change the address and contact person to which any such notices are to be given.

12.3Force Majeure.  If either Party fails to fulfill its obligations hereunder (other than an obligation for the payment of money), when such failure is due to an act of God, or other circumstances beyond its reasonable control (to the extent such Party could not have mitigated the effects of such events using reasonable efforts), including but not limited to unanticipated Manufacturing Facility shutdown, supplier delays or failures, equipment failure, fire, flood, civil commotion, riot, war (declared and undeclared), revolution, action by government including delays in obtaining governmental approvals or embargoes, then said failure shall be excused for the duration of such event and for such a time thereafter as is reasonable to enable the Parties to

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resume performance under this Agreement.  Any failure of Emergent in performing its obligations hereunder due to Aptevo’s failure to provide to Emergent any information, assistance or material necessary for Emergent to perform its activities under this Agreement shall also so excuse Emergent’s failure. 

12.4Assignability.  

12.4.1This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  Except as otherwise provided for in this Agreement, this Agreement shall not be assignable by either Party, in whole or in part,  without the express written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.  Notwithstanding the foregoing, no such consent shall be required for (i) the assignment of all of Aptevo’s rights and obligations under this Agreement to an acquirer of all or substantially all of the assets of the Aptevo Group relating to all the Products, (ii) the assignment of all of Emergent’s rights and obligations under this Agreement to an acquirer of all or substantially all of the assets of Emergent relating to the Manufacturing Technology or (iii) the licensing, assignment or otherwise transferring of any Aptevo Intellectual Property, subject to the license granted to Emergent herein.

12.4.2If Aptevo or a member of the Aptevo Group (in each case, except to the extent otherwise expressly permitted by this Agreement or any other Ancillary Agreement), or any successor or assignee of Aptevo, or an Acquiring Entity operates a Competing Program, (i) such Person and its Affiliates shall establish and enforce internal processes, policies, procedures and systems to strictly segregate information relating to any Competing Program from the Manufacturing Technology and the Included Manufacturing Improvements; (ii) such Person and its Affiliates shall not use, directly or indirectly, any Manufacturing Technology, Included Manufacturing Improvements or any Confidential Information of Emergent in such Competing Program (except that a CMO is permitted to use the Manufacturing Technology and the Included Manufacturing Improvements solely to manufacture the Products on behalf of Aptevo or its successor or assignee, as applicable, solely in accordance with the terms of this Agreement and the PLA); (iii) no personnel who had access to the Manufacturing Technology or Included Manufacturing Improvements at any time may conduct any activities under such Competing Program (except that a CMO is permitted to use the Manufacturing Technology and the Included Manufacturing Improvements solely to manufacture the Products on behalf of Aptevo or its successor or assignee, as applicable, solely in accordance with the terms of this Agreement and the PLA); and (iv) Emergent may abstain from sharing with such Person and its Affiliates any Confidential Information related to the Manufacturing Technology or the Included Manufacturing Improvements, in its sole discretion. Notwithstanding anything else to the contrary in the Agreement, following an assignment of this Agreement by a Party in accordance with such Party’s right to assign this Agreement under Section 12.4.1(i) or (ii), as applicable, the assigning Party may request from the non-assigning Party that the assigning Party be released from liability with regard to the actions of such assignee under this Agreement following such assignment, which release shall not be unreasonably withheld or delayed.

12.4.3Nothing herein shall prevent Emergent or any member of the Emergent Group from, subject to the licenses granted to Aptevo herein, licensing, assigning or otherwise

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transferring any right, title or interest in or to any Licensed IP or Included Manufacturing Improvements.   

12.4.4To the extent either Party assigns the Intellectual Property underlying any license granted under this Agreement, such Party shall assign the applicable portions of this Agreement to such assignee.

12.4.5Notwithstanding anything to the contrary contained herein in the SDA or in any other Ancillary Agreement, any attempt by Aptevo to assign any rights or obligations arising under this Agreement, the CDA or the PLA shall be void unless Aptevo concurrently assigns this Agreement, the CDA and the PLA (to the extent such agreements have not terminated or expired) to the same assignee, and (b) the applicable assignment, transfer (including by operation of law) or change of control of Aptevo shall be void unless the same person or entity is, as of any relevant time, “Aptevo” under this Agreement and “Aptevo” under the CDA and PLA.

12.4.6The assigning Party shall remain bound by all obligations with respect to the other Party’s Confidential Information under this Agreement.  The non-assigning Party may disclose the assigning Party’s Confidential Information to the assignee as necessary for the non-assigning Party’s performance of its obligations and exercise of its rights under this Agreement.

12.5Independent Contractors.  It is expressly agreed that Emergent and Aptevo shall be independent contractors and that the relationship between Emergent and Aptevo shall not constitute a partnership, joint venture or agency.  Neither Emergent nor Aptevo shall have the authority to make any statements, representations, or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.

12.6Bankruptcy.  All rights and licenses granted under or pursuant to any Section of this Agreement are rights to “intellectual property” (as defined in Section 101(35A) of Title 11 of the United States Code, as amended (the “Bankruptcy Code”)).  Each Party shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code with respect to such rights and licenses.

12.7Survival.  All representations, warranties, covenants and agreements made herein and which by their express terms or by implication are to be performed after the execution and or termination hereof, or are prospective in nature, shall survive such execution or termination, as the case may be, including Sections 2.6.3, 2.6.5, 2.6.6, 3.7, 3.9, 3.17, 3.18, 3.20, 3.21, 6.1, 7.4, ARTICLE VIII, Section 9.3, Section 9.4 (solely to the extent a Triggering Event had occurred prior to the expiration or termination of this Agreement or if this Agreement is terminated pursuant to Section 9.2.5), ARTICLE X, Sections 11.1, 11.2, 11.4, 11.5, 12.1, 12.2, 12.3, 12.4, 12.5, 12.7, 12.8 and 12.9.

12.8Further Assurances.  Each Party covenants and agrees that, without any additional consideration, it shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate this Agreement.  For clarity, nothing in this Section 12.8 shall be construed as an obligation on the part of either Party to perform any services.

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12.9Quality Agreement.  The Quality Agreement shall, together with this Agreement, apply to the provision of any service contemplated under this Agreement solely to the extent such service relates to quality assurance matters and is within the subject matter of the Quality Agreement.  In the event of any conflict or inconsistency between the Quality Agreement and this Agreement solely with respect to quality assurance matters, the Quality Agreement shall control.  In the event of any other conflict or inconsistency (including, for the avoidance of doubt, with respect to the respective remedies of the parties with respect to any service contemplated under this Agreement), this Agreement shall control. 

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their duly authorized representatives.

 

 

 

 

[Signature Page to Manufacturing Services Agreement]

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LIST OF SCHEDULES:

 

Exhibit 10.6

 

CANADIAN DISTRIBUTOR AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

 

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TABLE OF CONTENTS

 

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ii

 

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This CANADIAN DISTRIBUTOR AGREEMENT dated as of July 29, 2016 (this “Agreement”), is made and entered into by and between Emergent BioSolutions Inc., a Delaware corporation (“Emergent” or “Distributor”) (for whom its designee, Cangene Corporation, a corporation organized under the laws of Canada and a member of the Emergent Group, assumes all rights and obligations under this Agreement), and Aptevo Therapeutics, Inc., a corporation organized under the laws of Delaware (“Aptevo”).  Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Separation and Distribution Agreement (“SDA”), or, if not therein, in the Transition Services Agreement (“TSA”), or, if not therein, in the Manufacturing Services Agreement (“MSA”), or, if not therein, in the Product Licensing Agreement (the “PLA”), or, if not therein, in the Trademark License Agreement (“TLA”), each dated as of the date hereof, by and between Emergent and Aptevo.  The Parties acknowledge and agree that this Agreement is an Ancillary Agreement under the SDA.

WHEREAS, Aptevo and Emergent have entered into the SDA, the TSA, the MSA, the TLA and the PLA;

WHEREAS, Aptevo  is a developer and manufacturer of pharmaceutical products;

WHEREAS, Aptevo, a foreign drug identification number owner, desires to ship certain of its pharmaceutical products to destinations in the Territory (as defined in this Agreement), subject to the terms and conditions set forth in this Agreement, and therefore wishes to engage a distributor as such term is defined by Applicable Law;

WHEREAS, Distributor is, to the extent described in the MSA, capable of providing distributor services in the Territory with respect to the Products; and

WHEREAS, Aptevo is prepared to appoint Distributor, and Distributor is prepared to accept the appointment, as Aptevo’s exclusive distributor within the Territory, for the purpose of distributing certain products, subject to the terms and conditions of this Agreement.

NOW THEREFORE, in consideration of the mutual promises of the Parties, and of good and valuable consideration, it is agreed by and between the Parties as follows:  

ARTICLE I
DEFINITIONS

In this Agreement, the following terms shall have the following meanings:  

“CPR” has the meaning set forth in Section 12.1.2.

“Dispute” has the meaning set forth in Section 12.1.1.

“Dispute Notice” has the meaning set forth in Section 12.1.2.

“Indemnified Parties” has the meaning set forth in Section 8.3.

“Indemnifying Party” has the meaning set forth in Section 8.3.

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“Product” means each pharmaceutical product listed on the Product Schedule.

“Product Schedule” means Schedule A as may be amended or modified from time to time by written agreement of the Parties.

“QA” has the meaning set forth in Section 4.3.

“Regulatory Approval” means any and all approvals or authorizations required from any Regulatory Authority for the commercial exploitation of each Product in any part of the Territory.

“Regulatory Authority” means the applicable Governmental Authority that has jurisdiction with respect to the distribution of the Products in the Territory.

“Safety Data Exchange Agreement” or “SDEA” means the Safety Data and Exchange Agreement, by and between Emergent and Aptevo, of even date herewith, that defines the responsibilities of each Party with reference to each pharmacovigilance activity and specifies the processes involved for the exchange of safety information, including timelines and regulatory reporting responsibilities.

“Term” means the term of this Agreement specified in Section 2.3 below, or such shorter term if this Agreement is terminated earlier in accordance with the terms hereof.

“Territory” means the country of Canada.

“Trademarks” means each trademark and trade name, symbol or other proprietary mark affixed to or associated with a Product.

“Distributor Fee” means the annual fee charged by Distributor to Aptevo for performing the services contemplated by this Agreement as provided on Schedule B.

ARTICLE II
Appointment AND TERM

2.1Appointment.  Subject to the terms and conditions of this Agreement, and subject to Distributor being the exclusive distributor of the Products in the Territory under the MSA, Aptevo appoints Distributor as the exclusive distributor for the Products in the Territory, during the Term. Aptevo hereby grants Distributor access to all relevant Confidential Information, which Distributor may use to perform its obligations under this Agreement, and authorizes it to act for and on behalf of Aptevo solely for purposes of Distributor’s obligations under this Agreement.

2.2License to Distributor.  For clarity, to the extent not already licensed under the terms of the PLA, during the term of this Agreement, and subject to the terms and conditions of this Agreement, Aptevo grants to Distributor a non‑exclusive, worldwide, sublicenseable and royalty-free license, under any Intellectual Property owned or controlled by Aptevo or any of its Affiliates, solely to perform the services and to comply with Distributor’s obligations under the terms and conditions of this Agreement.

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2.3Initial Term and Renewal.  Subject to earlier termination in accordance with this Agreement, the initial Term shall be for an initial period of ten (10) years commencing at the Effective Time.  Unless terminated earlier in accordance herewith, this Agreement shall be renewed, for further periods of one (1) year each upon the same terms as set out herein, unless either Party provides the other Party with at least thirty (30) days prior written notice of its intention to terminate this Agreement. 

2.4Products.  This Agreement shall apply to the Product(s) in the form in which such Product(s) are listed from time to time on the Product Schedule attached hereto.  The Product Schedule may be amended from time to time, upon mutual agreement in writing of the Parties hereto.

2.5Delegation.  Distributor may use any of its Affiliates to fulfill any of its obligations under this Agreement.

ARTICLE III
Payment

3.1Payment Terms.  Payment of the Distributor Fee shall be due from Aptevo by direct bank deposit or wire transfer pursuant to Distributor’s written instructions within forty-five (45) days from date of invoice.  Any and all late payments shall be subject to the payment of interest at the rate of 12.0% (twelve percent) per annum.  In addition to any other remedies Distributor may have in the event Aptevo does not pay an outstanding, overdue invoice for more than forty-five (45) days from the date on which Distributor provided Aptevo with written notice of such default (which notice period shall be tolled during any bona fide dispute regarding such invoice), Distributor shall be entitled to refuse to perform any of the services contemplated by this Agreement, in its sole discretion, until all or an agreed upon portion of the aggregate amount owing has been paid.

3.2Payment without Deductions.  All Distributor Fees specified hereunder are expressed as net amounts and shall be paid by Aptevo free and clear of, and without reduction for, any withholding taxes.  Aptevo shall, upon request, provide Distributor with official receipts issued by the appropriate taxing authority or such other evidence as may be reasonably requested by Distributor to establish that such taxes have been paid.

ARTICLE IV
DISTRIBUTOR’S obligations

4.1Distributor shall, at its own expense, and subject to Aptevo’s compliance with the terms of ARTICLE V, during the Term:

4.1.1Tracking and Receipt of Information.  Track applicable Products in the Territory and serve as a point of contact for inquiries about such Products as follows: once Aptevo submits a Shipping Order under the MSA that names Canada as the Distribution Destination, the Distributor shall thereafter track the Products delivered under such Shipping Order from the time such Products enter the Territory until such Products are delivered to the recipient named in the Shipping Order.  After the delivery of such Products, Distributor may be contacted with inquiries and other communications from entities within the Territory pertaining

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to such Products, which communications shall be forwarded to Aptevo pursuant to Section 13.2 within five (5) Business Days upon receipt.  All reporting of adverse events will be governed by the provisions of the SDEA; 

4.1.2Compliance with Laws.  Comply with all Laws of the Territory that apply to Distributor with respect to this Agreement or the transactions and activities contemplated by this Agreement.  Distributor shall not take any action that it knows will cause Aptevo to be in violation of any Law in the Territory;

4.1.3Regulatory Point of Contact.  Strictly in the capacity of Aptevo’s agent, serve as the secondary point of contact and liaison with the applicable Regulatory Authority with respect to all communications with such Regulatory Authority pertaining to the Products in the Territory, except where Distributor’s responsibilities under Applicable Law require Distributor to liaise directly with or be the primary point of contact for the applicable Regulatory Authority.  Distributor shall notify Aptevo upon being contacted by a Regulatory Authority or any other competent Governmental Authority within the Territory for any regulatory purpose pertaining to this Agreement or the Products, including with respect to labeling or packaging, within two (2) Business Days, except for if Distributor is legally prohibited from doing so. Except for administrative matters, Distributor shall not respond to any such Governmental Authority before consulting with Aptevo, unless under the circumstances pursuant to which such Governmental Authority contacts Distributor, Distributor is legally prohibited from giving Aptevo advance notice.  In any event, once Distributor is no longer legally prohibited from giving Aptevo advance notice, Distributor shall inform Aptevo of such contact within two (2) Business Days.  For clarity, Distributor is under no obligation to give Aptevo any regulatory, legal or other compliance advice under this Agreement and no communication from Distributor to Aptevo shall be construed as providing such advice;

4.1.4Regulatory Record Keeping and Information.  Maintain Product regulatory records according to Distributor’s standard operating procedures and in accordance with local Laws, such as submissions, regulatory agency correspondence and telephone contact reports; provided that Aptevo, upon the request of Distributor, provides Distributor with information and documents (in English) that are in Aptevo’s possession relating to each Product as are required by the applicable Regulatory Authority;

4.1.5Regulatory Approval Notices.  Notify Aptevo as soon as reasonably possible, but in no event later than two (2) Business Days, in the event that any Regulatory Approval for a Product is revoked for any reason in the Territory;

4.1.6Inquiry Forwarding.  Keep Aptevo informed of any inquiries from entities within the Territory by promptly forwarding such inquires to Aptevo pursuant to Section 13.2;

4.1.7Pharmacovigilance Compliance.  Until one year after the expiration date of the last Product distributed in commerce produced under the MSA, comply with the terms and conditions of the Safety Data Exchange Agreement.  To the extent that there is any inconsistency between the terms of this Agreement and the SDEA, the terms of this Agreement shall control, unless the SDEA expressly refers to the TSA in relation to such inconsistency, in which case the terms of the TSA shall control; and

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4.1.8Product Recalls.  Only to the extent required by applicable Law, maintain complete and accurate records for any periods of recall, field alert, product withdrawal or field correction of any Product. 

4.2The Parties understand and agree that Distributor’s performance of services under this Agreement should not, in the ordinary course of business, require Distributor to incur material out of pocket costs. Distributor may only take actions that incur such costs related to the provision of services under this Agreement if required by Law and only with the prior authorization of Aptevo, which authorization shall not be unreasonably withheld.  For such actions, Aptevo shall reimburse Distributor within forty-five (45) days of receipt of an invoice from Distributor regarding such costs.

4.3As a condition precedent to Distributor’s obligations under this Agreement and as a condition to each of Distributor’s representations or warranties under this Agreement, both the MSA and the Quality Agreement attached thereto as Schedule C (the “QA”) must be in full force and effect between Emergent and Aptevo.  If, at any point during the Term, either the MSA or the QA is terminated, Distributor may, in its sole discretion, either (i) indefinitely suspend any obligation to discharge any of its responsibilities or otherwise perform under this Agreement or (ii) terminate this Agreement in accordance with Section 10.3.3.

ARTICLE V
APTEVO’S OBLIGATIONS

Aptevo shall discharge the following obligations at its own expense during the Term:  

5.1Safety and Packaging.  Ensure that the Product complies with local Laws as to safety, packaging and marketing and that all packaging and delivery complies with the requirements of the Regulatory Authority of the Territory;

5.2Compliance with Laws.  Comply with all Laws of the Territory that apply to Aptevo with respect to this Agreement or the transactions and activities contemplated by this Agreement;

5.3Regulatory Point of Contact.  Subject to Section 4.1.3, serve as the primary point of contact and liaison with the applicable Regulatory Authority with respect to all communications with such Regulatory Authority pertaining to the Products in the Territory.  Aptevo shall promptly notify Distributor upon being contacted by a Regulatory Authority or any other competent Governmental Authority within the Territory for any material regulatory purpose pertaining to this Agreement or the Products;

5.4Regulatory Approval Notices.  Notify Distributor immediately in the event that any Regulatory Approval for a Product is revoked for any reason in the Territory;

5.5Inquiry Forwarding.  Keep Distributor informed of any inquiries related to any of the Products from entities within the Territory by promptly forwarding such inquires to Distributor pursuant to Section 13.2;

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5.6Regulatory Record Keeping and Information.  Maintain Product regulatory records according to Aptevo’s standard operating procedures and in accordance with local Laws, such as submissions, regulatory agency correspondence and telephone contact reports.  Distributor shall provide Aptevo with information and documents (in English) that are in Distributor’s possession relating to each Product as are required by the applicable Regulatory Authority; 

5.7Material Information.  Notify Distributor from time to time of any event with respect to the Product reported to Aptevo whether within or outside the Territory which Aptevo reasonably deems to be material to the distribution of the Product or which either Party is legally required to disclose;

5.8Product Improvements or Changes.  Advise Distributor of all changes to the Canadian labeling or package insert for each Product;

5.9Pharmacovigilance Compliance.  Until one year after the expiration date of the last Product distributed in commerce produced under the MSA, comply with the terms and conditions of the Safety Data Exchange Agreement.  To the extent that there is any inconsistency between the terms of this Agreement and the SDEA, the terms of this Agreement shall control, unless the SDEA expressly refers to the TSA in relation to such inconsistency, in which case the terms of the TSA shall control; and

5.10Product Recalls. In the event of any recall, field alert, product withdrawal or field correction with respect to any of the Products, whether initiated by Aptevo, required by a Governmental Authority or for any other reason, Aptevo shall manage such recall, field alert, product withdrawal or field correction and shall bear all reasonable costs and expenses of services requested by Aptevo or required by any Governmental Authority relating to such recall, field alert, product withdrawal or field correction, including, without limitation, expenses or obligations to Third Parties, the cost of notifying customers and costs associated with the shipment or recalled Products.

ARTICLE VI
CONFIDENTIALITY

6.1Confidentiality Obligations under the SDA.  Any Confidential Information exchanged under this Agreement shall be treated as Confidential Information under the SDA, subject to the exceptions therein.  Sections 7.7 and 7.8 of the SDA are incorporated herein by reference, mutatis mutandis.

ARTICLE VII
REPRESENTATIONS & WARRANTIES

7.1Warranties by both Parties. Each Party represents and warrants that:  

7.1.1it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, to conduct its business as currently conducted and to enter into this Agreement, and to consummate the transactions contemplated by this Agreement;

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7.1.2neither the execution, delivery nor performance of this Agreement by such Party violates or conflicts with, or will violate or conflict with, any provision of such Party’s organizational or governing documents or instruments, nor are there any inconsistencies, to the best of such Party’s knowledge, between the terms of this Agreement and any of such Party’s obligations to third parties or under applicable Law, which bind or encumber it or its property; 

7.1.3the execution, delivery and performance of this Agreement has been duly authorized by such Party’s appropriate authorizing authority or other applicable governing body and by any other necessary corporate or other legal actions of such Party, and this Agreement constitutes the valid and binding obligation of such Party, enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally; and

7.1.4there are no actions, suits, claims or proceedings (pending or threatened) against, by, or affecting such Party in any court or before any arbitrator or governmental agency or authority that may have a material adverse effect on such Party’s assets, its financial condition, the operation of its business or its ability to perform its obligations under this Agreement.

7.2Additional Warranties by Distributor.  Distributor represents and warrants as follows:

7.2.1it possesses the necessary capabilities, facilities, personnel and expertise to enable it to perform its obligations and conduct its activities pursuant to the terms of this Agreement; and

7.2.2it has all governmental licenses, permits and approvals required by Applicable Law to market, promote, distribute, offer for sale and sell the Products in the Territory and to conduct all of its obligations required under this Agreement.

7.3Additional Warranties by Aptevo.  Aptevo represents and warrants as follows:

7.3.1the Products have received or are exempt from marketing clearances, licenses, approvals or authorizations required by Applicable Law and therefore may be legally marketed and distributed in the Territory under such marketing clearances, licenses, approvals or authorizations or under a legally recognized exemption from the same;

7.3.2it shall comply with all Applicable Laws in the Territory that apply to the promotion of and sale of the Products;

7.3.3the Products’ labeling and promotional materials are accurate, complete, and in compliance with Applicable Law

7.3.4the distribution of the Products in the Territory does not and will not infringe any patent or proprietary rights of third parties; and

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7.3.5there is no action or proceeding by any Governmental Authority threatened against Aptevo relating to safety or efficacy of any of the Products, other than periodic discourse with Governmental Authorities as part of the normal course of business. 

7.4Disclaimer of Warranties.  EXCEPT FOR THE WARRANTIES SET FORTH IN SECTIONS 7.1 OR 7.2, or as expressly set forth in the SDA or any Ancillary Agreement, DISTRIBUTOR HEREBY DISCLAIMS ALL CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF THE MATERIALS, THE PRODUCTS AND SERVICES PROVIDED HEREUNDER, WHETHER EXPRESS OR IMPLIED, CUSTOM OF THE TRADE OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO MERCHANTABILITY, NONINFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS.

ARTICLE VIII
INDEMNIFICATION AND LIMITATION ON LIABILITY

8.1Indemnification by Distributor.  Subject to the limitations set forth in Section 8.4 below, Distributor shall indemnify, defend, and hold harmless Aptevo, its Affiliates and their respective directors, officers, employees, and agents, from and against any and all Liabilities arising out of Third-Party Claims to the extent as a result of (a) the gross negligence or willful misconduct of Distributor, its directors, officers, employees or agents in the performance of its obligations under this Agreement, or (b) any alleged or actual infringement or misappropriation of third party Intellectual Property rights resulting from Distributor’s use of any Distributor information, data or property in the performance of this Agreement.

8.2Indemnification by Aptevo. Aptevo will indemnify, defend, and hold harmless Distributor, its Affiliates and their respective directors, officers, employees, and agents, from and against any and all Liabilities arising out Third-Party Claims to the extent as a result of (a) the promotion, distribution, sale or use of any Product by Aptevo or any third party, including any product liability claim of a third party, (b) the recall, product withdrawal, or other field correction action of any Product any Governmental Authority or otherwise, (c) the negligence or willful misconduct of Aptevo, its directors, officers, employees or agents in the performance of its obligations or exercise of its rights under this Agreement, (d) any breach by Aptevo of the terms of this Agreement or (e) any alleged or actual infringement or misappropriation of third party Intellectual Property rights in the Products or any portion thereof (except to the extent such claim is subject to Distributor’s indemnification obligations under Section 8.1 above), or resulting from use of any Aptevo information, data or property in the performance of this Agreement.

8.3Conditions. Promptly after a Party (the “Indemnified Party”) obtains knowledge of the existence or commencement of any claim or proceeding with respect to which the Indemnified Party is entitled to indemnification under Section 8.1 or 8.2, such Indemnified Party will notify the other Party (the “Indemnifying Party”) of such claim or proceeding in writing; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent that the rights of the Indemnifying Party are actually prejudiced thereby.  The Indemnifying Party will assume the defense and settlement of such

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claim or proceeding with counsel reasonably satisfactory to the Indemnified Party at the Indemnifying Party’s sole risk and expense; provided, however, that the Indemnified Party (i) will reasonably cooperate with the Indemnifying Party in the defense and settlement of such claim or proceeding, and (ii) may not settle any such claim or proceeding without the Indemnifying Party’s written consent.  The Indemnifying Party may not settle any such claim or proceeding without the Indemnified Party’s written consent, unless such settlement (x) includes a release of all covered claims or proceedings pending against the Indemnified Party; (y) contains no admission of liability or wrongdoing by the Indemnified Party; and (z) imposes no obligations upon the Indemnified Party. 

8.4Limitation on Liability.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, THE SDA, THE TSA OR ANY OTHER ANCILLARY AGREEMENT:

8.4.1TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY PARTY CLAIMING THROUGH OR UNDER THE OTHER PARTY FOR ANY LOST PROFITS OR REVENUES, OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES HOWEVER CAUSED, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING STRICT LIABILITY), BASED ON A WARRANTY, OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;

8.4.2DISTRIBUTOR’S LIABILITY FOR ALL CLAIMS ARISING UNDER THIS AGREEMENT SHALL NOT EXCEED THE AMOUNT PAID BY APTEVO TO DISTRIBUTOR UNDER THIS AGREEMENT DURING THE ONE YEAR PRECEDING THE EVENT THAT GAVE RISE TO SUCH CLAIM.

8.5Interaction with the SDA and other Ancillary Agreements.  Notwithstanding anything to the contrary in the SDA, in no event may any claim, including any Dispute, under or with respect to the subject matter of this Agreement be the basis of an indemnification claim under Article IV of the SDA or under any other Ancillary Agreement.

ARTICLE IX
INSURANCE

9.1Distributor Insurance.  Distributor will at its own cost maintain throughout the Term of this Agreement and for a period of not less than three (3) years following its termination or expiration, liability insurance covering the obligations undertaken by Distributor in this Agreement.

9.1.1Such insurance maintained by Distributor shall, at a minimum, include coverage of the following types and amounts:  Commercial General Liability Insurance including contractual liability in an amount not less than $1,000,000 per occurrence and $2,000,000 general aggregate; Umbrella Insurance in an amount not less than $3,000,000 per occurrence and $3,000,000 general aggregate; and Products/Completed Operations Insurance in an amount not less than $5,000,000 per occurrence and $5,000,000 general aggregate.

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9.1.2Such insurance maintained by Distributor shall name Aptevo as an additional insured. 

9.1.3Distributor shall provide that its insurer will endeavor to mail thirty (30) days’ prior written notice to Distributor and Aptevo should the policy be cancelled before the expiration date thereof.

9.1.4Distributor shall, on request by Aptevo, provide Aptevo with a certificate of insurance evidencing the insurance it is required to carry under this Section 9.1.

9.2Aptevo Insurance.  Aptevo will at its own cost maintain throughout the Term of this Agreement and for a period of not less than three (3) years following its termination or expiration, liability insurance covering the obligations undertaken by Aptevo in this Agreement.

9.2.1  Such insurance maintained by Aptevo shall, at a minimum, insure the Products through a commercial policy for general and products liability, serve as primary coverage for Distributor and Aptevo and include coverage of the following types and amounts:  Commercial General Liability Insurance including contractual liability in an amount not less than $1,000,000 per occurrence and $2,000,000 general aggregate; Umbrella Insurance in an amount not less than $3,000,000 per occurrence and $3,000,000 general aggregate; and Products/Completed Operations Insurance in an amount not less than $5,000,000 per occurrence and $5,000,000 general aggregate.

9.2.2Such insurance maintained by Aptevo shall name Distributor as an additional insured.

9.2.3Aptevo shall provide that its insurer will endeavor to mail 30 days’ prior written notice to Aptevo and Distributor should the policy be cancelled before the expiration date thereof.

9.2.4Aptevo shall, on request by Distributor, provide Distributor with a certificate of insurance evidencing the insurance it is required to carry under this Section 9.2.

ARTICLE X
TERMINATION

10.1By Either Party.  Either Party shall be entitled to terminate this Agreement by written notice to the other, having immediate effect, if:

10.1.1Default.  The other Party is in default in any material respect in the performance of any of its obligations under this Agreement or otherwise commits any material breach of this Agreement, and such default continues after thirty (30) days written notice from the non-defaulting Party to the defaulting Party stating the particulars and attaching the documentary evidence of such default; or

10.1.2Insolvency/Bankruptcy Event. An Insolvency/Bankruptcy Event occurs with respect to the other Party.

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10.2By Aptevo.  In addition to the foregoing, Aptevo shall have the following rights to terminate this Agreement, either in its entirety or as it relates to one or more Products, by written notice having immediate effect: 

10.2.1Convenience.  Aptevo may terminate the Agreement, in whole or in part with respect to certain Products, for convenience upon ninety (90) day’s prior written notice to Distributor; or

10.2.2Regulatory Approvals.  Aptevo may terminate the Agreement as it relates to one or more Products in the event that the Regulatory Approval for such Product(s) in the Territory is revoked by the applicable Regulatory Authority.

10.3By Emergent.  In addition to the foregoing, Emergent shall have the following rights to terminate this Agreement, either in its entirety or as it relates to one or more Products, by written notice having immediate effect:

10.3.1Default.  Emergent may terminate the Agreement if Aptevo fails to make a payment of money, when due under this Agreement, and such default continues after thirty (30) days written notice from Emergent to Aptevo stating the particulars of such default; or

10.3.2Loss of Regulatory Approval.  Emergent may terminate the Agreement as it relates to one or more Products in the event that the Regulatory Approval for such Product(s) in the Territory is revoked by the applicable Regulatory Authority or in the event that such Product(s) or Aptevo generally is otherwise found to be non-compliant by the applicable Governmental Authority.

10.3.3Change of Distributor.  Emergent may terminate this Agreement immediately upon (i) the termination of the MSA or the QA, (ii) the assignment of the MSA or the QA by Aptevo to any third party, unless Aptevo also assigns this Agreement contemporaneously to such third party, (iii) Aptevo or Emergent ceasing to be a party to the MSA or the QA, or (iv) Aptevo’s receipt of written notice from Emergent that Emergent no longer believes in good faith that it can perform its obligations as Distributor under the MSA or the QA.

ARTICLE XI
CONSEQUENCES OF TERMINATION

Upon the termination or expiration of this Agreement in whole or with respect to a given Product:  

11.1Return of Materials.  Distributor shall return to Aptevo all of Aptevo’s confidential documents (including any regulatory submissions and files and all supporting information) in Distributor’s possession that are required by a Regulatory Authority in the Territory to maintain Regulatory Approval in the Territory for the applicable terminated Product(s); and

11.2No Further Representations.  Distributor shall cease to make any representations to the public that it is an authorized distributor of the applicable terminated Product(s);

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11.3Rights Terminated.  All other rights granted by Aptevo to Emergent under this Agreement with respect to the terminated Product(s) shall immediately terminate with the expiration or earlier termination of this Agreement; and 

11.4Outstanding Payments.  Aptevo shall make, honor and pay to Emergent, within thirty (30) days from termination or expiration of the Agreement, any payments due to Emergent for services provided under this Agreement with respect to the terminated Product(s).

11.5Survival of Provisions.  Notwithstanding the termination of this Agreement, the following provisions shall survive: Article I (to the extent necessary to interpret the surviving provisions of this Agreement), Article VI, Section 7.4, Article VIII, Article IX, Article XI, Article XII and Article XIII.

ARTICLE XII
DISPUTE RESOLUTION

12.1Resolution Process.  Notwithstanding anything to the contrary in the SDA, any Dispute (as defined below) shall be resolved exclusively in accordance with the following provisions of this ARTICLE XII:

12.1.1Any controversy or claim arising after the Effective Time and arising out of or relating to this Agreement, or the breach hereof (a “Dispute”), shall be resolved: (a) first, by negotiation between representatives appointed by each Party with the possibility of mediation as provided in Section 12.1.2; and (b) then, if negotiation and mediation fail, by binding arbitration as provided in Section 12.2. Each Party agrees on behalf of itself and each of its Affiliates that the procedures set forth in this ARTICLE XII shall be the exclusive means for resolution of any Dispute. The initiation of mediation or arbitration hereunder will toll the applicable statute of limitations for the duration of any such proceedings.

12.1.2Negotiation and Mediation. If either party serves written notice of a Dispute upon the other party (a “Dispute Notice”), the parties will first attempt to resolve such Dispute by direct discussions and negotiation (including as set forth in Section 12.1 above). If the parties to the Dispute agree, the parties may also attempt to resolve the Dispute by a mediation administered by the International Institute for Conflict Prevention & Resolution (“CPR”) under its Mediation Procedure.

12.2Arbitration.  

12.2.1If a Dispute is not resolved within forty-five (45) days (or later if mutually agreed by the Parties) after the service of a Dispute Notice, either Party shall have the right to commence arbitration.  The arbitration shall be administered by the CPR pursuant to its Arbitration Rules and Procedures. References herein to any arbitration rules or procedures mean such rules or procedures as amended from time to time, including any successor rules or procedures, and references herein to the CPR include any successor thereto. The arbitration shall be before three (3) arbitrators. Each Party shall designate one arbitrator in accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Rules. The two Party-appointed arbitrators will select the third, who will serve as the panel’s chair or president. This

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arbitration provision, and the arbitration itself, shall be governed by the Laws of the State of Delaware and the Federal Arbitration Act, 9 U.S.C. §§ 1-16. 

12.2.2Consistent with the expedited nature of arbitration, each Party will, upon the written request of the other Party, promptly provide the other with copies of documents on which the producing Party may rely in support of or in opposition to any claim or defense. At the request of a Party, the arbitrators shall have the discretion to order examination by deposition of witnesses to the extent the arbitrator deems such additional discovery relevant and appropriate. Depositions shall be limited to a maximum of five (5) per Party and shall be held within forty-five (45) days of the grant of a request. Additional depositions may be scheduled only with the permission of the arbitrators, and for good cause shown. Each deposition shall be limited to a maximum of one (1) day’s duration. All objections are reserved for the arbitration hearing except for objections based on privilege and proprietary or confidential information. The Parties shall not utilize any other discovery mechanisms, including international processes and U.S. federal statutes, to obtain additional evidence for use in the arbitration. Any dispute regarding discovery, or the relevance or scope thereof, shall be determined by the arbitrators, which determination shall be conclusive. All discovery shall be completed within one hundred twenty (120) days following the appointment of the arbitrators. All costs and fees relating to the retrieval, review and production of electronic discovery shall be paid by the Party requesting such discovery.

12.2.3Subject to ARTICLE VI, the panel of arbitrators shall have no right, power or authority, under the CPR Rules for Non-Administered Arbitration or otherwise, to (i) award non-monetary or equitable relief of any sort; (ii) relieve the Parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this Agreement; (iii) limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement; or (iv) adjudicate any matters pertaining to the SDA or any Ancillary Agreement other than this Agreement.

12.2.4Absent fraud or manifest error, any arbitral award issued hereunder shall be final, binding and the sole and exclusive remedy to the Parties. Either Party may seek to confirm and enforce any final award entered in arbitration, in any court of competent jurisdiction.

12.2.5Except as may be required by Law or any applicable rules and regulations of any stock exchange, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both Parties.

12.3Interim Relief.  At any time during the resolution of a dispute between the Parties, either Party has the right to apply to any court of competent jurisdiction for interim relief, including pre-arbitration attachments or injunctions, necessary to preserve the Parties’ rights or to maintain the Parties’ relative positions until such time as the arbitration award is rendered or the dispute is otherwise resolved.

12.4Expenses.  Each Party shall bear its own costs, expenses and attorneys’ fees in pursuit and resolution of any Dispute; provided, however, that, in the event of any arbitration with respect to any dispute pursuant to Section 12.2 in which the arbitrator issues an arbitral award in an amount that is within ten percent (10%) of the amount of the most recent bona fide

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written settlement offer submitted by a Party and rejected by a Party in connection with such dispute, then the Party that rejected such settlement offer shall bear both Parties’ costs, expenses and attorneys’ fees incurred in connection with such arbitration (including the fees and expenses of any arbitrator). 

ARTICLE XIII
MISCELLANEOUS

13.1Provisions from the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and, therefore, that certain provisions of the SDA apply hereto, provided, however, that if there is any conflict between the terms of this Agreement and the terms of the SDA, the terms of this Agreement apply with respect to the subject matter hereof.  Sections 11.1 (Counterparts; Entire Agreement; Corporate Power), 11.2 (Governing Law), 11.6 (Severability), 11.7 (Force Majeure), 11.10 (Headings), 11.11 (Survival of Covenants), 11.12 (Waivers of Default), 11.14 (Amendments), 11.15 (Interpretation) and 11.16 (No Set Off) of the SDA are incorporated herein by reference, mutatis mutandis.

13.2Notice.  All notices, requests, claims, demands or other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 13.2):  

If to Emergent, to:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

If to Aptevo to:

General Counsel
2401 4th Avenue
Suite 1050
Seattle, WA  98121

Any Party may, by notice to the other Party, change the address and contact person to which any such notices are to be given.

13.3Assignability.

13.3.1This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  Except as otherwise provided for in this Agreement, this Agreement shall not be assignable by either Party, in whole or in part,

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without the express written consent of the other Party, which shall not be unreasonably withheld, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.  Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement (i) in connection with the merger of such Party, or the sale, transfer or other divestiture of all or substantially all of an entire product line, Affiliate, division or other business unit of such Party, or (ii) to any Affiliate of such Party. 

13.3.2In connection with any assignment or delegation of this Agreement or the rights and obligations herein, the assigning or transferring Party shall provide a guarantee to the non-assigning Party for any liability or obligation assigned or delegated pursuant to this Section 13.3.

13.3.3The assigning Party shall remain bound by all obligations with respect to Confidential Information under this Agreement.  The non-assigning Party may disclose the assigning Party’s Confidential Information to the assignee as necessary for the non-assigning Party’s performance of its obligations and exercise of its rights under this Agreement.

13.4No Agency.  Nothing in this Agreement shall be deemed in any way or for any purpose to constitute any Party an agent of an unaffiliated party in the conduct of such other party’s business.

13.5Quality Agreement.  The QA shall, together with this Agreement, apply to the provision of any service contemplated under this Agreement solely to the extent such service relates to quality assurance matters and is within the subject matter of the QA.  In the event of any conflict or inconsistency between the QA and this Agreement solely with respect to quality assurance matters, the QA shall control.  In the event of any other conflict or inconsistency (including, for the avoidance of doubt, with respect to the respective remedies of the parties with respect to any service contemplated under this Agreement), this Agreement shall control.

[Signature Page Follows]

 

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IN WITNESS WHEREOF the Parties have duly executed this agreement as of the date first above written.  

 

 

 

 

 

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LIST OF SCHEDULES:

Schedule A.Product Schedule

Schedule B.Distributor Fee Schedule

 

 

Exhibit 10.7

TRADEMARK LICENSE AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

 

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TRADEMARK LICENSE AGREEMENT

This TRADEMARK LICENSE AGREEMENT (“Agreement”), effective as of July 29, 2016, 2016 (the “Effective Date”), is by and between Emergent BioSolutions, Inc., a corporation organized under the laws of Delaware and having its corporate head office located at 400 Professional Drive, Suite 400, Gaithersburg, MD 20879 (“Emergent”), and Aptevo Therapeutics, Inc., a corporation organized under the laws of Delaware and having its principal place of business at 2401 4th Ave. Suite 1050, Seattle, WA 98121 (“Aptevo”).  Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Separation and Distribution Agreement (“SDA”), or, if not therein, in the Transition Services Agreement (“TSA”), or, if not therein, in the Product License Agreement (“PLA”), or, if not therein, in the Manufacturing Services Agreement (“MSA”) or, if not therein, in the Canadian Distribution Agreement (“CDA”), each dated as of the date hereof, by and between Emergent and Aptevo, each as may be amended.

WHEREAS, Aptevo and Emergent have entered into the SDA, TSA, PLA, MSA and CDA; and

WHEREAS, in connection with the foregoing, Emergent desires to grant to Aptevo a limited license to use certain Licensed Marks (as defined below) and certain other materials and content;

NOW, THEREFORE, in consideration of the mutual promises of the Parties, and of good and valuable consideration, it is agreed by and between the Parties as follows:

ARTICLE I
DEFINITIONS

For the purpose of this Agreement, the following terms shall have the following meanings.

“Licensed Marks” means, (i) all Trademarks of Emergent or the applicable members of the Emergent Group that are present on the Packaging Inventory or the Marketing Inventory, and (ii) with respect to any country in the Territory, such Trademarks of Emergent or applicable members of the Emergent Group as are required by the relevant Governmental Authority to be present on the Packaging Materials for Products within such country as a result of such Products being Manufactured by Emergent or a member of the Emergent Group under the MSA or distributed by Emergent or a member of the Emergent Group under the CDA, during the term of each such agreement respectively.

“Marketing Inventory” means the physical inventory of the printed materials used in the ordinary course of business to market the Products as of the Effective Time, which physical inventory is assigned to Aptevo as part of the Distribution.

“New Marketing Materials” means any printed materials used in the ordinary course of business to market the Products that do not include any of the Licensed Marks or any other Trademarks of Emergent or any member of the Emergent Group.

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“New Packaging Materials” means the packaging materials for any of the Products, including product labels, packaging inserts, external packaging and similar materials, that do not include any of the Licensed Marks or any other Trademarks of Emergent or any member of the Emergent Group.

“Over-Labeling Country” means a country in the Territory where (i) Aptevo relies on Packaging Materials approved by the relevant Governmental Authority in Canada to satisfy the regulatory requirements of the relevant Governmental Authority in such country to sell, offer to sell and otherwise commercialize the Products, and (ii) such Governmental Authority in such country requires an additional label to be placed on the Packaging Materials identifying the manufacturer of the Product, which additional label is required to contain a Licensed Mark.

“Packaging Inventory” means the physical inventory of the Packaging Materials as of the Effective Time, which physical inventory (i) is assigned to Aptevo as part of the Distribution and (ii) has already been used to package Products for entry into the stream of commerce.

“Packaging Materials” means the packaging materials for any of the Products, including product labels, packaging inserts, external packaging and similar materials.

“Product” has the meaning set forth in the PLA, except that solely for the purposes of this Agreement, the IXINITY product is a Product.

“Territory” means the world.

ARTICLE II
LICENSE

2.1Emergent Trademark License Grant and Restrictions.  

(a)Packaging Inventory and Marketing Inventory. Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo and the other members of the Aptevo Group a non-exclusive, royalty-free, sublicensable (on written notice to Emergent, provided that the sublicensee complies with all applicable terms of this Agreement) license within the Territory, under the Licensed Marks, to distribute the Packaging Inventory and the Marketing Inventory, solely to sell, offer to sell and otherwise commercialize the Products, until the Packaging Inventory and the Marketing Inventory are depleted or, if earlier, the third anniversary of the Effective Time.  Aptevo shall use commercially reasonable efforts to use or destroy the Packaging Inventory and the Marketing Inventory before distributing any other Packaging Materials or Marketing Materials, provided that, on a Product-by-Product basis, Aptevo shall cease to distribute the Marketing Inventory and shall destroy all remaining Marketing Inventory in Aptevo’s possession on the ninetieth (90^th) day after the first external use of any other Marketing Materials anywhere in the Territory.

(b)Packaging Materials in Canada and ROW.  Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo and the other members of the Aptevo Group a non-exclusive, royalty-free, sublicenseable (on written notice to Emergent, provided that the sublicensee complies with all applicable terms of this Agreement) license in the Territory other than the United States, under the Licensed Marks, to use the Licensed Marks on Packaging

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Materials, solely to sell, offer to sell and otherwise commercialize the Products, until the earlier of (i) the third anniversary of the termination or expiration of the CDA or (ii) the depletion of all of the applicable Packaging Materials in Aptevo’s inventory bearing the Licensed Marks as of the termination or expiration of the CDA, in each case provided that Aptevo shall cease to distribute all Packaging Materials bearing the Licensed Marks and destroy all remaining such Packaging Materials in Aptevo’s possession on the ninetieth (90^th) day after the first external use of any New Packaging Materials.   

(c)Over-labeling in ROW.  Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo and the other members of the Aptevo Group a non-exclusive, royalty-free, non-sublicenseable, non-transferrable license in each Over-Labeling Country, under the Licensed Marks, to use the Licensed Marks on Packaging Materials in such Over-Labeling Country, solely to sell, offer to sell and otherwise commercialize the Products, until the third anniversary of the termination or expiration of the MSA.

(d)E-mail.  Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo and the other members of the Aptevo Group a non-exclusive, royalty-free, non-sublicenseable, non-transferrable license within the Territory under the Licensed Marks to use such Licensed Marks as are necessary to effect the forwarding of e-mails from the prior “@ebsi.com” e-mail addresses of Aptevo employees for sixty (60) days after the Effective Time, solely to facilitate the transition of contracts and other business as contemplated under the SDA and the Ancillary Agreements.

2.2Trade Dress; Copyright.

(a)Emergent shall not, and shall cause all members of the Emergent group not to, commence any action alleging trade dress infringement against Aptevo or any member of the Aptevo Group based on Packaging Materials with substantially similar trade dress to the Packaging Inventory.  This covenant not to sue shall terminate on the third anniversary of the termination or expiration of the MSA.

(b)Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo and the other members of the Aptevo Group, effective at the Effective Time, a non-exclusive, perpetual, royalty-free, transferable, sublicensable license to reproduce the text passages contained in the Packaging Inventory and the Marketing Inventory, provided that such license shall not extend to any Trademarks of Emergent or the Emergent Group contained in such text passages.

2.3Additional Restrictions on Aptevo.  In no event may Aptevo, any member of the Aptevo Group or any sublicensee hereunder copy, use or distribute any product or material containing any Licensed Mark or any other Trademark of Emergent or any member of the Emergent Group except the distribution of the Packaging Inventory, Packaging Materials or Marketing Inventory in accordance with this Agreement and in accordance with all applicable Law.  During the term of the applicable license granted under this Agreement, (a) to the extent that Emergent is not manufacturing the relevant Product as of the relevant time pursuant to the MSA and Aptevo is then permitted to exercise rights under the Manufacturing Technology (as defined in the PLA), Aptevo shall have such Product Manufactured in accordance with the Specifications for such Product, cGMP

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and as described in the relevant packaging and labeling materials and regulatory approvals; (b) Aptevo shall not sell any such Product that does not meet such specifications, nor shall Aptevo or any sublicensee distribute any such Packaging Materials or Marketing Materials with respect to any such non-conforming Product; and (c) to the extent that Aptevo or its sublicensee produces any Packaging Materials that use the Licensed Marks, Aptevo or such sublicensee, as applicable, shall use such Licensed Marks in accordance with this Agreement and shall use commercially reasonable efforts to comply with Emergent’s applicable trademark guidelines (which guidelines Emergent shall provide to Aptevo, including updates to such guidelines as applicable), and shall, in all cases, provide advance copies of such Packaging Materials to Emergent for approval before use. 

2.4Aptevo License Grant and Restrictions.

(a)For Performing Services.  Subject to the terms and conditions of this Agreement, Aptevo, on its own behalf and on behalf of the other members of the Aptevo Group, hereby grants to Emergent and the other members of the Emergent Group a non-exclusive, worldwide, irrevocable, royalty-free license to use, have used, display and have displayed such Trademarks owned by Aptevo or any member of the Aptevo Group as are applicable to Emergent’s obligations under the TSA and the Ancillary Agreements, solely in furtherance of Emergent’s obligations under the TSA and the Ancillary Agreements.  Such license shall expire on the expiration date of the last to expire of the MSA, the CDA or any Schedule of the TSA.

(b)Incidental Uses.  Subject to the terms, conditions and limitations contained herein, Aptevo, on its own behalf and on behalf of the other members of the Aptevo Group, hereby grants to Emergent and the members of the Emergent Group, effective at the Effective Time, a non-exclusive, worldwide, irrevocable, royalty-free license to use, have used, display and have displayed the name “Aptevo” in their legal names and for related incidental uses following the Effective Time (e.g., in payroll checks, regulatory filings and bank accounts).  Such license may be assigned by the relevant entity only (i) as set forth in Section 11.3 of the SDA, (ii) in connection with a merger of such entity, or (iii) in connection with the sale, transfer or other divestiture of all or substantially all of such entity’s business.  In no event shall Emergent or the members of the Emergent Group create, reproduce or arrange for the creation or reproduction of the “Aptevo” name or use the “Aptevo” name in any advertising or marketing materials.  Such license shall expire on the two year anniversary of the Effective Time. If Aptevo becomes aware of a use of the name “Aptevo” by Emergent or any member of the Emergent Group in commerce that it reasonably believes could cause confusion as to the source of Aptevo’s products, Aptevo may request that such use be discontinued by written notice to Emergent, in which case Emergent shall make commercially reasonable efforts to discontinue (or cause to be discontinued) such use (which discontinuation shall not be interpreted as an admission of wrongdoing and shall not be used by Aptevo or any other entity as evidence of wrongdoing on the part of Emergent or any member of the Emergent Group in any legal proceeding), or, if Emergent believes in good faith that such use does not harm Aptevo’s rights in the “Aptevo” name, Emergent and Aptevo shall discuss in good faith a resolution to Aptevo’s request.

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ARTICLE III
OWNERSHIP OF LICENSED MARKS

3.1Ownership and Retention of Good Will.  As between the Parties, Emergent shall own all right, title and interest in the Licensed Marks and, notwithstanding anything to the contrary in the definition of “Trademarks”, all goodwill therein.  Aptevo shall not, and shall ensure that its Affiliates do not, challenge the ownership or validity of any of the Licensed Marks.  The use of the Licensed Marks by or on behalf of Aptevo or any of its Affiliates hereunder shall inure exclusively to the benefit of Emergent and none of Aptevo or any of its Affiliates shall acquire or assert any rights therein.  Emergent grants no other rights (a) with respect to the Licensed Marks than expressly granted in this Agreement or (b) with respect to any Trademarks than expressly granted in this Agreement or the SDA.  Aptevo acknowledges Emergent’s exclusive ownership of the Licensed Marks and the renown of the Licensed Marks worldwide.

3.2No Obligation to Obtain or Maintain Marks.  Neither Emergent, nor any member of the Emergent Group, is obligated to: (a) file any application for registration of any Licensed Mark, or to secure any rights in any Licensed Mark, or (b) maintain any registration for any Licensed Mark.  Neither Aptevo, nor any member of the Aptevo Group, is obligated to: (a) file any application for registration of any Trademark owned by Aptevo or any member of the Aptevo Group, or to secure any rights in any such Trademark, or (b) maintain any registration for any Trademark owned by Aptevo or any member of the Aptevo Group.

3.3Disclaimer of Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN THE SDA AND THE TSA, (a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL LICENSED MARKS AND OTHER TRADEMARKS ARE PROVIDED “AS IS,” WITHOUT ANY WARRANTY OF ANY KIND; AND (b) WITHOUT LIMITING THE FOREGOING, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY REGARDING THE LICENSED MARKS, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED OR STATUTORY, REGARDING THE INTELLECTUAL PROPERTY LICENSED HEREUNDER, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT.  

ARTICLE IV
TERM AND TERMINATION

4.1Term.  The term of this Agreement shall begin on the Effective Date and continue in each portion of the Territory until the license to the Licensed Marks or the Aptevo Trademarks is terminated pursuant to Sections 2.1 or 2.4, as applicable.  Upon the expiration of the last to expire license to (i) the Licensed Marks under Section 2.1 or (ii) the Aptevo Trademarks under Section 2.4, this Agreement shall terminate in its entirety.  

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4.2Termination. 

(a)Voluntary Termination by Aptevo.  By written notice to Emergent, Aptevo may voluntarily terminate this Agreement in its entirety or with respect to any Licensed Mark or Product.  

(b)Termination by Emergent. Emergent may terminate this Agreement if Aptevo breaches this Agreement and (i) does not cure such breach within sixty (60) days after receipt of written notice of such breach from Emergent or (ii) such breach is incapable of cure, as determined in Emergent’s reasonable discretion.

4.3Effects of Expiration or Termination.

(a)Destruction.  Upon any expiration of this Agreement, termination of this Agreement in its entirety, or termination of this Agreement with respect to any Licensed Mark or Product, Aptevo shall destroy all remaining Packaging Inventory and Marketing Inventory as applicable to the terminated Licensed Mark or Product.

(b)Survival.  Any voluntary termination of this Agreement by Aptevo under Section 4.2(a) hereof shall not affect Aptevo’s licenses and rights with respect to any Licensed Marks or Products for which the license has not been terminated hereunder.  In addition, Article I (to the extent necessary to interpret the surviving provisions of this Agreement), Section 2.2(b), Section 2.4 (to the extent set forth therein), Article III, Section 4.3, Article V and Article VI shall survive any termination or expiration of this Agreement or the licenses hereunder.

ARTICLE V
LIMITATION OF LIABILITY

5.1TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW IN NO EVENT SHALL EMERGENT BE LIABLE UNDER THIS AGREEMENT TO APTEVO OR TO ANY PARTY CLAIMING THROUGH OR UNDER APTEVO, FOR ANY LOST PROFITS, OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING STRICT LIABILITY), BASED ON A WARRANTY, OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF EMERGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  

5.2NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE SDA OR ANY OTHER ANCILLARY AGREEMENT, EMERGENT SHALL BE ENTITLED TO SEEK LOST PROFITS, OR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, AGAINST APTEVO, ANY MEMBER OF THE APTEVO GROUP, ANY ACQUIRING PARTY OR ANY AFFILIATE OF THE FOREGOING ARISING OUT OF OR IN CONNECTION WITH ANY BREACH OF THIS AGREEMENT, DIRECTLY OR INDIRECTLY, BY APTEVO OR ANY OF THE FOREGOING.

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ARTICLE VI
MISCELLANEOUS

6.1Provisions from the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and, therefore, that certain provisions of the SDA apply hereto.

6.2Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 6.2):

If to Emergent, to:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

If to Aptevo to:

General Counsel
2401 4th Avenue
Suite 1050
Seattle, WA  98121

Any Party may, by notice to the other Party, change the address and contact person to which any such notices are to be given.

6.3Assignability.  

(a)This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by Aptevo without the express written consent of Emergent, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.  Notwithstanding the foregoing, no such consent shall be required for the assignment of all of Aptevo’s rights and obligations under this Agreement to an acquirer of all or substantially all of the assets of the Aptevo Group relating to the Products.

(b)Nothing herein shall prevent Emergent or any member of the Emergent Group from (i) assigning any of its rights or obligations under this Agreement or (ii) subject to the non-exclusive license granted to Aptevo herein, licensing, assigning or otherwise transferring any right, title or interest in or to any Licensed Marks.

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(c)To the extent either Party assigns the Intellectual Property underlying any license granted under this Agreement, such Party shall assign the applicable portions of this Agreement to such assignee. 

[Signature Page Follows]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their duly authorized representatives.

 

 

 

[Signature Page to Trademark License Agreement]

Exhibit 10.8

 

PRODUCT LICENSE AGREEMENT

BY AND BETWEEN

EMERGENT BIOSOLUTIONS INC.

AND

APTEVO THERAPEUTICS INC.

DATED AS OF JULY 29, 2016

 

 

 

 

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PRODUCT LICENSE AGREEMENT

This PRODUCT LICENSE AGREEMENT (this “Agreement”), effective as of July 29, 2016 (the “Effective Date”), is by and between Emergent BioSolutions, Inc., a corporation organized under the laws of Delaware and having its corporate head office located at 400 Professional Drive, Suite 400, Gaithersburg, MD 20879 (“Emergent”), and Aptevo Therapeutics, Inc., a corporation organized under the laws of Delaware and having its principal place of business at 2401 4th Ave. Suite 1050, Seattle, WA 98121 (“Aptevo”).  Unless otherwise defined in this Agreement, all capitalized terms used in this Agreement shall have the meaning set forth in the Separation and Distribution Agreement (“SDA”) or, if not therein, in the Transition Services Agreement (“TSA”), or, if not therein, in the Manufacturing Services Agreement (“MSA”), or, if not therein, in the Canadian Distributor Agreement (“CDA”), each dated as of the date hereof, by and between Emergent and Aptevo, each as may be amended.

WHEREAS, Aptevo and Emergent have entered into the SDA, TSA, MSA and CDA;

WHEREAS, Emergent desires to license to Aptevo certain intellectual property rights and technology retained by Emergent and currently used by the Aptevo Business to enable Aptevo to conduct the Aptevo Business after the Effective Date on the terms set forth herein; and

WHEREAS, Aptevo desires to license such intellectual property rights and technology from Emergent to conduct the Aptevo Business on the terms set forth herein;

NOW, THEREFORE, in consideration of the mutual promises of the Parties, and of good and valuable consideration, it is agreed by and between the Parties as follows:

ARTICLE I
DEFINITIONS

For the purpose of this Agreement, the following terms shall have the following meanings.

“Acquiring Entity” means a Person that (a) (i) acquires control (as defined in the definition of Affiliate under the SDA), after the Effective Time, of Aptevo or an Aptevo Affiliate or any member of the Aptevo Group to which rights or interests under this Agreement or with respect to any of the Products have been assigned or licensed or (ii) is assigned any right or interest under this Agreement and (b) was a Third Party until the time of such acquisition or assignment.

“Competing Program” means (a) the research, development, making, having made, manufacturing, using, selling, offering for sale, importing or otherwise exploiting of any product substantially similar to any of the Products, or any activity involving any process or technology that is materially related to the Manufacturing Technology, including: so-called hyperimmune products; products, either marketed or being developed as a therapeutic, comprising polyclonal sera collected from persons or animals that possess antibodies with specificity against a given antigen; and products derived from blood, plasma and blood components, such as clotting factors, and (b) the making, having made or manufacturing of any Product.  For clarity, Competing Program excludes (y) the research, development, making, having made,

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manufacturing, using, selling, offering for sale, importing or otherwise exploiting of any recombinant protein product that is not a hyperimmune product and (z) the research, development, using, selling, offering for sale, importing or otherwise exploiting (but not making, having made or manufacturing) of any Product.

“Field” means, with respect to the WinRho SDF^® product, the therapeutic, prophylactic and diagnostic use of such Product in the Rh0(D) indication; with respect to the HepaGam B^® product, the therapeutic, prophylactic and diagnostic use of such Product in the Hepatitis B indication; and with respect to the VARIZIG^® product, the therapeutic, prophylactic and diagnostic use of such Product in the Varicella-zoster hyperimmune immunoglobulins indication.

“Licensable” means that, as of immediately after the Effective Time, Emergent or the relevant member of the Emergent Group, as applicable, has the right to grant to Aptevo a license or other rights within the scope of the rights granted to Aptevo under this Agreement.

“Licensed IP” means the Intellectual Property, excluding Trademarks and Internet domain names, that (a) exists and is Licensable as of immediately after the Effective Time, by any Person that is a member of the Emergent Group as of the Effective Time, and (b) is necessary to research, develop, manufacture or commercialize the Products.

“Manufacturing Technology” means the Licensed IP that is necessary to manufacture any of the Products.

“Product” means each of (a) the WinRho SDF^® product, (b) the HepaGam B^® product and (c) the VARIZIG^® product, each in the form in which it exists as of the Effective Time or such improved version thereof developed under the MSA on or before the date on which the Aptevo is permitted to sublicense rights under the Manufacturing Technology to the relevant CMO pursuant to Section 2.1(b).

“Third Party” means any Person, other than Emergent or Aptevo or any member of the Emergent Group or the Aptevo Group.

ARTICLE II
LICENSES

2.1License to Aptevo.  

(a)Licensed IP.  Subject to the terms and conditions of this Agreement, Emergent hereby grants to Aptevo, effective at the Effective Time, a perpetual (subject to Article IV), royalty-free, worldwide, non-transferable (except for certain assignments as provided in Section 6.3) license, under the Licensed IP, to research, develop, make, have made, use, sell, offer to sell, import and otherwise commercialize the Products, solely within the Field (and, for clarity, Aptevo will have no rights under the Licensed IP for any other purpose).

(b)Sublicenses; Limitations.  Aptevo may sublicense such rights to members of the Aptevo Group and to Third Parties and may have such rights exercised on behalf of Aptevo, members of the Aptevo Group and Third Parties; provided, however, that Aptevo may sublicense the rights under the Manufacturing Technology only to, and may exercise (and the

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other members of the Aptevo Group may only exercise) the rights to make and have made the Products only through, a Third Party contract manufacturer who is bound by confidentiality obligations reasonably acceptable to Emergent (a “CMO”), and then only to the extent that (i) Emergent approves of such CMO in Emergent’s sole and absolute discretion or (ii) there is a Manufacturing Failure.  

(c)Necessity; Trade Secrets; Confidentiality.  Aptevo acknowledges and agrees that the Licensed IP is Emergent’s valuable Intellectual Property, necessary for and critical to research, develop, make, have made, use, sell, offer to sell, import and otherwise commercialize the Products and that without such license, Aptevo would be unable to research, develop, make, have made, use, sell, offer to sell, import and otherwise commercialize the Products without misappropriating, misusing or otherwise violating Emergent’s rights in Emergent’s Intellectual Property.  Aptevo further acknowledges and agrees that the Manufacturing Technology is the proprietary, confidential know-how of Emergent of which some portions are further protected as trade secrets (as such term is defined in the Economic Espionage Act of 1996, 18 U.S.C. § 1839 or other applicable Law). Aptevo shall consider the Manufacturing Technology and all trade secrets within the Manufacturing Technology as Confidential Information under the SDA, shall strictly adhere to its confidentiality obligations under this Agreement, the SDA, and all Ancillary Agreements with respect to such Information, and hereby acknowledges and agrees that the remedy at Law for any breach of this Section 2.1(c) would be inadequate and that Emergent shall be entitled to injunctive relief, without the requirement of posting any bond or other security, in addition to any other remedy it may have upon breach of any provision of this Section 2.1(c), provided that Emergent shall not seek an injunction preventing the delivery of the Products into the stream of commerce unless such Products contain or otherwise transmit (in their packaging, labeling, or otherwise) the Manufacturing Technology or any other Confidential Information of Emergent.

2.2Licenses to Emergent

(a)License Back of Intellectual Property.  Aptevo, on behalf of itself and the Aptevo Group, hereby grants to Emergent and the Emergent Group, effective at the Effective Time, a non-exclusive, royalty-free, worldwide, perpetual, irrevocable, fully paid-up, fully sublicensable, fully transferrable (in accordance with Section 6.3) license under all Aptevo Intellectual Property, solely to the extent necessary to research, develop, make, have made, use, sell, offer to sell, import or otherwise commercialize any hyperimmune product, with the exception that such license will not include any Aptevo Intellectual Property specifically related to producing a β-amyloid disorders hyperimmune product.  For clarity, Emergent and the Emergent Group will have no rights under the Aptevo Intellectual Property for any other purpose.  This license grant to Emergent and the Emergent Group shall not include any Aptevo Intellectual Property (i) the licensing of which to Emergent and the Emergent Group would result in the breach or violation of any obligation of Aptevo or any member of the Aptevo Group to any Third Party, as of the Effective Time, or (ii) the licensing of which to Emergent and the Emergent Group would result in any financial obligation or other obligation of Aptevo or any other member of the Aptevo Group to any Third Party, as of the Effective Time.  

(b)Aptevo Grant of Data License.  Aptevo, on behalf of itself and the Aptevo Group, hereby grants to Emergent and the Emergent Group, effective at the Effective Time, a

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non-exclusive, royalty-free, worldwide, perpetual, irrevocable, fully paid-up, fully sublicensable, fully transferrable license to reproduce, copy, make derivative works of, use and otherwise exploit any and all clinical and pre-clinical data and any data filed with any regulatory authority, in each case that is related to any of the Products, including the safety database related thereto, that are owned or controlled by Aptevo or the Aptevo Group as of the Effective Time or are otherwise considered Aptevo Assets, including any copy thereof in the possession of Emergent or any member of the Emergent Group as of immediately before the Effective Time.  For clarity, such right to exploit data related to the Products includes, but is not limited to, a right of reference and foreign counterparts thereof in correspondence and filings with applicable regulatory authorities from time to time. Aptevo and the members of the Aptevo Group shall execute all documents reasonably necessary to effect such right of reference or use.  On request from time to time, Aptevo shall, and shall ensure that the all applicable members of the Aptevo Group shall, provide to Emergent all such data.   

2.3No Other Licenses and Rights.  Except as expressly provided in this Section 2, no other license or right is granted to any member of the Aptevo Group under this Agreement, whether expressly or by implication, estoppel, statute or otherwise. Neither Aptevo, nor any member of the Aptevo Group, shall have any right to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any of the Licensed IP.

2.4No Obligation to Obtain or Maintain Intellectual Property.  Neither Emergent, nor any member of the Emergent Group, is obligated to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any of the Licensed IP, provided that during the term of this Agreement, Emergent shall use commercially reasonable efforts to maintain the secrecy of its trade secrets within the Manufacturing Technology. Neither Aptevo, nor any member of the Aptevo Group, is obligated to file, prosecute, maintain, enforce or defend any Intellectual Property rights or registrations thereof for any Intellectual Property licensed to Emergent under Section 2.2(a) of this Agreement.

ARTICLE III
DISCLAIMER

3.1Disclaimer of Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN THE SDA AND THE TSA, (a) EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL INTELLECTUAL PROPERTY AND DATA (AS APPLICABLE) LICENSED TO SUCH PARTY HEREUNDER IS PROVIDED “AS IS,” WITHOUT ANY WARRANTY OF ANY KIND; AND (b) WITHOUT LIMITING THE FOREGOING, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY REGARDING THE INTELLECTUAL PROPERTY AND DATA (AS APPLICABLE) LICENSED TO THE OTHER PARTY UNDER THIS AGREEMENT, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED OR STATUTORY, REGARDING THE INTELLECTUAL PROPERTY LICENSED AND DATA (AS APPLICABLE) TO THE OTHER PARTY HEREUNDER, INCLUDING ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT.  

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ARTICLE IV
Term; TERMINATION

4.1Term.  The term of this Agreement is perpetual, subject to Aptevo’s compliance with the terms of Article II and subject to Aptevo’s and Emergent’s termination rights under this Article IV.

4.2Termination.  

(a)Voluntary Termination by Aptevo.  By written notice to Emergent, Aptevo may terminate this Agreement in its entirety or with respect to any Product.  

(b)Termination by Emergent.  Emergent may terminate this Agreement and any licenses granted hereunder if Aptevo breaches any term of this Agreement and (i) fails to cure such breach within ninety (90) days after receipt of written notice of such breach from Emergent or (ii) such breach is incapable of cure, as determined in Emergent’s reasonable discretion.  

4.3Bankruptcy.  Either Party may terminate this Agreement if the other Party (a) files a voluntary petition in bankruptcy or insolvency, or for reorganization, or for an appointment of a receiver or trustee of such Party or of its assets, (b) proposes a written agreement of composition or extension of its debts, (c) has a bankruptcy proceeding filed against it (and such proceeding is not dismissed within thirty (30) days), (d) goes into voluntary dissolution, (e) has a receiver appointed (and such appointment is not terminated within thirty (30) days), or (f) makes any general assignment for the benefit of creditors.  All rights and licenses granted under or pursuant to any Section of this Agreement are rights to “intellectual property” (as defined in Section 101(35A) of Title 11 of the United States Code, as amended (the “Bankruptcy Code”)). Each Party shall retains and may fully exercise all of its rights and elections under the Bankruptcy Code with respect to such rights and licenses.

4.4Effects of Termination.

(a)Inventory Sell-Off & Destruction.  Upon any expiration of this Agreement or any termination, in whole or in part, Aptevo shall, with respect to any Product for which it no longer has a license under this Agreement, (i) notify all dealers and other interested parties of the termination, (ii) sell off or destroy all inventory of such Product within one hundred and fifty (150) days of the termination date, and (iii) cease to make any representations to the public that it is an authorized seller of such Product as of the earlier of (x) one hundred and fifty (150) days from the termination date or (y) the depletion or destruction of all inventory of such Product.

(b)Survival.  Article I (to the extent necessary to interpret the surviving provisions of this Agreement), Section 2.1(c), Section 2.2, Section 2.3, Section 2.4, Article III, Section 4.4, Article V and Article VI shall survive any termination or expiration of this Agreement or the licenses hereunder.

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ARTICLE V
LIMITATION OF LIABILITY

5.1TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW IN NO EVENT SHALL EMERGENT BE LIABLE UNDER THIS AGREEMENT TO APTEVO OR TO ANY PARTY CLAIMING THROUGH OR UNDER APTEVO, FOR ANY LOST PROFITS, OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING STRICT LIABILITY), BASED ON A WARRANTY, OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF EMERGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  SUCH LIMITATION SHALL NOT BE INTERPRETED TO SUPERSEDE APTEVO’S RIGHT, IF ANY, TO CLAIM SUCH DAMAGES PURSUANT TO THE SDA OR ANY OTHER ANCILLARY AGREEMENT.

5.2NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE SDA OR ANY OTHER ANCILLARY AGREEMENT, EMERGENT SHALL BE ENTITLED TO SEEK LOST PROFITS, OR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, AGAINST APTEVO, ANY MEMBER OF THE APTEVO GROUP, ANY ACQUIRING PARTY OR ANY AFFILIATE OF THE FOREGOING ARISING OUT OF OR IN CONNECTION WITH ANY BREACH OF THIS AGREEMENT, DIRECTLY OR INDIRECTLY, BY APTEVO OR ANY OF THE FOREGOING.

ARTICLE VI
MISCELLANEOUS PROVISIONS

6.1Provisions from the SDA.  The Parties agree and acknowledge that this Agreement is an Ancillary Agreement and, therefore, that certain provisions of the SDA apply hereto.

6.2Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 6.2):

If to Emergent, to:

General Counsel
400 Professional Drive
Suite 400
Gaithersburg, MD  20879

 

If to Aptevo to:

General Counsel
2401 4th Avenue
Suite 1050

Seattle, WA  98121

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Any Party may, by notice to the other Party, change the address and contact person to which any such notices are to be given.

6.3Assignability.  

(a)This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  Except as otherwise provided for in this Agreement, this Agreement shall not be assignable by Aptevo, in whole or in part, without the express written consent of Emergent, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.  Notwithstanding the foregoing, no such consent shall be required for (i) the assignment of all of Aptevo’s rights and obligations under this Agreement to an acquirer of all or substantially all of the assets of the Aptevo Group relating to all the Products, or (ii) the licensing, assignment or otherwise transferring of any Aptevo Intellectual Property, subject to the license granted to Emergent herein.

(b)If Aptevo or a member of the Aptevo Group (in each case, except to the extent otherwise expressly permitted by this Agreement or any other Ancillary Agreement), or any successor or assignee of Aptevo, or an Acquiring Entity operates a Competing Program, (i) such Person and its Affiliates shall establish and enforce internal processes, policies, procedures and systems to strictly segregate information relating to any Competing Program from the Manufacturing Technology; (ii) such Person and its Affiliates shall not use, directly or indirectly, any Manufacturing Technology or any Confidential Information of Emergent in such Competing Program (except that a CMO is permitted to use the Manufacturing Technology solely to manufacture the Products on behalf of Aptevo or its successor or assignee, as applicable, solely in accordance with the terms of this Agreement, including Section 2.1(b), and the MSA); (iii) no personnel who had access to the Manufacturing Technology at any time may conduct any activities under such Competing Program (except that a CMO is permitted to use the Manufacturing Technology solely to manufacture the Products on behalf of Aptevo or its successor or assignee, as applicable, solely in accordance with the terms of this Agreement, including Section 2.1(b), and the MSA); and (iv) Emergent may abstain from sharing with such Person and its Affiliates any Confidential Information related to the Manufacturing Technology, in its sole discretion.  

(c)Nothing herein shall prevent Emergent or any member of the Emergent Group from (i) assigning any of its rights or obligations under this Agreement or (ii) subject to the exclusive license granted to Aptevo herein, licensing, assigning or otherwise transferring any right, title or interest in or to any Licensed IP.  

(d)To the extent either Party assigns the Intellectual Property underlying any license granted under this Agreement, such Party shall assign the applicable portions of this Agreement to such assignee.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed on the date first written above by their duly authorized representatives.

 

 

 

[Signature Page to Product License Agreement]

 

Exhibit C 10.9

APTEVO THERAPEUTICS INC.

2016 STOCK INCENTIVE PLAN

1.Purpose

The purpose of this 2016 Stock Incentive Plan (the “Plan”) of Aptevo Therapeutics Inc., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who are expected to make important contributions to the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company’s stockholders.  Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board of Directors of the Company (the “Board”).

2.Eligibility

All of the Company’s employees, officers and directors, as well as consultants and advisors to the Company (as the terms consultants and advisors are defined and interpreted for purposes of Form S-8 under the Securities Act of 1933, as amended (the “Securities Act”), or any successor form) are eligible to be granted Awards (as defined below) under the Plan.  Each person who is granted an Award under the Plan is deemed a “Participant.”  The Plan provides for the following types of awards, each of which is referred to as an “Award”:  Options (as defined in Section 5), SARs (as defined in Section 6), Restricted Stock (as defined in Section 7), RSUs (as defined in Section 7), Other Stock-Based Awards (as defined in Section 8) and Cash-Based Awards (as defined in Section 8).  Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award.  The terms of each Award need not be identical, and the Board need not treat Participants uniformly.  

3.Administration and Delegation

(a)Administration by Board of Directors.  The Plan will be administered by the Board.  The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable.  The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan.  The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award.  All actions and decisions by the Board with respect to the Plan and any Awards shall be made in the Board’s discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award.

(b)Appointment of Committees.  To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”).  All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.  

(c)Delegation to Officers.  Subject to any requirements of applicable law (including as applicable Sections 152 and 157(c) of the General Corporation Law of the State of Delaware), the Board may delegate to one or more officers of the Company the power to grant Awards (subject to any limitations under the Plan) to employees or officers of the Company and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of Awards to be granted by such officers, the maximum number of shares subject to Awards that the officers may grant, and the time period in which such Awards may be granted; and provided further, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by

 

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Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1(f) under the Exchange Act). 

(d)Awards to Non-Employee Directors.  Awards to non-employee directors will be granted and administered by a Committee, all of the members of which are independent directors as defined by Section 5605(a)(2) of the NASDAQ Marketplace Rules.

4.Stock Available for Awards

(a)Authorized Number of Shares.  Subject to adjustment under Section 10, Awards may be made under the Plan for up to such number of shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”) as is equal to the sum of:

(1)3,066,500 shares of Common Stock (any or all of which Awards may be in the form of Incentive Stock Options (as defined in Section 5(b)); plus

(2)such additional number of shares of Common Stock as is equal to the number of shares of Common Stock subject to Awards to be granted under the Company’s Converted Equity Awards Incentive Plan which awards expire, terminate or are otherwise surrendered, canceled or forfeited (subject, however, in the case of Incentive Stock Options to any limitations of the Code).

(b)Share Counting.  For purposes of counting the number of shares available for the grant of Awards under the Plan under this Section 4(a) and under the sublimits contained in Section 4(c):

(1)all shares of Common Stock covered by SARs shall be counted against the number of shares available for the grant of Awards under the Plan and against the sublimits referenced in the first clause of this Section 4(b); provided, however, that (i) SARs that may be settled only in cash shall not be so counted and (ii) if the Company grants an SAR in tandem with an Option for the same number of shares of Common Stock and provides that only one such Award may be exercised (a “Tandem SAR”), only the shares covered by the Option, and not the shares covered by the Tandem SAR, shall be so counted, and the expiration of one in connection with the other’s exercise will not restore shares to the Plan;

(2)if any Award (i) expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (ii) results in any Common Stock not being issued (including as a result of an SAR that was settleable either in cash or in stock actually being settled in cash), the unused Common Stock covered by such Award shall again be available for the grant of Awards; provided, however, that (A) in the case of Incentive Stock Options, the foregoing shall be subject to any limitations under the Code, (B) in the case of the exercise of an SAR, the number of shares counted against the shares available under the Plan and against the sublimits referenced in the first clause of this Section 4(b) shall be the full number of shares subject to the SAR multiplied by the percentage of the SAR actually exercised, regardless of the number of shares actually used to settle such SAR upon exercise and (C) the shares covered by a Tandem SAR shall not again become available for grant upon the expiration or termination of such Tandem SAR;

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(3)shares of Common Stock delivered (either by actual delivery, attestation, or net exercise) to the Company by a Participant to (i) purchase shares of Common Stock upon the exercise of an Award or (ii) satisfy tax withholding obligations with respect to Options and SARs (including shares retained from the Option or SAR creating the tax obligation) shall not be added back to the number of shares available for the future grant of Awards (provided, for the avoidance of doubt, that shares of Common Stock delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy tax withholding obligations with respect to Awards other than Options and SARs (including shares retained from such Awards other than Options and SARs creating the tax obligation) shall be added back to the number of shares available for the future grant of Awards); and  

(4)shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for future grant of Awards.

(c)Sublimits.  Subject to adjustment under Section 10, the following sublimits on the number of shares subject to Awards shall apply:

(1)Section 162(m) Per-Participant Limit.  The maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 1,000,000 shares per calendar year.  For purposes of the foregoing limit, the combination of an Option in tandem with an SAR shall be treated as a single Award.  The per-Participant limit described in this Section 4(c)(1) shall be construed and applied consistently with Section 162(m) of the Code or any successor provision thereto, and the regulations thereunder (“Section 162(m)”).

(2) Limit on Awards to Non-Employee Directors.  In any calendar year, the sum of the cash compensation paid to any non-employee director for service as a director and the value of Awards under the Plan made to such non-employee director (calculated based on grant date fair value for financial reporting purposes) shall not exceed $1,000,000.

(d)Substitute Awards.  In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Awards in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof.  Substitute Awards may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Awards contained in the Plan.  Substitute Awards shall not count against the overall share limit set forth in Section 4(a) or any sublimits contained in the Plan, except as may be required by reason of Section 422 and related provisions of the Code.

5.Stock Options

(a)General.  The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as the Board considers necessary or advisable.  

(b)Incentive Stock Options.  An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of Aptevo Therapeutics Inc., any of Aptevo Therapeutics Inc.’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code, and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code.  An Option that is not intended to be an Incentive Stock Option shall be designated a “Nonstatutory Stock Option.”  The Company shall have no liability to a Participant, or any other person, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or if the Company converts an Incentive Stock Option to a Nonstatutory Stock Option.

(c)Exercise Price.  The Board shall establish the exercise price of each Option or the formula by which such exercise price will be determined.  The exercise price shall be specified in the applicable Option agreement. The exercise price shall be not less than 100% of the Grant Date Fair Market Value (as defined below)

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on the date the Option is granted; provided that if the Board approves the grant of an Option with an exercise price to be determined on a future date, the exercise price shall be not less than 100% of the Grant Date Fair Market Value on such future date.  “Grant Date Fair Market Value” of a share of Common Stock for purposes of the Plan will be determined as follows: 

(1)if the Common Stock trades on a national securities exchange, the closing sale price (for the primary trading session) on the date of grant; or

(2)if the Common Stock does not trade on any such exchange, the average of the closing bid and asked prices as reported by an authorized OTCBB market data vendor as listed on the OTCBB website (otcbb.com) on the date of grant; or

(3)if the Common Stock is not publicly traded, the Board will determine the Grant Date Fair Market Value for purposes of the Plan using any measure of value it determines to be appropriate (including, as it considers appropriate, relying on appraisals) in a manner consistent with the valuation principles under Code Section 409A, except as the Board may expressly determine otherwise.

For any date that is not a trading day, the Grant Date Fair Market Value of a share of Common Stock for such date will be determined by using the closing sale price or average of the bid and asked prices, as appropriate, for the immediately preceding trading day and with the timing in the formulas above adjusted accordingly.  The Board can substitute a particular time of day or other measure of “closing sale price” or “bid and asked prices” if appropriate because of exchange or market procedures or can, in its sole discretion, use weighted averages either on a daily basis or such longer period as complies with Code Section 409A.

The Board has sole discretion to determine the Grant Date Fair Market Value for purposes of the Plan, and all Awards are conditioned on the participants’ agreement that the Administrator’s determination is conclusive and binding even though others might make a different determination.

(d)Duration of Options.  Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable Option agreement; provided, however, that no Option will be granted with a term in excess of 10 years.

(e)Exercise of Options.  Options may be exercised by delivery to the Company of a notice of exercise in a form (which may be electronic) approved by the Company, together with payment in full (in the manner specified in Section 5(f)) of the exercise price for the number of shares for which the Option is exercised.  Shares of Common Stock subject to the Option will be delivered by the Company as soon as practicable following exercise.

(f)Payment Upon Exercise.  Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1)in cash or by check, payable to the order of the Company;

(2)except as may otherwise be provided in the applicable Option agreement or approved by the Board, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

(3)to the extent provided for in the applicable Option agreement or approved by the Board, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their fair market value (valued in the manner determined by (or in a manner approved by) the Board), provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the

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Board and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements; 

(4)to the extent provided for in the applicable Nonstatutory Stock Option agreement or approved by the Board, by delivery of a notice of “net exercise” to the Company, as a result of which the Participant would receive (i) the number of shares underlying the portion of the Option being exercised, less (ii) such number of shares as is equal to (A) the aggregate exercise price for the portion of the Option being exercised divided by (B) the fair market value of the Common Stock (valued in the manner determined by (or in a manner approved by) the Board) on the date of exercise;

(5)to the extent permitted by applicable law and provided for in the applicable Option agreement or approved by the Board, by payment of such other lawful consideration as the Board may determine; provided, however, that in no event may a promissory note of the Participant be used to pay the Option exercise price; or

(6)by any combination of the above permitted forms of payment.

(g)Limitation on Repricing.  Unless such action is approved by the Company’s stockholders, the Company may not (except as provided for under Section 10):  (1) amend any outstanding Option granted under the Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option, (2) cancel any outstanding option (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan (other than Awards granted pursuant to Section 4(d)) covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option, (3) cancel in exchange for a cash payment any outstanding Option with an exercise price per share above the then-current fair market value of the Common Stock (valued in the manner determined by (or in a manner approved by) the Board), or (4) take any other action under the Plan that constitutes a “repricing” within the meaning of the rules of the NASDAQ Stock Market (“NASDAQ”).

(h)No Reload Options.  No Option granted under the Plan shall contain any provision entitling the Participant to the automatic grant of additional Options in connection with any exercise of the original Option.

(i)No Dividend Equivalents.  No Option shall provide for the payment or accrual of dividend equivalents.

6.Stock Appreciation Rights

(a)General.  The Board may grant Awards consisting of stock appreciation rights (“SARs”) entitling the holder, upon exercise, to receive an amount of Common Stock or cash or a combination thereof (such form to be determined by the Board) determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of Common Stock (valued in the manner determined by (or in a manner approved by) the Board) over the measurement price established pursuant to Section 6(b).  The date as of which such appreciation is determined shall be the exercise date.  

(b)Measurement Price.  The Board shall establish the measurement price of each SAR and specify it in the applicable SAR agreement.  The measurement price shall not be less than 100% of the Grant Date Fair Market Value of the Common Stock on the date the SAR is granted; provided that if the Board approves the grant of an SAR effective as of a future date, the measurement price shall be not less than 100% of the Grant Date Fair Market Value on such future date.

(c)Duration of SARs.  Each SAR shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable SAR agreement; provided, however, that no SAR will be granted with a term in excess of 10 years.

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(d)Exercise of SARs.  SARs may be exercised by delivery to the Company of a notice of exercise in a form (which may be electronic) approved by the Company, together with any other documents required by the Board. 

(e)Limitation on Repricing.  Unless such action is approved by the Company’s stockholders, the Company may not (except as provided for under Section 10):  (1) amend any outstanding SAR granted under the Plan to provide a measurement price per share that is lower than the then-current measurement price per share of such outstanding SAR, (2) cancel any outstanding SAR (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan (other than Awards granted pursuant to Section 4(d)) covering the same or a different number of shares of Common Stock and having an exercise or measurement price per share lower than the then-current measurement price per share of the cancelled SAR, (3) cancel in exchange for a cash payment any outstanding SAR with a measurement price per share above the then-current fair market value of the Common Stock (valued in the manner determined by (or in a manner approved by) the Board), or (4) take any other action under the Plan that constitutes a “repricing” within the meaning of the rules of the NASDAQ.

(f)No Reload SARs.  No SAR granted under the Plan shall contain any provision entitling the Participant to the automatic grant of additional SARs in connection with any exercise of the original SAR.

(g)No Dividend Equivalents.  No SAR shall provide for the payment or accrual of dividend equivalents.

7.Restricted Stock; RSUs

(a)General.  The Board may grant Awards entitling recipients to acquire shares of Common Stock (“Restricted Stock”), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award.  The Board may also grant Awards entitling the recipient to receive shares of Common Stock or cash to be delivered at the time such Award vests (“RSUs”).

(b)Terms and Conditions for Restricted Stock and RSUs.  The Board shall determine the terms and conditions of Restricted Stock and RSUs, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.  

(c)Additional Provisions Relating to Restricted Stock.  

(1)Dividends.  Unless otherwise provided in the applicable Award agreement, any dividends (whether paid in cash, stock or property) declared and paid by the Company with respect to shares of Restricted Stock (“Unvested Dividends”) shall be paid to the Participant only if and when such shares become free from the restrictions on transferability and forfeitability that apply to such shares.  Each payment of Unvested Dividends will be made no later than the end of the calendar year in which the dividends are paid to stockholders of that class of stock or, if later, the 15th day of the third month following the lapsing of the restrictions on transferability and the forfeitability provisions applicable to the underlying shares of Restricted Stock.  No interest will be paid on Unvested Dividends.

(2)Stock Certificates.  The Company may require that any stock certificates issued in respect of shares of Restricted Stock, as well as dividends or distributions paid on such Restricted Stock, shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee).  At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to his or her Designated Beneficiary.  “Designated Beneficiary” means (i) the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death or (ii) in the absence of an effective designation by a Participant, the Participant’s estate.

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(d)Additional Provisions Relating to RSUs. 

(1)Settlement.  Upon the vesting of and/or lapsing of any other restrictions (i.e., settlement) with respect to each RSU, the Participant shall be entitled to receive from the Company the number of shares of Common Stock specified in the Award agreement or (if so provided in the applicable Award agreement or otherwise determined by the Board) an amount of cash equal to the fair market value (valued in the manner determined by (or in a manner approved by) the Board) of such number of shares or a combination thereof.  The Board may provide that settlement of RSUs shall be deferred, on a mandatory basis or at the election of the Participant, in a manner that complies with Section 409A of the Code or any successor provision thereto, and the regulations thereunder (“Section 409A”).

(2)Voting Rights.  A Participant shall have no voting rights with respect to any RSUs.

(3)Dividend Equivalents.  The Award agreement for RSUs may provide Participants with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock (“Dividend Equivalents”).  Dividend Equivalents may be paid currently or credited to an account for the Participant, may be settled in cash and/or shares of Common Stock and shall be subject to the same restrictions on transfer and forfeitability as the RSUs with respect to which paid, in each case to the extent provided in the Award agreement.  No interest will be paid on Dividend Equivalents.

8.Other Stock-Based and Cash-Based Awards

(a)General.  The Board may grant other Awards of shares of Common Stock, and other Awards that are valued in whole or in part by reference to, or are otherwise based on, shares of Common Stock or other property (“Other Stock-Based Awards”).  Such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a Participant is otherwise entitled.  Other Stock-Based Awards may be paid in shares of Common Stock or cash, as the Board shall determine.  The Company may also grant Awards denominated in cash rather than shares of Common Stock (“Cash-Based Awards”).  

(b)Terms and Conditions.  Subject to the provisions of the Plan, the Board shall determine the terms and conditions of each Other Stock-Based Award or Cash-Based Award, including any purchase price applicable thereto.  

(c)Dividend Equivalents.  The Award agreement for an Other Stock-Based Award may provide Participants with the right to receive Dividend Equivalents.  Dividend Equivalents may be paid currently or credited to an account for the Participant, may be settled in cash and/or shares of Common Stock and shall be subject to the same restrictions on transfer and forfeitability as the Other Stock-Based Award with respect to which paid, in each case to the extent provided in the Award agreement.  No interest will be paid on Dividend Equivalents.

9.Performance Awards

(a)Grants.  Restricted Stock, RSUs and Other Stock-Based Awards and Cash-Based Awards under the Plan may be made subject to the achievement of performance goals pursuant to this Section 9 (“Performance Awards”).  Performance Awards can also provide for cash payments of up to $2,000,000 per calendar year per individual.

(b)Committee.  Grants of Performance Awards to any Covered Employee (as defined below) intended to qualify as “performance-based compensation” under Section 162(m) (“Performance-Based Compensation”) shall be made only by a Committee (or a subcommittee of a Committee) comprised solely of two or more directors eligible to serve on a committee making Awards qualifying as “performance-based compensation” under Section 162(m).  In the case of such Awards granted to Covered Employees, references to the Board or to a Committee shall be treated as referring to such Committee (or subcommittee).  “Covered Employee” shall mean any person who is, or whom the Committee, in its discretion, determines may be, a “covered employee” under Section 162(m)(3) of the Code.

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(c)Performance Measures.  For any Award that is intended to qualify as Performance-Based Compensation, the Committee shall specify that the degree of granting, vesting and/or payout shall be subject to the achievement of one or more objective performance measures established by the Committee, which shall be based on the relative or absolute attainment of specified levels of one or any combination of the following, which may be determined pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP basis, as determined by the Committee:     

(1)Earnings or Profitability Measures, including but not limited to: (i) revenue (gross, operating or net); (ii) revenue growth; (iii) income (gross, operating, net or adjusted); (iv) earnings before interest and taxes (“EBIT”); (v) earnings before interest, taxes, depreciation and amortization (“EBITDA”); (vi) earnings growth, (vii) profit margins or contributions; and (viii) expense levels or ratios;

(2)Return Measures, including, but not limited to: return on (i) investment; (ii) assets; (iii) equity; or (iv) capital (total or invested);

(3)Cash Flow Measures, including but not limited to: (i) operating cash flow; (ii) cash flow sufficient to achieve financial ratios or a specified cash balance; (iii) free cash flow; (iv) cash flow return on capital; (v) net cash provided by operating activities; (vi) cash flow per share; and (vii) working capital or adjusted working capital;

(4)Stock Price and Equity Measures, including, but not limited to: (i) return on stockholders’ equity; (ii) total stockholder return; (iii) stock price; (iv) stock price appreciation; (v) market capitalization; (vi) earnings per share (basic or diluted) (before or after taxes); and (vii) price-to-earnings ratio;

(5)Strategic Metrics, including, but not limited to: (i) acquisitions or divestitures; (ii) collaborations, licensing or joint ventures; (iii) product research and development; (iv) clinical trials; (v) regulatory filings or approvals; (vi) patent application or issuance; (vii) manufacturing or process development; (viii) sales or net sales; (ix) sales growth, (x) market share; (xi) market penetration; (xii) inventory control; (xiii) growth in assets; (xiv) key hires; (xv) business expansion; (xvi) achievement of milestones under a third-party agreement; (xvii) financing; (xviii) resolution of significant litigation; (xix) legal compliance or risk reduction; (xx) improvement of financial ratings; or (xxi) achievement of balance sheet or income statement objectives;

(6)In each case such performance measures may be adjusted to exclude any one or more of (i) extraordinary items, (ii) gains or losses on the dispositions of discontinued operations, (iii) the cumulative effects of changes in accounting principles, (iv) the impairment or writedown of any asset or assets, (v) charges for restructuring and rationalization programs or (vi) other extraordinary or non-recurring items, as specified by the Committee when establishing the performance measures. Such performance measures: (i) may vary by Participant and may be different for different Awards; (ii) may be particular to a Participant or the department, branch, line of business, subsidiary or other unit in which the Participant works and may cover such period as may be specified by the Committee; and (iii) shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m). Awards that are not intended to qualify as Performance-Based Compensation may be based on these or such other performance measures as the Board may determine.

(d)Adjustments.  Notwithstanding any provision of the Plan, with respect to any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee may adjust downwards, but not upwards, the cash or number of shares payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance measures except in the case of the death or disability of the Participant or a change in control of the Company.

(e)Other.  The Committee shall have the power to impose such other restrictions on Performance Awards as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for Performance-Based Compensation.

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10.Adjustments for Changes in Common Stock and Certain Other Events 

(a)Changes in Capitalization.  In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under the Plan set forth in Section 4(a), (ii) the share counting rules and sublimits set forth in Sections 4(b) and 4(c), (iii) the number and class of securities and exercise price per share of each outstanding Option, (iv) the share and per-share provisions and the measurement price of each outstanding SAR, (v) the number of shares subject to and the repurchase price per share subject to each outstanding award of Restricted Stock and (vi) the share and per-share-related provisions and the purchase price, if any, of each outstanding RSU and each Other Stock-Based Award, shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board.  Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(b)Reorganization and Change in Control Events.

(1)Definitions.

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(2)Effect on Awards other than Restricted Stock.

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(3)Effect on Restricted Stock.

(4)Effect on Other Awards.

11.General Provisions Applicable to Awards

(a)Transferability of Awards.  Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by a Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that, except with respect to Awards subject to Section 409A, the Board may permit or provide in an Award for the gratuitous

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transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or other entity established for the benefit of the Participant and/or an immediate family member thereof if the Company would be eligible to use a Form S-8 under the Securities Act for the registration of the sale of the Common Stock subject to such Award to such proposed transferee; provided further, that the Company shall not be required to recognize any such permitted transfer until such time as such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award.  References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.  For the avoidance of doubt, nothing contained in this Section 11(a) shall be deemed to restrict a transfer to the Company. 

(b)Documentation.  Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine.  Each Award may contain terms and conditions in addition to those set forth in the Plan.

(c)Termination of Status.  The Board shall determine the effect on an Award of the disability, death, termination or other cessation of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights, or receive any benefits, under an Award.

(d)Withholding.  The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award.  The Company may elect to satisfy the withholding obligations through additional withholding on salary or wages.  If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations.  Payment of withholding obligations is due before the Company will issue any shares on exercise, vesting or release from forfeiture of an Award or at the same time as payment of the exercise or purchase price, unless the Company determines otherwise.  If provided for in an Award or approved by the Board, a Participant may satisfy the tax obligations in whole or in part by delivery (either by actual delivery or attestation) of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their fair market value (determined by (or in a manner approved by) the Company; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income), except that, to the extent that the Company is able to retain shares of Common Stock having a fair market value (determined by (or in a manner approved by) the Company) that exceeds the statutory minimum applicable withholding tax without financial accounting implications or the Company is withholding in a jurisdiction that does not have a statutory minimum withholding tax, the Company may retain such number of shares of Common Stock (up to the number of shares having a fair market value equal to the maximum individual statutory rate of tax (determined by (or in a manner approved by) the Company)) as the Company shall determine in its sole discretion to satisfy the tax liability associated with any Award.  Shares used to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

(e)Amendment of Award. Except as otherwise provided in Sections 5(g) and 6(e), the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option.  The Participant’s consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Plan or (ii) the change is permitted under Section 10.

(f)Conditions on Delivery of Stock.  The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously issued or delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and regulations and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company

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such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. 

(g)Acceleration.   The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free from some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

12.Miscellaneous

(a)No Right To Employment or Other Status.  No person shall have any claim or right to be granted an Award by virtue of the adoption of the Plan, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company.  The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

(b)No Rights As Stockholder; Clawback.  Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be issued with respect to an Award until becoming the record holder of such shares.  In accepting an Award under the Plan, a Participant shall agree to be bound by any clawback policy the Company may adopt in future.

(c)Effective Date and Term of Plan.  The Plan shall become effective on the date the Plan is approved by the Company’s stockholders (the “Effective Date”).  No Awards shall be granted under the Plan after the expiration of 10 years from the Effective Date, but Awards previously granted may extend beyond that date.

(d)Amendment of Plan.  The Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that (i) to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until the Company’s stockholders approve such amendment in the manner required by Section 162(m); (ii) no amendment that would require stockholder approval under the rules of the national securities exchange on which the Company then maintains its primary listing may be made effective unless and until the Company’s stockholders approve such amendment; and (iii) if the national securities exchange on which the Company then maintains its primary listing  does not have rules regarding when stockholder approval of amendments to equity compensation plans is required (or if the Company’s Common Stock is not then listed on any national securities exchange), then no amendment to the Plan (A) materially increasing the number of shares authorized under the Plan (other than pursuant to Sections 4(d) or 10), (B) expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the class of participants eligible to participate in the Plan shall be effective unless and until the Company’s stockholders approve such amendment.  In addition, if at any time the approval of the Company’s stockholders is required as to any other modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such modification or amendment without such approval.  Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 12(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment, taking into account any related action, does not materially and adversely affect the rights of Participants under the Plan.  No Award shall be made that is conditioned upon stockholder approval of any amendment to the Plan unless the Award provides that (i) it will terminate or be forfeited if stockholder approval of such amendment is not obtained within no more than 12 months from the date of grant and (2) it may not be exercised or settled (or otherwise result in the issuance of Common Stock) prior to such stockholder approval.

(e)Authorization of Sub-Plans (including for Grants to non-U.S. Employees).  The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities, tax or other laws of various jurisdictions.  The Board shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable.  All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.  

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(f)Compliance with Section 409A of the Code. Except as provided in individual Award agreements initially or by amendment, if and to the extent (i) any portion of any payment, compensation or other benefit provided to a Participant pursuant to the Plan in connection with his or her employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A and (ii) the Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations the Participant (through accepting the Award) agrees that he or she is bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A) (the “New Payment Date”), except as Section 409A may then permit.  The aggregate of any payments that otherwise would have been paid to the Participant during the period between the date of separation from service and the New Payment Date shall be paid to the Participant in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule. 

The Company makes no representations or warranty and shall have no liability to the Participant or any other person if any provisions of or payments, compensation or other benefits under the Plan are determined to constitute nonqualified deferred compensation subject to Section 409A but do not to satisfy the conditions of that section.

(g)Limitations on Liability.  Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, employee or agent of the Company will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, nor will such individual be personally liable with respect to the Plan because of any contract or other instrument he or she executes in his or her capacity as a director, officer, employee or agent of the Company.  The Company will indemnify and hold harmless each director, officer, employee or agent of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been or will be delegated, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Board’s approval) arising out of any act or omission to act concerning the Plan unless arising out of such person’s own fraud or bad faith.

(h)Governing Law.  The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than the State of Delaware.

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Exhibit C 10.10

APTEVO THERAPEUTICS INC.

CONVERTED EQUITY AWARDS INCENTIVE PLAN

 

This Converted Equity Awards Incentive Plan (the “Plan”) of Aptevo Therapeutics Inc. (the “Company”) was adopted by the Board of Directors of the Company (the “Board”) and was approved by Emergent BioSolutions Inc. (“Emergent”) as the sole stockholder of the Company prior to the distribution by Emergent of not less than 80% of the stock of the Company to Emergent’s stockholders following which the Company will become a separate publicly traded company (the “Distribution”).  The sole purpose of the Plan is to govern the terms of awards granted under the Emergent Fourth Amended and Restated 2006 Stock Incentive Plan (including any predecessor version of such plan) to current and former employees, directors and service providers of Emergent who become employees, officers, directors or other service providers of the Company in connection with the Distribution (the “Emergent Awards”) which Emergent Awards are being assumed by the Company and converted into awards with respect to Company Common Stock (as defined below) pursuant to the terms of the Employee Matters Agreement entered into between Emergent and the Company in connection with the Distribution (such Agreement, the “Employee Matters Agreement” and such converted awards, the “Converted Awards”).  Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a controlling interest, as determined by the Board.  

 

Only holders of Emergent Awards that become Converted Awards pursuant to the Employee Matters Agreement are eligible to receive options and restricted stock units (each, an “Award”) under the Plan. Each person who receives an Award under the Plan is deemed a “Participant”.

 

(a) Administration by Board of Directors.    The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

(b) Appointment of Committees.    To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board or the officers referred to in Section 3(c) to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee or officers.

(c) Delegation to Officers.     Subject to any requirements of applicable law (including as applicable Sections 152 and 157(c) of the General Corporation Law of the State of Delaware), the Board may delegate to one or more officers of the Company the power to grant Awards (subject to any limitations under the Plan) to employees or officers of the Company and to exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the terms of Awards to be granted by such officers, the maximum number of shares subject to Awards that the officers may grant, and the time period in which such Awards may be granted; and provided further, that no officer shall be authorized to grant Awards to any “executive officer” of the Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or to any “officer” of the Company (as defined by Rule 16a-1(f) under the Exchange Act).

 

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The number of shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”) that are required to grant the Converted Awards pursuant to the Employee Matters Agreement will be available for issuance under the Plan. No Awards may be granted under the Plan in connection with or following the Distribution other than the Converted Awards.

If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right), is settled in cash, or results in any shares of Common Stock not being issued, the unused shares of Common Stock covered by such Award shall not be available for the grant of future Awards under the Plan. Shares of Common Stock delivered (either by actual delivery, attestation or net exercise) to the Company by a Participant to (i) purchase shares of Common Stock upon the exercise of an Award or (ii) satisfy tax withholding obligations with respect to an Award (including shares retained from the Award creating the tax obligation) shall not be added back to the number of shares available for future grant of Awards.  However, in the case of Incentive Stock Options (as hereinafter defined), the foregoing provisions shall be subject to any limitations under the Code. Shares of Common Stock issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. In no event shall shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award increase the number of shares available for future grant of Awards.

 

(a) General.    Subject to the terms of the Employee Matters Agreement, the Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option that is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option”.

(b) Incentive Stock Options.    A Converted Award that is an Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall be subject to, and shall be construed consistently with, the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) that is intended to be an Incentive Stock Option is not an Incentive Stock Option or for any action taken by the Board, including without limitation the conversion of an Incentive Stock Option to a Nonstatutory Stock Option.

(c) Exercise Price.    The Board shall establish the exercise price of each Option in accordance with the terms of the Employee Matters Agreement and shall specify such exercise price in the applicable option agreement or other communication to the Participant; provided, however, that the exercise price may be less than 100% of the Fair Market Value (as defined below) on the date the Option is granted in order to preserve the intrinsic value of the outstanding Emergent Award prior to the Distribution.

(d) Duration and Vesting of Options.    Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement subject to the limitations of the Plan and the Employee Matters Agreement; provided, however, that no Converted Award that was, prior to the Distribution, an option granted by Emergent before March 6, 2012 will be granted for a term in excess of 10 years from the date the option was granted by Emergent and no Converted Award that was, prior to the Distribution, an option granted by Emergent on or after March 6, 2012 will be granted for a term in excess of 7 years from the date the option was granted by Emergent. Converted Awards that were, prior to the Distribution, options granted by Emergent on or after May 19,2016, shall not vest (i) prior to the first anniversary of the date of grant of the Emergent Award; (ii) as to more than one-third of the Award prior to the second anniversary of the date of grant of the Emergent Award; and (iii) as to more than two-thirds of the Award prior to the third anniversary of the date of grant of the Emergent Award; provided, that, the Board or the Committee, either at the time the Option is granted or at any time thereafter, may allow an Option to accelerate and become vested, in whole or in part, prior to the vesting date specified above, in the event of the death or disability of the Participant.

 

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(e) Exercise of Option.    Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. Subject to Section 8(e), shares of Common Stock subject to the Option will be delivered by the Company following exercise as soon as practicable.

(f) Payment Upon Exercise.    Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(i) in cash or by check, payable to the order of the Company;

(ii) except as otherwise provided in the applicable option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding; (iii) to the extent provided for in the applicable option agreement or approved by the Board, in its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board (“Fair Market Value”), provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

(iv) to the extent permitted by applicable law and provided for in the applicable option agreement or approved by the Board, in its sole discretion, by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or

(v) by any combination of the above permitted forms of payment.

(g) Limitation on Repricing.    Unless such action is approved by the Company’s stockholders or is pursuant to Section 7 of the Plan: (i) outstanding Options granted under the Plan may not be amended to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option, (ii) the Board may also not cancel any outstanding option (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option, (iii) the Board may not cancel in exchange for a cash payment any outstanding Option with an exercise price per share above the then-current Fair Market Value or (iv) the Board may not take any other action under the Plan that constitutes a “repricing” under the rules of the NASDAQ Global Market.

 

(a) General.    Subject to the terms of the Employee Matters Agreement, the Board may grant Awards entitling the recipient to receive shares of Common Stock to be delivered at the time such shares of Common Stock vest (“Restricted Stock Units”).

 

(b) Terms and Conditions for Restricted Stock Units.    Subject to the terms of the Employee Matters Agreement, the Board shall determine the terms and conditions of each award of Restricted Stock Units, including the conditions for vesting and forfeiture and the issue price, provided that for Converted Awards that were, prior to the Distribution, awards of Restricted Stock Units granted by Emergent on or after May 19, 2016, the following minimum vesting provisions shall apply. Restricted Stock Unit awards granted to Participants shall not vest: (i) prior to the first anniversary of the date of grant of the Emergent Award; (ii) as to more than one-third of the Award prior to the second anniversary of the date of grant of the Emergent Award; and (iii) as to more than two-thirds of the Award prior to the third anniversary of the date of grant of the Emergent Award; provided further that the Board or Committee may, either at the time a Restricted Stock Unit award is made or at any time thereafter, waive the forfeiture of any shares of Common Stock or remove or modify the restrictions applicable to the Restricted Stock Unit award, in whole or in part, in the event of the death or disability of the Participant.  

 

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(c) Additional Provisions Relating to Restricted Stock Units

(i) Settlement.    Upon the vesting of and/or lapsing of any other restrictions (i.e., settlement) with respect to each Restricted Stock Unit, the Participant shall be entitled to receive from the Company such number of shares of Common Stock or an amount of cash equal to the Fair Market Value of such number of shares of Common Stock, as provided in the applicable Award agreement. The Board may, in its discretion, provide that settlement of Restricted Stock Units shall be deferred, on a mandatory basis or at the election of the Participant.

 

(ii) Voting Rights.    A Participant shall have no voting rights with respect to any Restricted Stock Units.

(iii) Dividend Equivalents.    To the extent provided by the Board, in its sole discretion, a grant of Restricted Stock Units may provide Participants with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock (“Dividend Equivalents”). Dividend Equivalents may be settled in cash and/or shares of Common Stock and shall be subject to the same restrictions on transfer and forfeitability as the Restricted Stock Units with respect to which paid, as determined by the Board in its sole discretion, subject in each case to such terms and conditions as the Board shall establish, in each case to be set forth in the applicable Award agreement.

 

(a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) the share- and per-share provisions and the exercise price of each Option and (iii) the number of shares subject to each outstanding Restricted Stock Unit award, shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to any outstanding Options are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then optionees who exercise such Options between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(b) Reorganization and Change in Control Events

(i) Definitions

(A) A “Reorganization Event” shall mean:

(1) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled;

(2) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction; or

(3) any liquidation or dissolution of the Company.

(B) A “Change in Control Event” shall mean:

(1) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d 3 promulgated under the Exchange Act) 50% or more of either (x) the aggregate number of shares of Common Stock then-outstanding (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or

 

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exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (3) of this definition; or

(2) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (3) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or

(3) the liquidation or dissolution of the Company.

(C) “Good Reason” shall mean any significant diminution in the Participant’s title, authority, or responsibilities from and after such Reorganization Event or Change in Control Event, as the case may be, or any reduction in the annual cash compensation payable to the Participant from and after such Reorganization Event or Change in Control Event, as the case may be, or the relocation of the place of business at which the Participant is principally located to a location that is greater than 50 miles from its location immediately prior to such Reorganization Event or Change in Control Event.

(D) “Cause” shall mean any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material responsibilities to the Company, (ii) willful misconduct by the Participant which affects the business reputation of the Company, (iii) material breach by the Participant of any employment, consulting, confidentiality, non-competition or non-solicitation agreement with the Company, (iv) conviction or plea of nolo contendere (no contest) by the Participant to a felony, or (v) commission by the Participant of any act involving fraud, theft or dishonesty with respect to the Company’s business or affairs. The Participant shall be considered to have been discharged for “Cause” if the Company determines, within 30 days after the Participant’s resignation, that discharge for Cause was warranted.

(ii) Effect on Options

(A) Reorganization Event. Upon the occurrence of a Reorganization Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to a

 

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Reorganization Event (regardless of whether such event will result in a Change in Control Event), the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Reorganization Event also constitutes a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company such assumed or substituted options shall become immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Reorganization Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation or the Participant’s service on the Board is terminated. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, some or all of such Options, or in the event of a liquidation or dissolution of the Company, the Board shall, upon written notice to the Participants, provide with respect to any Options that are not to be assumed by an acquiring or succeeding corporation that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Participants before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the “Acquisition Price”), then the Board may instead provide that all such outstanding Options shall terminate upon consummation of such Reorganization Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options and any applicable tax withholdings.

(B) Change in Control Event that is not a Reorganization Event. Upon the occurrence of a Change in Control Event that does not also constitute a Reorganization Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, then outstanding Options shall continue to become vested in accordance with the original vesting schedule set forth in such Option, provided, however, that each such Option shall be immediately exercisable in full if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation.

(iii) Effect on Restricted Stock Unit Awards

(A) Reorganization Event that is not a Change in Control Event. Upon the occurrence of a Reorganization Event that is not a Change in Control Event, the forfeiture and other rights of the Company under each outstanding Restricted Stock Unit award shall inure to the benefit of the Company’s successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Unit award.

(B) Change in Control Event. Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes a Reorganization Event), except to the extent specifically provided to the contrary in the instrument

 

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evidencing any Restricted Stock Unit award or any other agreement between a Participant and the Company, each then outstanding Restricted Stock Unit award shall continue to become free from conditions or restrictions in accordance with the original schedule set forth in such Restricted Stock Unit award, provided, however, that each such Restricted Stock Unit award shall immediately become free from all conditions or restrictions if, on or prior to the first anniversary of the date of the consummation of the Change in Control Event, the Participant’s employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Participant or is terminated without Cause by the Company or the acquiring or succeeding corporation.

 

(a) Transferability of Awards.    Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or, other than in the case of an Incentive Stock Option, pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant, except as may be otherwise provided in an Award agreement; provided, however, that the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, domestic partner, family trust or other entity established for the benefit of the Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Registration Statement on Form S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such authorized transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award; and, provided, further, that no option intended to be an incentive stock option shall be transferable unless the Board shall otherwise permit. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(b) Documentation.    Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Subject to the terms of the Employee Matters Agreement, each Award may contain terms and conditions in addition to those set forth in the Plan.

(c) Board Discretion.    Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d) Termination of Status.    Subject to the terms of the Employee Matters Agreement, the Board shall determine the effect on an Award of the disability, death, termination of employment, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant’s legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

(e) Withholding.    The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as is payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income), except that, to the extent that the Company is able to retain shares of Common Stock having a Fair Market Value that exceeds the statutory minimum applicable withholding tax without financial accounting implications or the Company is withholding in a jurisdiction that does not have a statutory minimum withholding tax, the Company may retain such number of shares

 

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of Common Stock (up to the number of shares having a fair market value equal to the maximum individual statutory rate of tax (determined by (or in a manner approved by) the Company)) as the Company shall determine in its sole discretion to satisfy the tax liability associated with any Award. Shares surrendered to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

(f) Amendment of Award.    Except as otherwise provided in Section 5(g) with respect to repricings, Sections 5(d) and 6(b) with respect to minimum vesting of Awards or Section 9(d) with respect to actions requiring stockholder approval, the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided either (i) that the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant or (ii) that the change is permitted under Section 7 hereof; provided further, notwithstanding anything to the contrary herein, the Board shall have no authority to amend, modify or terminate any outstanding Award that has the same effect of actions expressly prohibited by Section 5(g) and requires approval by the Company’s stockholders.

(g) Conditions on Delivery of Stock.    The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h) Acceleration.    Except as provided in Sections 5(d) and 7(b), the Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

 

(a) No Right To Employment or Other Status.    No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

(b) No Rights As Stockholder.    Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.

(c) Effective Date and Term of Plan.    The Plan shall become effective immediately prior to the Distribution. No Awards shall be granted prior to (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company’s stockholders. The Plan shall expire on December 31, 2021, but Awards previously granted may extend beyond that date.

(d) Amendment of Plan.    The Board may amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that, to the extent determined by the Board, no amendment requiring stockholder approval under any applicable legal, regulatory or listing requirement shall become effective until such stockholder approval is obtained; provided further, that stockholder approval shall be required for any amendment to the Plan that (i) materially increases the number of shares of Common Stock available for issuance under the Plan (other than an increase to reflect an adjustment described in Section 7) or (ii) materially expands the class of service providers eligible to participate in the Plan.

(e) Authorization of Sub-Plans.    The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to this Plan containing (i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the

 

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Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.

(f) Provisions for Foreign Participants.    The Board may modify Awards or Options granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

(g) Compliance with Code Section 409A.    Except as provided in individual Award agreements initially or by amendment, if and to the extent (i) any portion of any payment, compensation or other benefit provided to a Participant pursuant to the Plan in connection with his or her employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and (ii) the Participant is a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations the Participant (through accepting the Award) agrees that he or she is bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A of the Code) (the “New Payment Date”), except as Section 409A of the Code may then permit. The

aggregate of any payments that otherwise would have been paid to the Participant during the period between the date of separation from service and the New Payment Date shall be paid to the Participant in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.

The Company makes no representations or warranty and shall have no liability to the Participant or any other person if any provisions of or payments, compensation or other benefits under the Plan are determined to constitute nonqualified deferred compensation subject to Section 409A of the Code but do not to satisfy the conditions of that section.

(h) Governing Law.    The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

Approved by the Board of Directors of Aptevo Therapeutics Inc

on July 29, 2016, subject to

stockholder approval.

 

 

Exhibit C 10.11

Ke to Aptevo Therapeutics Inc.

 

Senior Management Severance Plan

 

 

Section 1. Definitions. The following terms shall have the meaning ascribed to them below:

 

 

 

 

 

 

 

 

 

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Section 2. Term. This Plan shall be effective as of the Effective Date and shall continue in effect through December 31, 2021; provided, however, that, commencing on December 31, 2021, and on each December 31 thereafter, this Plan shall be automatically extended for one additional year unless, not later than ninety (90) days prior to the scheduled expiration of the term (or any extension thereof), the Company provides written notice that the term will not be extended.

 

Section 3. Severance Plan.

 

 

 

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Section 4. Termination Protection. If during the term of this Plan:

 

 

 

Section 5. Benefits and Rights

 

 

 

 

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Section 6. Section 280G; Potential Reduction in Payments.

 

 

 

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Section 7. No Mitigation or Offset. Except as provided in Sections 3(a)(vii) and 5(d), a Participant shall not be required to mitigate the amount of any payment or benefit provided for under this Plan by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for hereunder be reduced by any compensation or benefits earned or received by such Participant as the result of employment by a subsequent employer, by retirement benefits, by offset against any amount claimed to be owed by such Participant to the Company or otherwise.

 

 

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Section 8. Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provision shall remain in full force and effect.

 

Section 9. Withholding. All payments hereunder shall be reduced by any applicable taxes required by applicable law to be paid or withheld by the Company.

 

Section 10. Modification or Waiver. The Board may amend, modify, or terminate the Plan at any time in its sole discretion; provided, however, that (a) any such amendment, modification or termination that adversely affects the rights of any Participant shall be unanimously approved by the Board and consented to in writing by such Participant, (b) no such amendment, modification or termination may affect the rights of a Participant then receiving payments or benefits under the Plan without the consent in writing of such Participant and (c) no such amendment, modification or termination made after a Change of Control shall be effective for at least eighteen (18) months following the closing of the Change of Control.

 

Section 11. Applicable Law. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of laws principles thereof.

 

Section 12. Administration of Plan. This Plan will be administered by the Board. The Board shall have authority to adopt, amend and repeal such administrative rules, guidelines and practices relating to this Plan as it shall deem advisable. The Board may construe and interpret the terms of this Plan and correct any defect, supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent that it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions of the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan. Neither the Board nor the Chief Executive Officer of the Company shall have any liability for any decision made in good faith in interpreting, implementing or operating this Plan, including without limitation, any changes made to the definition Good Reason, in establishing the list of Participants, or in selecting the Participants to be included in any of the Appendices attached to this Plan. The Company hereby agrees to indemnify and hold harmless each member of the Board and each officer, including without limitation the Chief Executive Officer of the Company, for (and in each case, advance) any and all costs and expenses incurred in connection with the administration, operation and implementation of the Plan, including without limitation any changes made to the definition Good Reason, in establishing the list of Participants, or in selecting the Participants to be included in any of the Appendices attached to this Plan. No amounts paid under this Section 12 for or on account of any of the foregoing officers or directors shall be included in Compensation under this Plan.

 

Section 13. Payments Subject to Section 409A.

 

 

 

 

 

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Adopted by Aptevo Therapeutics Inc. this 29^th day of July, 2016.

 

/s/ Fuad El-Hibri__                                                      

 

Fuad El-Hibri

Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit A

 

Form of Senior Management Severance Plan

Acknowledgement Form

 

 

Terms used but not defined in this Acknowledgement Form shall have the meaning ascribed to them in the Aptevo Therapeutics Inc. Senior Management Severance Plan (the “Plan”).

 

I acknowledge and agree that:

 

 

 

 

________________________________________________________

EMPLOYEE NAMEDATE

 

 

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Exhibit C 10.12

FORM OF INDEMNITY AGREEMENT

This Indemnity Agreement is made this ___ day of _________ 20__, by and between Aptevo Therapeutics Inc., a Delaware corporation (the “Company”), and ________, (the “Indemnitee”).

WITNESSETH:

WHEREAS, the Company and the Indemnitee desire to enter into this Agreement, which is intended to replace any indemnification agreement that may exist between the Indemnitee and the Company.

NOW, THEREFORE, the Company and the Indemnitee for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agree as follows:

1.Definitions.  Capitalized terms used herein shall have the respective meanings as set forth below:

(a)“Claim” shall mean any threatened, pending or completed claim, action, demand, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal.

(b)“Damages” shall mean any losses, liabilities, damages of any nature (including consequential, special and incidental), claims, demands, judgments, amounts paid in settlements, fines, penalties, expenses and costs. Without limiting the generality of the foregoing, Damages shall include any and all Defense Costs. Should any payments by the Company under this agreement be determined to be subject to any federal, state or local income or excise tax, “Damages” shall also include such amounts as are necessary to place the Indemnitee in the same after-tax position (after giving effect to all applicable taxes) Indemnitee should have been in had no such tax been determined to apply to such payments.

(c)“Defense Costs” shall mean any costs, charges, bonds, fees, expenses, including reasonable attorneys’ fees and fees of experts, consultants, witnesses and court costs, incurred in the investigation, defense or prosecution of any Claim.

(d)“Final Adjudication” shall mean final judicial decision in a court of competent jurisdiction from which there is no further right to appeal.

(e)“Person” shall mean any individual, partnership, limited partnership, corporation, company association, business trust, employee benefit or retirement plan or trust, limited liability company, unincorporated association, joint venture, enterprise of any nature (whether incorporated or unincorporated) that is capable of suing or being sued or that is recognized or recognizable in a court of law or equity as a “person”, or any government entity, authority or agency.

(f)“Third Party” shall mean any trustee, receiver, creditor, contractor, vendor, insurance carrier, service provider to the Company or any other person doing business or otherwise associated with the Company in any capacity.

(g)“Undertaking” shall have the meaning as set forth in Section 3.

2.Right to Indemnification.  The Company shall defend, indemnify and hold harmless the Indemnitee from and against any and all Damages asserted against or suffered or incurred by the Indemnitee in connection with any Claim brought by any Person, including any Third Party, in respect of, relating to, or by reason of the fact that the Indemnitee is or was a director, officer, manager, employee, agent or representative of the Company or is or was serving at the request of the Company as a director, officer, manager, employee or agent of another Person, whether the basis of such Claim is alleged action or inaction in an official capacity as a director, officer, manager, employee, agent or representative or in any other capacity while serving as a director, officer, manager, employee, agent or representative, to the fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior thereto), and such indemnification shall continue after the Indemnitee has ceased to be a director, officer, manager, employee,

 

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agent or representative and shall inure to the benefit of the Indemnitee’s heirs, executors, trustees and administrators; provided, however, that, except as provided in Section 4 hereof with respect to proceedings to enforce rights to indemnification and advancement of Defense Costs, the Company shall indemnify the Indemnitee in connection with any Claim (or part thereof) initiated by the Indemnitee only if such Claim (or part thereof) was authorized by the board of directors of the Company.   

3.Right to Advancement of Defense Costs.  In addition to the right to indemnification conferred in Section 2 hereof, the Indemnitee shall have the right to be paid by the Company, in advance of Final Adjudication, all Defense Costs as incurred by the Indemnitee in connection with any Claim for which a right to indemnification is applicable under this Agreement. Defense Costs shall be paid by the Company not later than twenty (20) days after receipt by the Company of a statement of expenses from the Indemnitee requesting such payment, which request shall be supported by a statement of costs; provided, however, that, if the Delaware General Corporation Law requires, an advancement of Defense Costs incurred by the Indemnitee in the Indemnitee’s capacity as a director or officer (and not in any other capacity in which service was or is rendered by the Indemnitee, including, without limitation, as an employee, manager, agent or for service to an employee benefit plan) shall be made only upon delivery to the Company of an undertaking (hereinafter an “Undertaking”), by or on behalf of the Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by Final Adjudication that the Indemnitee is not entitled to be indemnified for such Defense Costs under this Agreement or otherwise.

4.Right of Indemnitee to Bring Suit.  

(a)If a claim by the Indemnitee to the Company for indemnification under Section 2 of this Agreement is not paid in full by the Company within thirty (30) days after a written claim has been received by the Company, or if a claim by the Indemnitee to the Company for an advancement of Defense Costs under Section 3 of this Agreement is not paid in full within twenty (20) days as specified in Section 3, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claims.

(b)If the Indemnitee is successful in whole or in part in any suit brought under Section 4(a), or in a suit brought by the Company to recover an advancement of Defense Costs pursuant to the terms of an Undertaking, the Indemnitee shall be entitled to be paid also all costs and expenses (including without limitation all reasonable attorneys’ fees, court costs, witness fees) of prosecuting or defending such suit.

(c)In any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right under Section 3 to an advancement of Defense Costs) it shall be a defense that it has been determined by Final Adjudication that the Indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.

(d)In any suit against the Indemnitee by the Company to recover an advancement of Defense Costs pursuant to the terms of an Undertaking, the Company shall be entitled to recover such Defense Costs only upon a Final Adjudication that the Indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.

(e)Neither the failure of the Company (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of Defense Costs hereunder, or by the Company to recover an advancement of Defense Costs pursuant to the terms of an Undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of Defense Costs, under this Agreement or otherwise, shall be on the Company by clear and convincing evidence.

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5.Settlement.  The Company shall have no obligation to indemnify the Indemnitee under this Agreement for any amounts paid in full settlement and/or compromise of any Claim that was effected without Company’s prior written consent. The Company shall not enter into any full settlement and/or compromise of any Claim in any manner that would impose any Damages on the Indemnitee without the Indemnitee’s written consent. Neither the Company nor the Indemnitee shall unreasonably withhold, condition or delay their consent to any proposed settlement or compromise. The exercise of any right of consent or withholding of consent under this Section 5 shall not affect, excuse, modify or relieve the Company of any of its obligations under this Agreement. 

6.Maintenance of Insurance.

(a)The Company hereby represents and warrants that policies of directors’ and officers’ liability insurance (“D&O Insurance”) have been purchased by the Company and that such policies are in full force and effect. The Indemnitee acknowledges that he has been informed of, and provided access to, the D&O Policies.

(b)The Company hereby covenants and agrees that, so long as the Indemnitee shall continue to serve as a director or officer of the Company and thereafter so long as the Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that the Indemnitee was a director or officer of the Company, the Company, subject to Section 6(d), shall maintain in full force and effect D&O Insurance.

(c)In all policies of D&O Insurance, the Indemnitee shall be named as an insured in such a manner as to provide the Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company’s directors or officers most favorably insured by such policy.

(d)The Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance is disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit.

7.Rights Not Exclusive.  The rights provided hereunder shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under any statute, provision of Company’s certificate of incorporation, bylaw, agreement, vote of stockholders or of disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity, and shall continue after the Indemnitee ceases to serve the Company as a director, officer, employee as the case may be.

8.Severability.  In the event that any provision of this Agreement is determined by a court to require the Company to do or to fail to do an act that is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms.

9.Choice of Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

10.Consent to Jurisdiction.  The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware.

11.Successor and Assigns.  This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) binding on and inure to the benefit of the heirs, personal representatives and estate of the Indemnitee.

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12.Amendment or Waiver.  No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto, and no waiver of any provision hereunder shall be effective unless in writing. 

13.Counterparts.  This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may be executed by facsimile signatures and such signatures shall be deemed to bind each party hereto as if they were original signatures.

 

 

 

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IN WITNESS WHEREOF, the Company and the Indemnitee have executed this Agreement as of the day and year first above written.

 

 

 

 

Exhibit 99.1

July 22, 2016

Dear Emergent BioSolutions Inc. Stockholder:

In August 2015, we announced our plan to spin off our biosciences business and therefore separate into two publicly- traded companies with distinct strategic plans, growth strategies, and operational and development priorities. We are pleased to report that we are on track to meet our goal of completing this spin-off transaction in mid-2016.

The separation is expected to create two strong, “pure play” companies with focused strategies, and to better align resources to achieve strategic priorities and unlock significant value for both companies.

The new biosciences company, Aptevo Therapeutics Inc., will focus on providing novel oncology and hematology therapeutics to meaningfully improve patients’ lives. The core technology of the biosciences company will be its ADAPTIR platform applied to immuno-oncology. Emergent BioSolutions will continue to operate as a global specialty life sciences company focused on providing specialty products for civilian and military populations that address intentional and naturally emerging public health threats.

The spin-off will enable each company to:

The separation will provide current Emergent stockholders with ownership interests in both Emergent and Aptevo. The separation is intended to be tax-free to Emergent stockholders for U.S. federal income tax purposes.

The separation will be in the form of a pro rata distribution of all of the outstanding shares of Aptevo common stock to Emergent stockholders. Each Emergent stockholder will receive one share of Aptevo common stock for every two shares of Emergent common stock held on July 22, 2016, the record date for the distribution. You do not need to take any action to receive the common stock of Aptevo to which you are entitled as an Emergent stockholder.

We encourage you to read the attached information statement, which is being provided to all holders of shares of Emergent common stock as of July 22, 2016. The information statement describes the separation in detail and contains important business and financial information about Aptevo.

We believe the separation provides tremendous opportunities for our businesses and our stockholders, as we work to continue to build long-term stockholder value. We appreciate your continuing support of Emergent and look forward to your future support of both companies.

Sincerely,

 

 

Daniel J. Abdun-Nabi

President and Chief Executive Officer

Emergent BioSolutions Inc.

 

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July 22, 2016

Dear Future Aptevo Therapeutics Inc. Stockholder:

We are pleased to welcome you as a future stockholder of our new company, Aptevo Therapeutics Inc., a biotechnology company focused on developing novel oncology and hematology therapeutics to meaningfully improve patients’ lives.

Our management team is excited for Aptevo to establish itself as a high-growth, “pure play” biotechnology company in the highly attractive immuno-oncology field. Aptevo is well-positioned for the development of bispecific therapeutics, which are antibody-based molecules that are able to bind multiple targets of therapeutic interest, utilizing its innovative ADAPTIR™ (modular protein technology) platform. This allows Aptevo to take a novel approach to cancer immunotherapy.

Aptevo will soon operate independently as a research-based biotechnology company with a sustainable portfolio of commercial products, consisting of WinRho ® , HepaGam B®, VARIZIG® and IXINITY®. For our longer- term future, we will seek to continue to build a robust product pipeline, including progressing multiple bispecific therapeutics into pre-clinical and clinical development.

Aptevo’s business model is fundamentally different from that of Emergent. The key driver of our success will be the development, commercialization and market penetration of new proprietary therapeutics—discovered or developed in our own laboratories or in collaboration with others. As a result of the separation, our stockholders will be able to evaluate the distinct merits, performance and future prospects of Aptevo.

Our common stock has been approved for listing on The NASDAQ Global Select Market under the symbol “APVO.”

We invite you to learn more about Aptevo and our strategic initiatives by reading the attached information statement, which contains important business and financial information about Aptevo. We look forward to our future as a new publicly-traded company and thank you for your trust and support.

Sincerely,

 

 

Marvin L. White

Prospective Chief Executive Officer

Aptevo Therapeutics Inc.

 

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INFORMATION STATEMENT

Aptevo Therapeutics Inc.

 

This information statement is being furnished in connection with the distribution by Emergent BioSolutions Inc. to its stockholders of all of the outstanding shares of common stock of Aptevo Therapeutics Inc., which is currently a wholly-owned subsidiary of Emergent that will hold directly or indirectly certain of the assets and liabilities associated with Emergent’s biosciences business. Upon completion of the distribution, Aptevo will become a separate and independent publicly-traded company. To implement the distribution, Emergent will distribute all of the shares of Aptevo common stock on a pro rata basis to Emergent stockholders in a manner that generally is intended to be tax-free for U.S. federal income tax purposes.

For every two shares of Emergent common stock held of record by you as of the close of business on July 22, 2016, the record date for the distribution, you will receive one share of Aptevo common stock. You will receive cash in lieu of any fractional shares of Aptevo common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of Emergent common stock in the “regular-way” market after the record date and before the distribution date, you also will be selling your right to receive shares of Aptevo common stock in connection with the separation and distribution. Shares of Aptevo common stock are expected to be distributed by Emergent to you on August 1, 2016. The date of distribution of the Aptevo common stock is referred to in this information statement as the “distribution date.”

No vote of Emergent stockholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send Emergent a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of Emergent common stock or take any other action to receive your shares of Aptevo common stock.

There is no current trading market for Aptevo common stock, although Aptevo expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and that “regular-way” trading of Aptevo common stock will begin on the first trading day following the completion of the distribution. Aptevo has received approval to have its common stock listed on The NASDAQ Global Select Market under the symbol “APVO.” Following the distribution, Emergent common stock will continue to trade on the New York Stock Exchange under the symbol “EBS.”

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 21

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is July 22, 2016.

 

 

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TABLE OF CONTENTS

 

 

 

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Presentation of Information

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Aptevo assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Aptevo,” “we,” “us,” “our,” “our company” and “the company” refer to Aptevo Therapeutics Inc., a Delaware corporation, and its combined subsidiaries as they will exist assuming the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Emergent” and “Emergent BioSolutions” refer to Emergent BioSolutions Inc., a Delaware corporation, and its consolidated subsidiaries.

This information statement describes the business to be transferred to Aptevo by Emergent in the separation as if the transferred business were Aptevo’s business for all historical periods described. Unless the context otherwise requires, references in this information statement to Aptevo’s historical assets, liabilities, products, businesses or activities are intended to refer to certain historical assets, liabilities, products, businesses or activities of the biosciences business of Emergent, as further described in this information statement, as the business was conducted as part of Emergent prior to completion of the separation.

“Distribution” or “distribution” refers to the distribution of all of Aptevo’s issued and outstanding shares of common stock to Emergent stockholders as of the close of business on the record date for the distribution.

“Separation” or “separation” refers to the separation of the biosciences business from Emergent and the creation of an independent, publicly-traded company, Aptevo, holding the biosciences business through a distribution of shares of Aptevo common stock to Emergent stockholders as of the close of business on the record date.

Trademarks, Trade Names and Service Marks

Aptevo owns or is pursuing the rights to use the trademarks, service marks and trade names that it uses in conjunction with the operation of its business. Some of the trademarks that Aptevo owns or has rights to use that appear in this information statement include: APTEVO THERAPEUTICS™, APTEVO™, APTEVO BIOTHERAPEUTICS™, APTEVO RESEARCH AND DEVELOPMENT™, ADAPTIR™ (modular protein technology), HepaGam B® [Hepatitis B Immune Globulin Intravenous (Human)], VARIZIG® [Varicella Zoster Immune Globulin (Human)], WinRho® SDF [Rho (D) Immune Globulin Intravenous (Human)] and IXINITY® [coagulation factor IX (recombinant)], which may be registered or trademarked in the United States and other jurisdictions. The preceding marks and any and all Aptevo Therapeutics Inc. brand, product, service and feature names, logos and slogans are trademarks or registered trademarks of Aptevo Therapeutics Inc. or its subsidiaries in the United States or other countries. Aptevo’s rights to some of these trademarks may be limited to select markets. Solely for convenience, we only use the ™ or ® symbols the first time any trademark or trade name is mentioned. Each trademark, trade name or service mark of any other company appearing in this information statement is, to Aptevo’s knowledge, owned by such other company.

 

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

 

 

 

 

 

 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following table sets forth summary historical financial information for the periods indicated below. The summary balance sheet data as of March 31, 2016 and the summary statement of operations data for the three months ended March 31, 2016 and 2015 have been derived from the unaudited condensed combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., which are included elsewhere in the information statement. The summary balance sheet data as of December 31, 2015 and 2014 and the summary statement of operations data for the years ended December 31, 2015, 2014 and 2013 have been derived from the audited combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., which are included elsewhere in the information statement.

The combined financial statements have been prepared on a “carve-out” basis for the purpose of presenting the Biosciences Business of Emergent BioSolutions Inc. financial position, results of operations and cash flows. Aptevo did not operate as a standalone entity in the past and accordingly the selected financial data presented herein is not necessarily indicative of Aptevo’s future performance and does not reflect what Aptevo’s performance would have been had Aptevo operated as an independent publicly-traded company during the periods presented.

The unaudited pro forma combined statement of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 have been prepared as if the separation had occurred on January 1, 2015. The unaudited pro forma combined balance sheet as of March 31, 2016 has been prepared as if the separation had occurred on March 31, 2016. The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available. The unaudited pro forma financial statements are for illustrative and informational purposes only and are not intended to represent, or be indicative of, what Aptevo’s financial position or performance would have been had the separation occurred on the dates indicated, nor does it project the financial position or performance at any future date or period.

The summary financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the “Unaudited Pro Forma Combined Financial Information”, and the audited and unaudited combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., and corresponding notes included elsewhere in this information statement.

 

 

 

 

 

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RISK FACTORS 

You should carefully consider the following risks and other information in this information statement in evaluating Aptevo and Aptevo’s common stock. Any of the following risks could materially and adversely affect Aptevo’s results of operations, financial condition or financial prospects. The risk factors generally have been separated into three groups: risks related to Aptevo’s business, risks related to the separation and risks related to Aptevo’s common stock.

RISKS RELATED TO APTEVO’S BUSINESS

Operating Risks

We have a history of losses and may not be profitable in the future.

Our historical combined financial data was carved out from the financial information of Emergent and shows that had we been a standalone company, we would have had a history of losses, and we may be unable to achieve or sustain profitability going forward.

For the quarter ended March 31, 2016, we incurred a net loss of $12.9 million and had an accumulated deficit of $244.9 million as of March 31, 2016. For the years ended December 31, 2015, 2014 and 2013, we incurred a net loss of $59.3 million, $51.1 million and $53.3 million, respectively.

For the quarter ended March 31, 2016, net cash used in our operating activities was $14.1 million. For the years ended December 31, 2015, 2014 and 2013, net cash used in our operating activities was $48.8 million, $47.0 million and $51.4 million, respectively. If we cannot achieve or sustain profitability or generate positive cash from operating activities, our business operations may be adversely impacted and the trading value of our common stock may decline.

We will require significant additional funding and may be unable to raise capital when needed or on acceptable terms, which would harm our ability to grow our business, results of operations and financial condition.

In accordance with the separation agreement, Emergent has committed to provide us with a total of approximately $65 million in cash funding. Emergent will provide us with a cash contribution of $45 million prior to or upon the completion of the separation to be used to fund our operations. Within six to 12 months following the distribution, it is expected that Emergent will transfer to us an additional $20 million in cash pursuant to a non-negotiable, unsecured promissory note that Emergent will issue to us prior to the distribution. Emergent’s ability to satisfy its obligations under the promissory note will be subject to, among other things, Emergent’s capital availability and cash flow following the distribution. As a result, there can be no assurance that we will receive all or any portion of the $20 million contemplated by the promissory note. For further discussion of this funding arrangement, see “Certain Relationships and Related Party Transactions—Funding Arrangement.” In addition to the anticipated cash transfers from Emergent in connection with the separation, in the future we will require significant additional funding to grow our business, including to develop additional products, support commercial marketing activities or otherwise provide additional financial flexibility. To enhance long-term financial flexibility, Aptevo is evaluating entering into a credit facility or other debt financing arrangement for up to $40 million with one or more financial institutions that would be entered into in connection with the completion of the spin-off. There can be no assurance that any such credit facility or other debt financing arrangement will be obtained on favorable terms or at all.

Following the separation, we expect to have approximately $45 million of cash and cash equivalents. Our future capital requirements will depend on many factors, including, among others:

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If our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through bank loans, public or private equity or debt offerings or collaboration and licensing arrangements. Public or bank debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities or declaring dividends. If we raise funds by issuing equity securities, our stockholders may experience dilution. If we raise funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms that may not be favorable to us.

Furthermore, to preserve the tax-free treatment to Emergent and its stockholders of the distribution, together with certain related transactions, we will be restricted, under the tax matters agreement that we will enter into with Emergent, from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes, including restrictions on equity capital market transactions, as discussed in greater detail in the risk factor below entitled “We may not be able to engage in certain corporate transactions after the separation” and the section entitled “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

Current economic conditions may make it difficult to obtain financing on attractive terms, or at all. If financing is unavailable or lost, our business, results of operations, financial condition and financial prospects would be adversely affected and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.

Our business depends on the continued success of our commercial product portfolio, consisting of WinRho

SDF, HepaGam B, VARIZIG and IXINITY.

Our ability to maintain and grow revenues depends significantly on the success of our marketed products, and critical factors in such success include the continued acceptance by the medical community and the future market demand and medical need for our marketed products. If we are unable to continue to maintain and grow revenues from product sales, our future operating results and financial condition could be adversely affected.

Our commercial portfolio consists of four revenue-generating products, consisting of WinRho SDF, HepaGam B, VARIZIG and IXINITY. We expect revenues from our product sales to continue to account for a significant portion of our revenue following the separation. The commercial success of our marketed products depends upon:

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The failure to maintain or increase revenue from sales of our products could have a material adverse effect on our business, financial condition, results of operations and growth prospects. We may choose to increase the price of our products, and these price adjustments may negatively affect our sales volumes. In addition, our product sales may fluctuate significantly from quarter to quarter, depending on the number of patients receiving treatment, the availability of supply to meet the demand for the product, the dosing requirements of treated patients and other factors. If sales of our commercial products were to decline, we could be required to make an allowance for excess or obsolete inventory, increase our provision for product returns, or we could incur other costs related to operating our business, each of which could negatively impact our results of operations and our financial condition.

Commercialization Risks

Our ability to grow revenues and execute on our long-term strategy depends heavily on our ability to discover, develop, and obtain marketing approval for additional products or product candidates.

In order for us to achieve our long-term business objectives, we will need to successfully discover and/or develop and commercialize additional products or product candidates. Although we have made, and expect to continue to make, significant investments in research and development, we have had only a limited number of our internally-discovered product candidates reach the clinical development stage. Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk and a high rate of failure. The failure by us to successfully discover and/or develop, obtain marketing approval for and commercialize additional products and product candidates would likely have a material adverse effect on our ability to grow revenues and improve our financial condition.

We may not be successful in our efforts to use and further develop our ADAPTIR platform to expand our pipeline of product candidates.

A key element of our strategy is to expand our product pipeline of immuno-therapeutics based on our ADAPTIR platform technology. We plan to select and create redirected T-cell cytotoxicity, or RTCC, candidates for early development, potentially with other collaborative partners. We expect to continue to develop the platform to address unmet medical needs through directed cytokine delivery via bispecifics in areas including oncology, and multispecific molecules in oncology, autoimmune disease and other therapeutic areas. Our goal is to leverage this technology to seek targeted investment in bispecific ADAPTIR therapeutics. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates based on our ADAPTIR platform technology, our ability to obtain product revenues in future periods may be adversely affected, which likely would result in harm to our financial position and our financial prospects and adversely affect our stock price.

We face substantial competition, which may result in others developing or commercializing products before or more successfully than we do.

The development and commercialization of new biotechnology products is highly competitive and subject to rapid technological advances. We may face future competition with respect to our products, our current product candidates and any product candidates we may seek to develop or commercialize in the future obtained from other companies and governments, universities and other non-profit research organizations. Our competitors may develop products that are safer, more effective, more convenient or less costly than any products that we may develop or market, or may obtain marketing approval for their products from the U.S. Food and Drug Administration, or the FDA, or equivalent foreign regulatory bodies more rapidly than we may obtain approval for our products. Our

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competitors may devote greater resources to market or sell their products, adapt more quickly to new technologies, scientific advances or patient preferences and needs, initiate or withstand substantial price competition more successfully than we can, or more effectively negotiate third-party licensing and collaborative arrangements. Many of our competitors are substantially larger than we are and have substantially greater research and development capabilities and experience, and greater manufacturing, marketing and financial resources, than we do. Smaller or earlier stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

We believe that our most significant competitors in the hematology/oncology, inflammation and transplantation markets include: AbbVie Inc., Affirmed N.V., Amgen Inc., Baxter International Inc., Bayer AG, Biogen Idec Inc., Boehringer Ingelheim GmbH, CSL Behring, a subsidiary of CSL Limited, Genentech Inc. (a subsidiary of F. Hoffmann-La Roche Ltd.), Gilead Sciences, Inc., GlaxoSmithKline plc, Grifols USA LLC, Johnson & Johnson, Macrogenics, Inc., Novartis International AG, Pfizer Inc., Takeda Pharmaceuticals U.S.A., Inc., Xencor, Inc. and Zymeworks Biopharmaceuticals, Inc. We compete, in the case of our approved and marketed products, and expect to compete, in the cases of our products in development, on the basis of product efficacy, safety, ease of administration, price and economic value compared to drugs used in current practice or currently being developed. If we are not successful in demonstrating these attributes, physicians and other key healthcare decision makers may choose other products over our products, switch from our products to new products or choose to use our products only in limited circumstances, which could adversely affect our business, financial condition and results of operations. See “Business—Competition” for a more detailed description of the competition for our other products and products in development.

Any reduction in demand for our products as a result of a competing product could adversely affect our results of operations and lead to loss of market share for our products. These competitive pressures could adversely affect our business and operating results.

In addition, many of our competitors are able to deploy more personnel to market and sell their products than we do. We currently have a relatively small number of sales representatives compared with the number of sales representatives of most other biotechnology companies with marketed products. Each of our sales representatives is responsible for a territory of significant size. The continued growth of our current products and the launch of any future products may require expansion of our sales force and sales support organization internationally, and we may need to commit significant additional funds, management and other resources to the growth of our sales organization. We may not be able to achieve any necessary growth in a timely or cost- effective manner or realize a positive return on our investment, and we may not have the financial resources to achieve the necessary growth in a timely manner or at all. We also have to compete with other biotechnology and life sciences companies to recruit, hire, train and retain sales and marketing personnel, and turnover in our sales force and marketing personnel could negatively affect sales of our products. If our specialty sales force and sales organization are not appropriately-sized to adequately promote any current or potential future products, the commercial potential of our current products and any future products may be diminished. We compete with a significant number of pharmaceutical and life sciences companies with extensive sales, marketing and promotional experience in the hematology/oncology markets, and our failure to compete effectively in this area could negatively affect our sales of our commercial products.

Our products and product candidates may also compete in the future with new products currently under development by others. Any products that we develop are likely to be in a highly competitive market, and many of our competitors may succeed in developing products before we do or in developing products that may render our products obsolete or noncompetitive.

Our Biologic Products may face risks of competition from biosimilar manufacturers.

Competition for WinRho SDF, HepaGam B, VARIZIG and IXINITY, or our Biologic Products, may be affected by follow-on biologics, or biosimilars, in the United States and other jurisdictions. Biologics are medical products made from a variety of natural sources (human, animal or microorganism) intended to prevent, diagnose or treat diseases and medical conditions.

In the U.S., biosimilars are biologics that are highly similar to licensed reference biological products, notwithstanding minor differences in clinically inactive components, and for which there are no clinically

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meaningful differences between the biosimilar and the reference product in terms of safety, purity and potency. Regulatory and legislative activity in the United States and other countries may make it easier for our competitors to manufacture and sell biosimilars of our Biologic Products, which might affect our results of operations or commercial viability of our Biologic Products. Under the Biologics Price Competition and Innovation Act of 2010, the FDA cannot approve an application for a biosimilar until the 12-year exclusivity period for the reference product has expired. Thus, if a competitor were to seek regulatory approval for a biosimilar product citing IXINITY as the reference product, such approval could not be granted until April 2027.

Regulators in the European Union review biosimilar products using a similar regulatory process, although the European Medicines Agency, or EMA, has expressly excluded blood or plasma-derived products from the biosimilar process for a period of time. WinRho SDF, HepaGam B, VARIZIG and IXINITY have not received marketing authorization by the EMA. HepaGam B, VARIZIG and IXINITY are not sold in Europe. WinRho SDF is sold in Portugal, with insignificant revenues to date, but the approval is a country-specific approval. Even if WinRho SDF, HepaGam B or VARIZIG receive EMA marketing authorization, it will not be possible for a follow-on product to seek approval using the EMA biosimilar process due to the exclusion of blood or plasma- derived products from the process.

Similarly, if a competitor were to seek regulatory approval for a biosimilar product citing HepaGam B or VARIZIG as the reference product, such approval could not be granted until January 2018 and December 2024, respectively. A biosimilar application citing WinRho SDF as the reference product could be approved at any time. If a biosimilar version of one of our Biologic Products were approved, it could have a material adverse effect on the sales and gross profits of the affected Biologic Product and could adversely affect our business and operating results.

The commercial success of our products will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community.

The success of our products, including our hyperimmune specialty products, will depend upon, among other things, their acceptance by physicians, patients, third-party payors and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If any of our products do not achieve and maintain an adequate level of acceptance, we may not generate material revenues from sales of these products. The degree of market acceptance of our products will depend on a number of factors, including:

If our products and product candidates do not gain or maintain market acceptance, or do not become widely accepted, by physicians, patients, third-party payors and other members of the medical community, our business, financial condition and operating results could be materially and adversely affected.

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Changes in health care systems and payor reimbursement policies could result in a decline in our potential sales and a reduction in our expected revenue from our products.

The revenues and profitability of biotechnology companies like ours may be affected by the continuing efforts of government payors, including Medicare and Medicaid, and other third-party payors to contain or reduce the costs of health care through various means. For example, in certain foreign markets, the pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control. Recent U.S. legislation, rules and regulations instituted significant changes to the U.S. healthcare system that could have a material adverse effect on our business, financial condition and results of operations. The trend toward managed health care in the United States, as well as the implementation of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act), collectively referred to as the Affordable Care Act, and the concurrent growth of organizations such as managed care organizations, accountable care organizations and integrated delivery networks, may result in increased pricing pressures for pharmaceutical products, including any products that may be offered by us in the future. Cost-cutting measures that health care providers are instituting, and the implementation of health care reform, could adversely affect our ability to sell any drug products that are successfully developed by us. We cannot predict what effects, if any, this legislation might have on our company and our products as this legislation continues to be further implemented over the next few years, nor can we predict whether additional legislative or regulatory proposals may be adopted.

In the United States and internationally, sales of our products and our ability to generate revenues on such sales are dependent, in significant part, on the availability and level of reimbursement from third-party payors, including state and federal governments and private insurance plans. Insurers have implemented cost-cutting measures and other initiatives to enforce more stringent reimbursement standards and likely will continue to do so in the future. These measures include the establishment of more restrictive formularies and increases in the out-of-pocket obligations of patients for such products. Third-party payors are also increasingly challenging the prices charged for medical products and services. Third-party payors may limit access to biotechnology products through the use of prior authorizations and step therapy. Any reimbursement granted may not be maintained, or limits on reimbursement available from third parties, may reduce the demand for or negatively affect the price and potential profitability of those products. If these payors do not provide sufficient coverage and reimbursement for our marketed products or any future drug product we may market, these products may be too costly for general use, and physicians may prescribe them less frequently. Our ability to successfully commercialize our products and product candidates and the demand for our products depends, in part, on the extent to which reimbursement and access is available from such third-party payors.

In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. Various provisions of the Affordable Care Act increased the levels of rebates and discounts that we have to provide in connection with sales of such products that are paid for, or reimbursed by, certain state and federal government agencies and programs. It is possible that future legislation in the United States and other jurisdictions could be enacted, which could potentially impact the reimbursement rates for our products and also could further impact the levels of discounts and rebates we are required to pay to state and federal government entities.

Certain government pricing programs, including Medicare Part B, the Medicaid rebate program, the 340B/ PHS drug pricing program and Federal Supply Schedule, affect the revenues that we derive from WinRho SDF, HepaGam B, VARIZIG and IXINITY. Any future legislation or regulatory actions altering these programs or imposing new ones could have an adverse impact on our business. There have been, and we expect there will continue to be, a number of legislative and regulatory actions and proposals to control and reduce health care costs. These measures may, among other things: negatively impact the level of reimbursement for pharmaceutical products; require higher levels of cost-sharing by beneficiaries; change the discounts required to be provided to government payors and/or providers; extend government discounts to additional government programs and/or providers; or reduce the level of reimbursement for health care services and other non-drug items. Any such measures could indirectly affect demand for pharmaceutical products because they can cause payors and providers to apply heightened scrutiny and/or austerity actions to their entire operations, including pharmacy budgets.

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Our revenues also depend on the availability outside the United States of adequate pricing and reimbursement from third-party payors for our current and future drug products, if any.

Outside the United States, certain countries, including a number of EU Member States, set prices and reimbursement for pharmaceutical products, or medicinal products as they are commonly referred to in the European Union, with limited participation from the marketing authorization holders. We cannot be sure that these prices and reimbursement will be acceptable to us or our collaborative partners. If the regulatory authorities in these foreign jurisdictions set prices or reimbursement that are not commercially attractive for us or our collaborative partners, our revenues from sales by us or our collaborative partners, and the potential profitability of our drug products, in those countries would be negatively affected. An increasing number of countries are taking initiatives to attempt to reduce large budget deficits by focusing cost-cutting efforts on pharmaceuticals

for their state-run health care systems. These international price control efforts have impacted all regions of the world, but have been most drastic in the European Union.

If we are not able to convince hospitals and managed care organizations to include our products on their approved formulary lists, our revenues may not meet expectations and our business, results of operations and financial condition may be adversely affected.

Hospitals and managed care organizations establish formularies, which are lists of drugs approved for use in the hospital or under a managed care plan. If a drug is not included on the formulary, the ability of our engagement partners and engagement managers to promote and sell the drug may be limited or denied. If we fail to secure and maintain formulary inclusion for our products on favorable terms or are significantly delayed in doing so, we may have difficulty achieving market acceptance of our products and our business, results of operations and financial condition could be materially adversely affected.

If we are unable to negotiate and maintain satisfactory arrangements with group purchasing organizations with respect to the purchase of our products, our sales, results of operations and financial condition could be adversely affected.

Our ability to sell our products, including WinRho SDF, HepaGam B and IXINITY, to hospitals in the United States depends in part on our relationships with group purchasing organizations, or GPOs. Many existing and potential customers for our products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors. These negotiated prices are then made available to a GPO’s affiliated hospitals and other members. If we are not one of the providers selected by a GPO, affiliated hospitals and other members may be less likely to purchase our products, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be precluded from making sales to members of the GPO for the duration of the contractual arrangement. Our failure to renew contracts with GPOs may cause us to lose market share and could have a material adverse effect on our sales, financial condition and results of operations. We cannot assure you that we will be able to renew these contracts on the current or substantially similar terms. If we are unable to

keep our relationships and develop new relationships with GPOs, our competitive position may suffer.

We rely on third parties to distribute some of our products and those third parties may not perform.

A portion of our revenues from product sales is derived from sales through exclusive distributors in Canada and international markets. For example, in Canada, only two distributors have rights to our WinRho SDF, HepaGam B and VARIZIG products. As a result, we rely on the sales and marketing strength of these distributors and the distribution channels through which they operate for a portion of our revenues. We may not be able to retain these distribution relationships indefinitely and these distributors may not adequately support the sales, marketing and distribution efforts of our products in these markets. If third parties do not successfully carry out their contractual duties in maximizing the commercial potential of our products, or if there is a delay or interruption in the distribution of our products, it could negatively impact our revenues from product sales.

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Following the separation, the loss of any of our sole source manufacturers, or delays or problems in the manufacture of our products or product candidates, could result in product shortages, leading to lost revenue, and otherwise materially and adversely affect our business, financial condition, results of operations and growth prospects.

We will not have manufacturing capabilities following the separation and do not plan to develop such capacity in the foreseeable future. We will depend on a limited number of sole source third-party manufacturers, including Emergent, for each of our products and product candidates. Accordingly, our ability to develop and deliver products in a timely and competitive manner will depend on our third-party manufacturers being able to continue to meet our ongoing commercial and clinical trial needs and perform their contractual obligations. We currently have a limited ability to control the manufacturing process or costs related to the manufacture of our products. Increases in the prices we pay our manufacturers, interruptions in the supply of raw materials or our products themselves or lapses in quality could adversely impact our margins, profitability, cash flows and prospects. We rely on our third-party manufacturers to maintain the facilities at which they manufacture our products or product candidates in compliance with all FDA and other applicable regulatory requirements. If these manufacturers fail to maintain compliance with FDA or other applicable regulatory requirements, they could be ordered to cease manufacturing, which could have a material adverse effect on our revenues and operating

results.

If, for any reason, Emergent or our other manufacturers do not continue to supply us with our products or product candidates in a timely fashion and in compliance with applicable quality and regulatory requirements, or otherwise fail or refuse to comply with their obligations to us under our manufacturing arrangements, we may not have adequate remedies for any breach of contract, and their failure to supply us could result in a shortage of our products or product candidates, which could lead to lost revenue and otherwise adversely affect our business, financial condition, results of operations and growth prospects. In addition, if any of our manufacturers fails or refuses to supply us for any reason, we may be forced to consider entering into additional manufacturing arrangements with other third-party manufacturers. In each case, we will incur significant costs and time in obtaining the regulatory approvals for these third-party facilities and in taking the necessary steps to prepare these third parties for the manufacture of our products. Because of contractual restraints and the lead-time necessary to obtain FDA approval of a new manufacturer, replacement of any of these manufacturers may be expensive and time consuming and may cause interruptions in our supply of these products to our customers, and we may be unable to obtain alternative manufacturing or supply on commercially reasonable terms on a timely basis or at all.

For example, CMC ICOS Biologics, Inc., or CMC, is the exclusive manufacturer of bulk drug substance for our IXINITY product. During 2015, we ordered nine manufacturing lots of bulk drug substance from CMC and only one of those lots was successfully manufactured and released in 2015. We continue to work with CMC to resolve the manufacturing delays, although to date in 2016 no lots of bulk drug substance have been successfully manufactured and released. Additionally, Patheon UK Limited, through an affiliate, is currently the sole source fill-finish service manufacturer for our IXINITY product. The release of drug product by Patheon may be impacted by several factors, including Patheon requiring approval from its affiliate’s foreign regulatory authority of recent changes to its facility. If current efforts to proceed with the manufacturing and release of bulk drug substance and filled product are not successful, the resulting lack of supply of bulk drug substance or filled product could lead to a projected supply shortage of IXINITY requiring notification to the FDA. This inability to supply IXINITY would adversely affect its sales, market position and viability.

Following the separation, Emergent will continue to own the manufacturing know-how necessary for the manufacture of WinRho SDF, HepaGam B and VARIZIG. If our rights to use this manufacturing know-how are terminated, we will not be able to manufacture these products, which would lead to lost revenue and otherwise materially and adversely affect our business, financial condition, results of operations and growth prospects.

Emergent will continue to own its human hyperimmune platform manufacturing know-how, which is necessary for the manufacture of WinRho SDF, HepaGam B and VARIZIG. At or prior to the separation, we expect to enter into a manufacturing services agreement with Emergent with respect to the manufacturing of these products. We also expect to enter into a product license agreement with Emergent pursuant to which Emergent will grant to Aptevo an exclusive royalty-free, worldwide license, under certain licensed intellectual property rights, to research, develop, make, have made, use, sell, offer to sell and import WinRho SDF, HepaGam B, and VARIZIG. Under the

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product license agreement, we will only be permitted to exercise rights with respect to Emergent’s human hyperimmune platform manufacturing know-how through a third-party contract manufacturer, and then only if the manufacturer is bound to protect the manufacturing know-how and is either approved by Emergent (in Emergent’s sole and absolute discretion) or there has been a manufacturing failure under the manufacturing services agreement.

Emergent will have the right to terminate the product license agreement upon breach by us of any of its terms, including our confidentiality obligations and other obligations, if such breach is not cured within a specified period of time or is uncurable. If the product license agreement is terminated, we will no longer be able to research, develop, make, have made, use, sell, offer to sell and import WinRho SDF, HepaGam B and VARIZIG, which would lead to lost revenue and otherwise materially and adversely affect our business, financial condition, results of operations and growth prospects.

Manufacturing biologic products, especially in large quantities, is complex and time consuming. Delays or problems in the manufacture of our products or product candidates could materially and adversely affect our business, financial condition, results of operations and growth prospects.

WinRho SDF, HepaGam B, VARIZIG and IXINITY and all of our current product candidates are biologics. The products must be made consistently and in compliance with a clearly defined manufacturing process.

Problems may arise during manufacturing for a variety of reasons, including problems with raw materials, equipment malfunction or replacement and failure to follow specific protocols and procedures. In addition, slight deviations anywhere in the manufacturing process, including obtaining materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation and contamination including from, among other things, particulates, filtration, filling, labeling, packaging, storage and shipping, and quality control testing, may result in lot failures or manufacturing shut-down, delays in the release of lots, product recalls, spoilage or regulatory action.

If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements, the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign marketing approvals for our product candidates.

Following the separation, we will rely on third parties to manufacture all clinical trial materials for our product candidates, and we will rely on third parties to manufacture commercial supplies, if any such product candidates are ultimately approved for commercial sale. Our product candidates, including MOR209/ES414, ES210, ES425, otlertuzumab and 5E3, will not be approved for marketing by the FDA or other foreign regulatory authorities unless the FDA or their foreign equivalents also approve the facilities used by our third-party manufacturers to produce them for commercialization. If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements, the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign marketing approvals for our product candidates. In order to successfully develop and commercialize our product candidates in a timely manner, we and our third-party manufacturers must be able to develop and execute on manufacturing processes, and reach agreement on contract terms, for each candidate that will:

We and our third-party manufacturers may not be able to meet these manufacturing process requirements for any of our current product candidates, including MOR209/ES414, ES210, ES425, otlertuzumab and 5E3, all of which have complex manufacturing processes, which make meeting these requirements even more challenging. If we are unable to develop manufacturing processes for our clinical product candidates that satisfy these

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requirements, we will not be able to supply sufficient quantities of test material to conduct our clinical trials in a timely or cost effective manner, and as a result, our development programs will be delayed, our financial performance will be adversely impacted and we will be unable to meet our long-term goals.

If Emergent or other third parties on whom we rely to manufacture and support the development and commercialization of our products do not fulfill their obligations or we are unable to establish or maintain such arrangements, the development and commercialization of our products may be terminated or delayed, and the costs of development and commercialization may increase.

Our development and commercialization strategy involves entering into arrangements with corporate and academic collaborators, contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage or conduct our clinical trials, manufacture our products and market and sell our products outside of the United States. We do not have the expertise or the resources to conduct all of these activities for all products and product candidates on our own and, as a result, are particularly dependent on third parties in many areas.

We may not be able to maintain our existing arrangements with respect to the commercialization or manufacture of our products or establish and maintain arrangements to develop, manufacture and commercialize our products in development on terms that are acceptable to us. Any current or future arrangements for development and commercialization may not be successful. If we are not able to establish or maintain agreements relating to our products or our products in development, our results of operations would be materially and adversely affected.

Third parties may not perform their contractual obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products are not within our control. Our collaborative partners may develop, manufacture or commercialize, either independently or with others, products and services that are similar to or competitive with the products that are the subject of the collaboration with us. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Our collaborative partners may reevaluate their priorities from time to time, including following mergers and consolidations, and change the focus of their development, manufacturing or commercialization efforts. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive.

If any third-party that manufactures or supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to commit sufficient resources to our collaboration or conduct its activities in a timely manner, or fails to comply with regulatory requirements, such breach, termination or failure could:

If we are unable to successfully develop our business infrastructure and operations, our ability to generate future product revenue will be adversely affected.

Our ability to support the sales and marketing of our products in the United States and globally will depend on our ability to properly scale our internal organization and infrastructure to accommodate the development and, upon approval, commercialization of our products and products in development. To manage our existing and planned future growth and the increasing breadth and complexity of our activities, we need to properly invest in personnel, infrastructure, information management systems and other operational resources. Developing our business infrastructure and operations may be more difficult, more expensive or take longer than we anticipate. We may also need to revise our strategy for developing the proper infrastructure and operations periodically.

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Future development of our business infrastructure and operations could strain our operational, human and financial resources. In order to manage the development of our business infrastructure and global operations, we must:

 

 

 

 

If we do not take these actions and are not able to manage our business, then our operations may be less successful than anticipated.

We are subject to a number of risks and uncertainties associated with our international activities and operations and may not be successful in our efforts to expand internationally.

We currently have limited operations outside of the United States and Canada. However, we have manufacturing, collaboration, clinical trial and other relationships outside the United States, and our products are marketed internationally through collaborations. We may seek to grow our international operations significantly over the next several years. Our future results of operations will depend in part on our ability to grow and ultimately maintain our product sales in foreign markets, particularly in Europe. Our foreign operations subject us to additional risks and uncertainties, particularly because we have limited experience in marketing, servicing and distributing our products or otherwise operating our business outside of the United States and Canada. These risks and uncertainties include:

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Our foreign operations could also be adversely affected by export license requirements, the imposition of governmental controls, political and economic instability, trade restrictions, changes in tariffs and difficulties in staffing and managing foreign operations. These and other risks associated with our international operations may materially adversely affect our business and results of operations.

Regulatory and Compliance Risks

Our long term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize our product candidates and, if we are not successful, our business and operating results may suffer.

Our product candidates and the activities associated with their development, including testing, manufacture, recordkeeping, storage and approval, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Generally, failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have limited resources for use in preparing, filing and supporting the applications necessary to gain regulatory approvals and expect to rely on third-party contract research organizations and consultants to assist us in this process.

The FDA, the European Commission, the EMA, the competent authorities of the EU Member States and other comparable regulatory agencies in foreign countries impose substantial and rigorous requirements for the development, production, marketing authorization and commercial introduction of drug products. These requirements include pre-clinical, laboratory and clinical testing procedures, sampling activities, clinical trials and other costly and time-consuming procedures. In addition, regulation is not static, and regulatory authorities, including the FDA, the European Commission, the EMA and the competent authorities of the EU Member States, evolve in their staff interpretations and practices and may impose more stringent or different requirements than currently in effect, which may adversely affect our planned and ongoing drug development and/or our sales and marketing efforts.

In the United States, to obtain approval from the FDA to market any of our future biologic products, we will be required to submit a biologics license application, or BLA, to the FDA. Ordinarily, the FDA requires a sponsor to support a BLA with substantial evidence of the product’s safety, purity and potency in treating the targeted indication based on data derived from adequate and well-controlled clinical trials, including Phase III safety and efficacy trials conducted in patients with the disease or condition being targeted.

The process of obtaining these regulatory approvals is expensive, often takes many years if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidate involved. Changes in the regulatory approval process during the development period, changes in or the enactment of additional statutes or regulations, or changes in the regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Moreover, recent events, including complications experienced by patients taking FDA-approved drugs, have raised questions about the safety of marketed drugs and may result in new legislation by the U.S. Congress or foreign legislatures and increased caution by the FDA and comparable foreign regulatory authorities in reviewing applications for marketing approval.

The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient to support approval and require additional pre-clinical, clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.

We have a pipeline of clinical and pre-clinical stage product candidates, including:

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Developing and obtaining regulatory approval for product candidates is a lengthy process, often taking a number of years, is uncertain and is expensive. All of the product candidates that we are developing, or may develop in the future, require research and development, pre-clinical studies, nonclinical testing and clinical trials prior to seeking regulatory approval and commencing commercial sales. In addition, we may need to address a number of technological challenges in order to complete development of our product candidates. As a result, the development of product candidates may take longer than anticipated or not be successful at all.

Generally, no product can receive FDA approval, marketing authorization from the European Commission or the competent authorities of the EU Member States, or approval from comparable regulatory agencies in foreign countries unless data generated in human clinical trials demonstrates both safety and efficacy for each target indication in accordance with such authority’s standards.

The large majority of product candidates that begin human clinical trials fail to demonstrate the required safety and efficacy characteristics necessary for marketing approval. Failure to demonstrate the safety and efficacy of any of our product candidates for each target indication in clinical trials would prevent us from obtaining required approvals from regulatory authorities, which would prevent us from commercializing those product candidates. Negative or inconclusive results from the clinical trials or adverse medical events during the trials could lead to requirements that trials be repeated or extended, or that additional trials be conducted, any of which may not be clinically feasible or financially practicable, that the conduct of trials be suspended, or that a program be terminated.

Any regulatory approval we ultimately obtain may limit the indicated uses for the product or subject the product to restrictions or post-approval commitments that render the product commercially non-viable. Securing regulatory approval requires the submission of extensive non-clinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information to the regulatory authorities for each therapeutic indication to establish the product’s safety and efficacy. If we are unable to submit the necessary data and information, for example, because the results of clinical trials are not favorable, or if the applicable regulatory authority delays reviewing or does not approve our applications, we will be unable to obtain regulatory approval.

Delays in obtaining or failure to obtain regulatory approvals may:

Certain of our products in development have experienced regulatory and/or clinical setbacks in the past. For example, in December 2015, after a joint review of data from the Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys concluded that the dosing regimen and administration required adjustment. Patients receiving weekly doses of MOR209/ES414 developed antibodies against the drug; this is called anti-drug antibodies, or ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we

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observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There is no guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA. We plan to continue the current clinical trial under an amended protocol with recruitment expected to start around mid-2016. As a result of the required dosing regimen change and the impact to the overall development timeline and technical risk, our co-development agreement with MorphoSys was restructured. Under the terms of the restructured agreement, MorphoSys’ cost sharing in the years 2016 to 2018 was reduced and future milestone payments payable by MorphoSys to us were reduced to a total of up to US $74 million. As a result of the required change in dosing regimen for MOR209/ES414, the lead RTCC candidate, the termination provisions under the MorphoSys collaboration agreement were amended to give MorphoSys a one- time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial. The requirement for further adjustments to the dosing regimen or other parts of the program could delay our development timeline or delay or prevent our ability to receive regulatory approval for MOR209/ES414.

The procedures to obtain marketing approvals vary among countries and can involve additional clinical trials or other pre-filing requirements. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all the risks associated with obtaining FDA approval, or different or additional risks. Regulatory agencies may have varying interpretations of the same data, and approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Accordingly, approval by the FDA does not ensure approval by the regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by the FDA or regulatory authorities in other foreign countries. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products and products in development in any market on a timely basis, if at all.

Biotechnology company stock prices have declined significantly in certain instances where companies have failed to obtain FDA or foreign regulatory authority approval of a product candidate or if the timing of FDA or foreign regulatory authority approval is delayed. If the FDA’s or any foreign regulatory authority’s response to any application for approval is delayed or not favorable for any of our product candidates, our stock price could decline significantly.

Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, and we may incur significant liability if it is determined that we are promoting the “off-label” use of any of our products.

Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. For example, the FDA-approved label for IXINITY is not approved for use in patients younger than 12 years old. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we are not able to obtain FDA approval for any desired future indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our business may be adversely affected.

While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw an approved product from the market, require a recall or institute fines, which could result in the disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our business.

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Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading and non-promotional scientific exchange concerning their products. We engage in medical education activities and communicate with investigators and potential investigators regarding our clinical trials. If the FDA or another regulatory or enforcement authority determines that our communications regarding our marketed products are not in compliance with the relevant regulatory requirements and that we have improperly promoted off-label uses, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

Even after regulatory approval is received, if we, or third parties on whom we rely to manufacture or distribute our products or product candidates, fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, they could be subject to restrictions, penalties or withdrawal from the market.

Any drug, biologic or medical device product for which we receive FDA approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continuing regulation by the FDA, including, among other things, record keeping requirements, reporting of adverse experiences, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, current good manufacturing practices, or cGMP, and restrictions on advertising and promotion. Adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s distribution or use and, potentially, withdrawal or suspension of the product from the market. In addition, various state laws require that companies that manufacture and/or distribute drug products within the state obtain and maintain a manufacturer or distributor license, as appropriate. Because of the breadth of these laws, it is possible that some of our business activities, or those of our third-party manufacturers and distributors, could be subject to challenge under one or more of such laws.

In addition, the FDA has post-approval authority to require post-approval clinical trials and/or safety labeling changes if warranted by the appearance of new safety information. In certain circumstances, the FDA may impose a Risk Evaluation and Mitigation Strategy, or REMS, after a product has been approved. Facilities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA for compliance with cGMP and other laws. The FDA also closely monitors advertising and promotional materials we may disseminate for our products for compliance with restrictions on off-label promotion and other laws. We may not promote our products for conditions of use that are not included in the approved package inserts for our products. Certain additional restrictions on advertising and promotion exist for products that have so-called “black box warnings” in their approved package inserts, such as WinRho SDF.

Failure by Emergent or our other third-party manufacturers to comply with regulatory requirements could adversely affect their ability to supply products or ingredients to us. All facilities and manufacturing techniques used for the manufacture of pharmaceutical products must be operated in conformity with the FDA’s current cGMP requirements. The FDA enforces its cGMP and other requirements through periodic unannounced inspections of manufacturing facilities. If, in connection with any future inspection, the FDA finds that any of our third-party manufacturers is not in substantial compliance with cGMP requirements, or if the FDA is not satisfied with the corrective actions such manufacturer may take, the FDA may undertake certain enforcement actions, including product seizure or withdrawal of the product from the market, imposition of restrictions on the marketing or manufacturing of a product and suspension or withdrawal of regulatory approvals or refusal to approve pending applications or supplements.

Similar actions may be taken against us should we fail to comply with regulatory requirements, or later discover previously unknown problems with our products. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. If we experience any of these post-approval events, our business, financial condition and operating results could be materially and adversely affected.

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If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a biotechnology company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare, Medicaid or other third-party payors for our products, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Moreover, recent health care reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes, so that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid.

Recently, several pharmaceutical and other healthcare companies have been prosecuted under the federal false claims laws for allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations.

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Further, there has been a recent trend in the increase of federal and state laws and regulations regarding financial arrangements with physicians. The Affordable Care Act imposes new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any ownership or investment interests held by physicians and their immediate family members during each calendar year, subject to federal implementation and enforcement policies.

In addition, certain states mandate that we comply with a state code of conduct, adopt a company code of conduct under state criteria, disclose marketing payments made to physicians, and/or report compliance information to the state authorities. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance and reporting requirements increase the possibility that a pharmaceutical company may violate one or more of the requirements. Any failure to comply with these reporting requirements could result in significant fines and penalties.

The risks of complying with these laws cannot be entirely eliminated. The risk of violation of such laws is also increased because many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly. If our past or present operations, or those of our distributors are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results. Similarly, if healthcare providers, distributors or other entities with whom we do business are found to be out of compliance with applicable laws and regulations, they may be subject to sanctions, which could also have a negative impact on us.

If we fail to comply with our obligations under U.S. governmental pricing programs, we could be required to reimburse government programs for underpayments and could pay penalties, sanctions and fines.

The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid rebate program will continue to increase our costs and the complexity of compliance and will be time- consuming. Changes to the definition of “average manufacturer price”, or AMP, and the Medicaid rebate amount under the Affordable Care Act and Centers for Medicare & Medicaid Services’, or CMS’s, issuance of final regulations implementing those changes also has affected and could further affect our 340B “ceiling price” calculations. Because we participate in the Medicaid rebate program, we are required to report “average sales price,” or ASP, information to CMS for certain categories of drugs that are paid for under Part B of the Medicare program, including WinRho SDF, HepaGam B, VARIZIG and IXINITY. Future statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for our products and the resulting Medicare payment rate, and could negatively impact our results of operations.

Pricing and rebate calculations vary among products and programs, involve complex calculations and are often subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and “best price” for the quarter. If we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Price recalculations also may affect the “ceiling price” at which we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B/PHS drug pricing program.

In addition to retroactive rebate liability and the potential for 340B program refunds, if we are found to have made a misrepresentation in the reporting of ASP, we are subject to civil monetary penalties in an amount of up to $10,000 for each such price misrepresentation and for each day in which such price misrepresentation was applied.

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If we are found to have knowingly submitted false AMP or “best price” information to the government, we may be liable for civil monetary penalties in the amount of $100,000 per item of false information. Any refusal of a request for information or knowing provision of false information in connection with an AMP survey verification also would subject us to $100,000 in civil monetary penalties. In addition, our failure to submit monthly/quarterly AMP or “best price” information on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that our submissions will not be found by CMS to be incomplete or incorrect.

In order for our products to be reimbursed by the primary federal governmental programs, we report certain pricing data to the U.S. federal government. Compliance with reporting and other requirements of these federal programs is a pre-condition to: (i) the availability of federal funds to pay for our products under Medicaid and Medicare Part B; and (ii) procurement of our products by the Department of Veterans Affairs, or DVA, and by covered entities under the 340B/PHS program. The pricing data reported are used as the basis for establishing Federal Supply Schedule, or FSS, and 340B/PHS program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical companies have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information to the government that resulted in increased payments made by these programs. The rules governing the calculation of certain reported prices are highly complex. Although we maintain and follow strict procedures to ensure the maximum possible integrity for our federal pricing calculations, the process for making the required calculations involves some subjective judgments and the risk of errors always exists, which creates the potential for exposure under the false claims laws. If we become subject to investigations or other inquiries concerning our compliance with price reporting laws and regulations, and our methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a material adverse effect on our business, financial condition and results of operations.

To be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs as well as to be purchased by certain federal agencies and certain federal grantees, we also must participate in the DVA FSS pricing program. To participate, we are required to enter into an FSS contract with the DVA, under which we must make our innovator “covered drugs” available to the “Big Four” federal agencies—the DVA, the U.S. Department of Defense, or the DoD, the Public Health Service (including the Indian Health Service), and the Coast Guard—at pricing that is capped pursuant to a statutory federal ceiling price, or FCP, formula set forth in Section 603 of the Veterans Health Care Act of 1992, or VHCA. The FCP is based on a weighted average wholesaler price known as the Non-Federal Average Manufacturer Price, or Non- FAMP, which manufacturers are required to report on a quarterly and annual basis to the DVA. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject us to penalties of $100,000 for each item of false information. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to disclose the error and refund the difference to the government. The failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

For further discussions regarding the most significant governmental reimbursement programs in the United

States relevant to our products, see “Business—Regulation.”

The failure to obtain or maintain regulatory approval in international jurisdictions could prevent us from marketing our products abroad and could limit the growth of our business.

We currently sell and intend to continue to sell our products outside the United States. To market our products in the European Union and many other foreign jurisdictions, we may need to obtain separate regulatory approvals

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and comply with numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by foreign regulatory authorities. The approval procedures in foreign jurisdictions can vary widely and can involve additional clinical trials and data review. We and our collaborative partners may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and therefore we may be unable to commercialize our products internationally. The failure to obtain these approvals could harm our business.

Our international operations increase our risk of exposure to potential claims of bribery and corruption.

As we expand our commercialization activities outside of the United States, we are subject to an increased risk of inadvertently conducting activities in a manner that violates the FCPA, the U.K. Bribery Act, Canada’s Corruption of Foreign Public Officials Act, or other similar foreign laws, which prohibit corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. In the course of establishing and expanding our commercial operations and seeking regulatory approvals outside of the United States, we will need to establish and expand business relationships with various third parties and will interact more frequently with foreign officials, including regulatory authorities and physicians employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA or similar foreign laws. If our business practices outside the United States are found to be in violation of the FCPA or similar foreign laws, we and our senior management may be subject to significant civil and criminal penalties, potential debarment from public procurement and reputational damage, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our operations, including our use of hazardous materials, chemicals, bacteria and viruses, require us to comply with regulatory requirements and expose us to significant potential liabilities.

Our operations involve the use of hazardous materials, including chemicals, and may produce dangerous waste products. Accordingly, we, along with the third parties that conduct clinical trials and manufacture our products and product candidates on our behalf, are subject to federal, state, local and foreign laws and regulations that govern the use, manufacture, distribution, storage, handling, exposure, disposal and recordkeeping with respect to these materials. We are also subject to a variety of environmental and occupational health and safety laws. Compliance with current or future laws and regulations can require significant costs and we could be subject to substantial fines and penalties in the event of noncompliance. In addition, the risk of contamination or injury from these materials cannot be completely eliminated. In such event, we could be held liable for substantial civil damages or costs associated with the cleanup of hazardous materials.

The U.S. federal budget sequestration process may have a significant impact on our business.

On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering mandatory reductions in federal spending by as much as $1.1 trillion from 2013 through 2021, referred to as sequestration. The Bipartisan Budget Act of 2013 and subsequent legislation provide billions in sequester relief, but also extends the 2% reduction in Medicare payments, discussed below through fiscal year 2025. Sequestration-related spending reductions may have a significant adverse impact on our business.

Sequestration spending reductions may adversely affect the FDA. While user fees can be used in the review of certain regulatory filings, including NDAs, it is possible that sequestration spending reductions will result in additional backlogs in the approval process that could adversely affect the timing of FDA review of our regulatory filings for our products and product candidates. Sequestration also includes a 2% reduction in Medicare payments, which could also have a significant negative impact on our business. These reductions impact payments to hospitals, physicians, and Medicare managed care and prescription drug plans, under Medicare Parts A, B and D, and the Medicare Advantage program. The significant magnitude of the sequestration payment reductions places additional financial pressures on Medicare providers, including hospitals with high inpatient Medicare volume, which could force these providers to take new measures to address the shortfall in previously-expected reimbursements. It is

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possible that these measures could result in heightened scrutiny and/or reduced purchasing of branded pharmaceuticals and any future drug product we may market.

Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

EU Member States, Switzerland and other countries have adopted data protection laws and regulations, which impose significant compliance obligations. For example, the EU Data Protection Directive, as implemented into national laws by the EU Member States, imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. Data protection authorities from the different EU Member States may interpret the EU Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the European Union, and guidance on implementation and compliance practices are often updated or otherwise revised. Our failure to comply with these laws could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results. If the currently proposed revised draft EU Data Protection Regulation is adopted in its current form it may also increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms ensuring compliance with the new EU data protection rules.

Public concern regarding the safety of drug products could result in the inclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional costs.

In light of widely publicized events concerning the safety risk of certain drug approved products, the FDA, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products and revisions to drug labeling that further limit use of the drug products and the establishment of risk management programs that may, for example, restrict distribution of drug products after approval. The Food and Drug Administration Amendments Act of 2007, or FDAAA, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the FDAAA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including certain currently approved drugs. The FDAAA also significantly expands the federal government’s clinical trial registry and results databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties. The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect to safety, which may make the FDA or other regulatory authorities more likely to require additional pre- clinical studies or clinical trials. If the FDA requires us to provide additional clinical or pre-clinical data for any of our product candidates, the indications for which this product candidate was approved may be limited or there may be specific warnings or limitations on dosing, and our efforts to commercialize our product candidates may be otherwise adversely impacted.

Product Development Risks

Our business depends on our success in developing and commercializing our product candidates. If we are unable to commercialize these product candidates, or experience significant delays or unanticipated costs in doing so, our business would be materially and adversely affected.

We have invested significant effort and financial resources in the development of our therapeutics and product candidates. In addition to our product sales, our ability to generate revenue is dependent on a number of factors, including the success of our development programs, the interest of commercial entities and non- governmental organizations and others in funding the development of certain of our product candidates, the ability to attract and establish external development partnerships and the commercial viability of our developed product candidates. The commercial success of our product candidates will depend on many factors, including accomplishing the following in an economical manner:

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If we are delayed or prevented from developing or commercializing a product candidate in a profitable manner, or if doing so requires us to incur significant unanticipated costs, our growth could be materially and adversely affected.

Clinical trials of product candidates are expensive and time-consuming, and their outcome is uncertain. We must invest substantial amounts of time and financial resources in these trials, which may not yield viable products.

Before obtaining regulatory approval for the sale of our product candidates, we and our collaborative partners, where applicable, must conduct extensive pre-clinical studies and clinical trials to establish proof of concept and demonstrate the safety and efficacy of our product candidates. Pre-clinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. An unexpected result in one or more of our clinical trials can occur at any stage of testing.

We may experience unforeseen events or issues during, or as a result of, pre-clinical testing or clinical trials. These issues and events, which could delay or prevent our ability to receive regulatory approval for a product candidate, include, among others:

For example, in December 2015, after a joint review of data from the Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys concluded that the dosing regimen and administration required adjustment.

As a result of the required dosing regimen change and the impact to the overall development timeline and technical risk, the co-development agreement with MorphoSys was restructured. As a result of the required change in dosing regimen for MOR209/ES414, the lead RTCC candidate, the termination provisions under the MorphoSys collaboration agreement were similarly amended in MorphoSys’ favor. Specifically, MorphoSys, at its sole discretion, has a one-time, no notice termination right exercisable at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the current, re-started Phase 1 trial. Patients receiving weekly doses of MOR209/ES414 developed ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There is no

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guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA. Further adverse or inconclusive clinical results could require additional adjustments to the dosing regimen or other parts of the program and could delay or prevent our ability to receive regulatory approval for MOR209/ES414.

In addition, product candidates that experience success in pre-clinical testing and early-stage clinical trials will not necessarily experience the same success in late-stage clinical trials, which are required for marketing approval. The FDA and other countries’ regulatory authorities will allow us to begin clinical trials under an IND, or similar document in other countries only if we demonstrate in our submission that the potential product candidate will not expose humans to unreasonable risks and that the compound has pharmacological activity that justifies clinical development. It takes significant time and expense to generate the requisite data to support an IND or similar document. In many cases, companies spend the time and resources only to discover that the data are not sufficient to support an IND or similar document and therefore are unable to enter human clinical trials.

Even if we are successful in advancing a product candidate into the clinical development stage, before obtaining regulatory and marketing approvals, we must demonstrate through extensive human clinical trials that the product candidate is safe and effective for its intended use. Human clinical trials must be carried out under protocols that are acceptable to regulatory authorities and to the independent committees responsible for the ethical review of clinical studies. There may be delays in preparing protocols or receiving approval for them that may delay the start or completion of the clinical trials. In addition, clinical practices vary globally, and there is a lack of harmonization among the guidance provided by various regulatory bodies of different regions and countries with respect to the data that is required to receive marketing approval, which makes designing global trials increasingly complex. In addition, any deficiency in the design, implementation or oversight of our development programs could cause us to incur significant additional costs, experience significant delays, prevent us from obtaining marketing approval for any product candidate or abandon development of certain product candidates, any of which could harm our business and cause our stock price to decline.

The FDA may designate a product as a fast track drug if it is intended for the treatment of a serious or life- threatening disease or condition and demonstrates the potential to address unmet medical needs for this disease or condition. Sponsors granted a fast track designation for a drug are granted more opportunities to interact with the FDA during the approval process and are eligible for FDA review of the application on a rolling basis, before the application has been completed. Receipt of Fast Track designation may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures, and Fast Track designation may be withdrawn by the FDA at any time. In addition, Fast Track designation does not guarantee the ability to take advantage of the expedited review procedures and does not increase the likelihood of receiving any regulatory approvals.

Serious adverse events, undesirable side effects or other unexpected properties of our product candidates may be identified that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing approval.

Serious adverse events or undesirable side effects caused by, or other unexpected properties of any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt our manufacturing and distribution operations and could result in a more restrictive label, the imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If any of our product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.

For example, as noted above, MOR209/ES414 is currently being tested in its first clinical trial in humans. Twelve patients have received the drug. One of the significant serious adverse events associated with the drug is infusion reactions. Infusion reactions are often associated with the infusion of a protein and are expected with this drug that activates T-cells. The events that have been reported with infusion of the drug include: fever, fatigue, hypertension, bronchospasm, chills and rigors. The severity of these reactions varied by patient and were managed medically and resolved. In addition we recently discovered that patients receiving weekly doses of our product

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candidate MOR209/ES414 developed ADA during use. This ADA, which was not associated with safety issues, developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. Undesirable side effects, such as this, or other unexpected adverse events or properties of any of our candidates, could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our other product candidates. If such an event occurs, a number of potentially significant negative consequences may result, including:

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenue from the sale of our products and harm our business and results of operations.

We depend on third parties to conduct our clinical and non-clinical trials. If these third parties do not perform as contractually required or as we expect, we may not be able to obtain regulatory approval for or commercialize our product candidates and, as a result, our business may suffer.

We do not have the ability to independently conduct the clinical and non-clinical trials required to obtain regulatory approval for our product candidates. We depend on third parties, such as independent clinical investigators, contract research organizations and other third-party service providers to conduct the clinical and non-clinical trials of our product candidates and expect to continue to do so. We rely heavily on these third parties for successful execution of our clinical and non-clinical trials, but we do not exercise day-to-day control over their activities. Our reliance on these service providers does not relieve us of our regulatory responsibilities, including ensuring that our trials are conducted in accordance with the FDA-approved good clinical practices, or GCPs, and the plan and protocols contained in the relevant regulatory application. In addition, these organizations may not complete these activities on our anticipated or desired timeframe. We also may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider, which may prove difficult, costly and result in a delay of our trials. Any delay in or inability to complete our trials could delay or prevent the development, approval and commercialization of our product candidates.

If we, contract research organizations or other third parties assisting us or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or its non-U.S. counterparts may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA or non-U.S. regulatory agencies will determine that any of our clinical trials comply with good clinical practices. In addition, our clinical trials must be conducted with product produced under GCPs and similar regulations outside of the United States. Our failure, or the failure of our product manufacturers, to comply with these regulations may require us to repeat or redesign clinical trials, which would increase our development costs and delay or impact the likelihood of regulatory approval.

If third parties do not carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols, including dosing requirements, or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates

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or succeed in our efforts to create approved line extensions for certain of our existing products or generate additional useful clinical data in support of these products.

In certain cases, government entities conduct studies of our product candidates, and we may seek to rely on these studies in applying for marketing approval for certain of our product candidates. These government entities have no obligation or commitment to us to conduct or complete any of these studies or clinical trials and may choose to discontinue these development efforts at any time. If we are unable to obtain any necessary third-party services on acceptable terms or if these service providers do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for our product candidates may be delayed or prevented.

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.

We continue to evaluate our business strategy and, as a result, may modify our strategy in the future. In this regard, we may, from time to time, focus our product development efforts on different product candidates or may delay or halt the development of various product candidates. This could require changes in our facilities and our personnel. Any product development changes that we implement may not be successful. In particular, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.

Our decisions to allocate our research and development, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs may also prove to be incorrect and could cause us to miss valuable opportunities.

For example, in December 2015, after a joint review of data from the Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, the parties concluded that the dosing regimen and administration required adjustment. Patients receiving weekly doses of MOR209/ES414 developed ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA.

There is no guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA. The required dosing regimen change for MOR209/ES414 may not prove successful or sufficient to allow further development of this product candidate. As MOR209/ES414 is the lead candidate for our ADAPTIR Redirected T-Cell cytotoxicity, or RTCC, bispecific platform technology, equivocal or negative outcomes may impact not only the ability to further progress this product candidate but the viability of the RTCC platform. An important part of our business strategy is to develop, partner and commercialize new product candidates using the ADAPTIR RTCC platform.

If our competitors are able to obtain orphan drug exclusivity for a product that is competitive with one or more of our product candidates and we cannot show that our product candidate is clinically superior, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

Regulatory authorities in some jurisdictions, including Europe and the United States, may designate drugs that target relatively small patient populations as orphan drugs. A disease or condition is considered orphan if it affects fewer than 200,000 people in the United States. Orphan drug exclusivity (afforded to the first applicant to receive approval for an orphan designated drug) prevents FDA approval of applications by others for the same drug for the designated orphan disease or condition. The FDA may approve a subsequent application from another applicant if the FDA determines that the application is for a different drug or different use, or if the FDA determines that the subsequent product is clinically superior, or that the holder of the initial orphan drug approval cannot assure the availability of sufficient quantities of the drug to meet the public’s need.

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We have received an orphan drug designation from the FDA for VARIZIG for treatment following exposure to varicella (chickenpox) in high-risk patient groups, including children with compromised immune systems, newborns and pregnant women. We have also received orphan drug designation for otlertuzumab and we may seek such status with additional product candidates.

Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity. VARIZIG has orphan drug exclusivity in the United States through December 2019. Our product candidate otlertuzumab was granted orphan drug designation by the FDA in November 2011 and received orphan medicinal product designation from the European Commission in December 2012 for the treatment of chronic lymphocytic leukemia. The exclusivity applies only to the indication for which each drug has been designated and approved. The applicable exclusivity period is seven years in the United States, but this period may be interrupted if a sponsor of a competitive product that is otherwise the same drug for the same use can show that its drug is clinically superior to our orphan drug candidate. The European exclusivity period is ten years, but may be reduced to six years if a drug no longer meets the criteria for orphan drug designation, including where it is shown that the drug is sufficiently profitable so that market exclusivity is no longer justified.

A grant of an orphan designation is not a guarantee that a product will be approved by the FDA.

If we do not obtain orphan drug exclusivity for our drug products, which do not have patent protection, our competitors may then sell the same drug to treat the same condition.

We do not have patent protection for WinRho SDF, HepaGam B or VARIZIG. Because not all of our drugs have patent protection, orphan drug designation is particularly important for our products that are eligible for orphan drug designation. As previously noted, VARIZIG has orphan drug exclusivity in the United States for treatment following exposure to varicella (chickenpox) in high-risk patient groups through December 2019. We plan to rely on this exclusivity period under the orphan drug designation for VARIZIG to maintain a competitive position. Our product candidate otlertuzumab was granted orphan drug designation by the FDA in November

2011 and received orphan medicinal product designation from the European Commission in December 2012 for the treatment of chronic lymphocytic leukemia. Orphan designation in Europe qualifies a drug for certain development and commercial incentives, including protocol assistance, access to centralized authorization procedures, reduced fees for regulatory activities, and 10 years of market exclusivity after approval.

Intellectual Property Risks

If we are unable to protect our intellectual proprietary rights, our business could be harmed.

Our commercial success will depend, in large part, on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology, products and product candidates. Obtaining and maintaining this protection is very costly. The patentability of technology in the biotechnology field generally is highly uncertain and involves complex legal and scientific questions. We cannot be certain that our patents and patent applications, including our own and those that we have rights through licenses from third parties, will adequately protect our intellectual property. Our success protecting our intellectual property depends significantly on our ability to:

Our principal patent applications and trademarks are described in greater detail in “Business—Intellectual Property” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations.”

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We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents may inadvertently lapse or be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the duration of patent protection we may have for our products. In the past, we have abandoned the prosecution and/or maintenance of patent applications related to patent families in the ordinary course of business. In the future we may choose to abandon such prosecution and/or maintenance in a similar fashion. If these patent rights are later determined to be valuable or necessary to our business, our competitive position may be adversely affected. Changes in patent laws or administrative patent office rules or changes in interpretations of patent laws in the United States and in other countries may diminish the value of our intellectual property or narrow the scope of our patent protection, or result in costly defensive measures.

The cost of litigation to uphold the validity of patents, once obtained, to prevent infringement or to otherwise protect or enforce our proprietary rights could be substantial and, from time to time, our patents are subject to patent office proceedings. Some of our competitors may be better able to sustain the costs of complex patent litigation because they may have substantially greater financial resources. Intellectual property lawsuits are expensive and unpredictable and would consume management’s time and attention and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions covered by or incorporating them. There is also a risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the invention(s), including on the grounds that its activities do not infringe the patent. If any of these events were to occur, our business, financial condition and operating results could be materially and adversely affected.

In addition to patent litigation, we may be a party to adversarial proceedings before the Patent Trial and Appeal Board of the US Patent and Trademark Office, or the PTAB. Potential proceedings before the PTAB include inter partes review proceedings, post-grant review proceedings and interference proceedings. Depending on our level of success at the PTAB, these proceedings could adversely impact our intellectual property rights with respect to our products and technology.

In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the value of patents, once obtained, and with regard to our ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal courts, and the PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Our collaborative partners and licensors may not adequately protect our intellectual property rights. These third parties may have the first right to maintain or defend intellectual property rights in which we have an interest and, although we may have the right to assume the maintenance and defense of such intellectual property rights if these third parties do not do so, our ability to maintain and defend such intellectual property rights may be compromised by the acts or omissions of these third parties.

Our patents, once obtained, also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications.

We also will rely on current and future trademarks to establish and maintain recognized brands. If we fail to acquire and protect such trademarks, our ability to market and sell our products, and therefore our business, financial condition and operating results, could be materially and adversely affected.

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If the outcome of patent opposition proceedings currently pending in Europe relating to IXINITY are unsuccessful, we may need to identify an additional fill/finish manufacturer, which could result in significant production delays and additional costs associated with moving our fill/finish manufacturing activities and identifying another fill/finish manufacturer.

We are currently involved in five opposition proceedings in Europe relating to factor IX proteins such as IXINITY. Baxter International Inc. is the sole counter-party in all five proceedings and our IXINITY product currently undergoes fill-finish in Europe. Of the five European Patent Office Proceedings, three have gone before the European Patent Office Opposition Division. Of these three, two were decided in our favor (in the name of UNC, our licensor) and one was decided in favor of Baxter. Two of these oppositions have been appealed, and we expect Baxter to appeal the third. It may be several years before these oppositions go before the Boards of Appeal for a final decision. The remaining two oppositions have not gone before the European Patent Office Opposition Division. Depending on the final outcome of these proceedings, we may be unable to continue to conduct our current IXINITY fill/finish manufacturing activities.

Patheon UK Limited, through an affiliate, is currently the sole source third-party manufacturer that provides fill and finish services for our IXINITY product, which conducts such activities in Europe. If, as a result of an adverse outcome in these proceedings, we are required to identify an additional fill/finish manufacturer in another location, we would not be able to do so without significant delay and likely significant additional cost.

International patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries we may have to expend substantial sums and management resources.

Patent and other intellectual property laws outside the United States are even more uncertain than in the United States and are continually undergoing review and revisions in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. For example, certain countries do not grant patent claims that are directed to business methods and processes. In addition, we may have to participate in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts. A European Patent Opposition, for instance, is a European Patent Office proceeding that allows for an opponent to challenge the validity of an issued patent. A European Patent Opposition is a proceeding that determines only the validity of a patent and does not determine whether a party infringes a patent. To initiate an Opposition at the European Patent Office, an opponent files a notice that it wishes to oppose the patent within a nine month period following the publication of the patent grant. After the opponent files the notice, it may be a few years before the merits of the opposition are heard and decided by the European Patent Office Opposition Division and several more years before the Boards of Appeal hears and decides on any appeals.

As previously noted, we are currently involved in five opposition proceedings related to IXINITY and recombinant vitamin K dependent proteins. Depending on the final outcome of these proceedings, we may be unable to sell factor IX products in Europe relating to the subject matter claimed in the European patents we are opposing.

Although we do not have current marketing authorization for IXINITY (our only product based on recombinant vitamin K dependent proteins) in Europe, nor do we sell IXINITY in Europe, if these opposition proceedings are successful, we may never be able to obtain marketing authorization to sell IXINITY in Europe or any other recombinant vitamin K dependent products we may develop in the future. In addition, if any of the patents we own or exclusively license are invalidated during the opposition process, we may be unable to block competitors from performing certain activities in Europe currently covered by the patents.

Third parties may choose to file patent infringement claims against us; defending ourselves from such allegations would be costly, time-consuming, distracting to management and could materially affect our business.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents and other intellectual property rights of third parties under which we do not hold sufficient licenses or other rights. Additionally, third parties may be successful in obtaining patent protection for technologies that cover development and commercialization activities in which we are already engaged. These third parties may have substantially greater financial resources than us and could bring

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claims against us that could cause us to incur substantial expenses to defend against these claims and, if successful against us, could cause us to pay substantial damages. Furthermore, if a patent infringement or other similar suit were brought against us, we could be forced to stop or delay development, manufacturing or sales of the product or product candidate that is the subject of the suit. Intellectual property litigation in the biotechnology industry is common, and we expect this trend to continue.

As a result of patent infringement or other similar claims, or to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all, or if an injunction is granted against us, which could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other adversarial proceedings such as proceedings before the PTAB and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology.

Patent litigation and other proceedings may also absorb significant management time. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Our Aptevo trademarks may be opposed which could have a material and adverse effect on our business.

We have applications pending that cover the APTEVO, APTEVO THERAPEUTICS, APTEVO BIOTHERAPEUTICS and APTEVO RESEARCH AND DEVELOPMENT trademarks. If a third party opposes any of these Aptevo trademarks, we may incur significant expense in the course of participating in the opposition process, which can be expensive and lengthy, and any settlement of which may result in our agreeing to be subject to restrictions on our use of the relevant Aptevo trademark. In addition, if we are unsuccessful in an opposition against an Aptevo trademark, we would lose the ability to obtain trademark registration for one or more uses of the relevant Aptevo mark.

For example, Bristol-Myers Squibb Company filed with the U.S. Patent and Trademark Office a request for a 90-day extension of time to oppose each Aptevo trademark. Specifically, unless Aptevo consents to an additional extension of time, Bristol-Myers Squibb will have until June 22, 2016 to oppose the APTEVO and APTEVO THERAPEUTICS trademarks, until July 20, 2016 to oppose the APTEVO RESEARCH AND DEVELOPMENT trademark and until July 27, 2016 to oppose the APTEVO BIOTHERAPEUTICS trademark.

At this time, we are uncertain whether Bristol-Myers Squibb Company intends to oppose any of these trademarks, but any such opposition could result in our incurrence of significant expenses in participating in the opposition process or attempting to negotiate a settlement agreement with Bristol-Myers Squibb Company, the loss of our ability to obtain trademark registration for one or more use of the relevant Aptevo mark or restrictions on our use of the relevant Aptevo trademark, all of which could have a material and adverse effect on our business. We have received no indication from Bristol-Myers Squibb Company that it plans to take any legal action against Aptevo other than the potential oppositions.

If a third-party files a trademark infringement claim against us, defending ourselves against such claim could be costly, time-consuming and distracting to management, and if we are unsuccessful in our defense, we could face an injunction and damages, all of which could have a material and adverse effect on our business.

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If a third-party files a trademark infringement claim against us, defending ourselves against such claim could be costly, time-consuming and distracting to management, and if we are unsuccessful in our defense, we could face an injunction and damages.

At this time, we are uncertain whether Bristol-Myers Squibb Company intends to assert that our use of the Aptevo trademarks infringes its trademark rights, but defending ourselves against such claim could be costly, time-consuming and distracting to management, and if we are unsuccessful in our defense, we could face an injunction prohibiting us from using the Aptevo trademarks and damages, all which could have a material and adverse effect on our business.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to a number of license agreements and expect to enter into additional license agreements in the future. Our existing licenses impose, and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license in whole or in part, terminate the exclusive nature of the license and/ or sue us for breach, which could cause us to not be able to market any product that is covered by the licensed patents and may be subject to damages.

Any such termination or claim, particularly relating to our agreements with respect to WinRho SDF, HepaGam B, VARIZIG or IXINITY could have a material adverse effect on our financial condition, results of operations, liquidity or business. Even if we contest any such termination or claim and are ultimately successful, such dispute could lead to delays in the development or commercialization of potential products and result in time-consuming and expensive litigation or arbitration.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, information processes and know-how. These types of trade secrets can be difficult to protect. We seek to protect this confidential information, in part, through agreements with our employees, consultants and third parties as well as confidentiality policies and audits, although these may not be successful in protecting our trade secrets and confidential information. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known, including through a potential cyber security breach, or may be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

Our WinRho SDF, HepaGam B and VARIZIG products are protected by Emergent’s manufacturing trade secrets. There are no patents or patent applications pending that support these hyperimmune products. If Emergent fails to adequately protect the trade secrets supporting these products, competitors may be able to copy our products by reproducing the manufacturing processes.

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Risks Related to Collaborations

We may not be successful in establishing and maintaining collaborations that leverage our capabilities in pursuit of developing and commercializing our product candidates.

For each of our product candidates, including otlertuzumab, we plan to evaluate the merits of entering into collaboration arrangements with third parties, including leading biotechnology companies or non-governmental organizations.

We currently are party to a collaboration arrangement with MorphoSys AG for the joint worldwide development and commercialization of MOR209/ES414, a targeted immuno-therapeutic protein being developed for metastatic castration-resistant prostate cancer, which is advanced prostate cancer that has spread to other organs and no longer responds to hormone blocking therapies. In December 2015, after a joint review of data from the Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys concluded that the dosing regimen and administration required adjustment. Patients receiving weekly doses of MOR209/ES414 developed ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug, reduced the concentration of MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There is no guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA.

We plan to continue the current clinical trial under an amended protocol with recruitment expected to start around mid-2016. As a result of the required dosing regimen change and the impact to the overall development timeline and technical risk, our co-development agreement with MorphoSys was restructured. Under the terms of the restructured agreement, MorphoSys’ cost sharing in the years 2016 to 2018 was reduced and future milestone payments payable by MorphoSys to us were reduced to a total of up to $74 million. In addition, the amended collaboration agreement changed the total expected funding requirement for us to up to approximately $250 million. As a result of the required change in dosing regimen for MOR209/ES414, the lead RTCC candidate, the termination provisions under the MorphoSys collaboration agreement were amended to give MorphoSys a one- time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial. Further adverse or inconclusive clinical results could lead to further renegotiation of the terms or cancellation of our collaboration agreement with MorphoSys AG.

We expect to selectively pursue collaboration arrangements with third parties that have particular technology, expertise or resources for the development or commercialization of our product candidates or for accessing particular markets. We face, and will continue to face, significant competition in seeking appropriate partners for our product candidates. If we are unable to identify partners whose capabilities complement and integrate well with ours and reach collaboration arrangements with such partners on a timely basis, on acceptable terms or at all, or if the arrangements we establish are unproductive for us, we may fail to meet our business objectives for the particular product candidate. Our ability to enter into such arrangements with respect to products in development that are subject to licenses may be limited by the terms of those licenses.

Any collaboration that we enter into may not be successful and the success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborative partners. It is likely that our collaborative partners will have significant discretion in determining the efforts and resources that they will apply to these collaborations.

The risks that we are subject to in any of our collaborations include, among others:

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For example, in 2011, Abbott Laboratories, or Abbott, terminated its collaboration with Emergent for the development of otlertuzumab following a portfolio reprioritization process by Abbott.

The failure of any of our future collaboration partners to perform as expected could place us at a competitive disadvantage and adversely affect us financially, including delay and increased costs of development, loss of market opportunities, lower than expected revenues and impairment of the value of the related product candidate. Collaborations are a critical part of our business strategy, and any inability on our part to establish and successfully maintain such arrangements on terms favorable to us or to work successfully with our collaborative partners could have an adverse effect on our operations and financial performance.

Financial Risks

We may seek debt financing, which may restrict the operation of our business and limit the cash available for investment in our business operations.

We may seek debt financing to support our ongoing activities or to provide additional financial flexibility. Debt financing could have significant adverse consequences for our business, including:

We may not have sufficient funds or be able to obtain additional financing to pay the amounts due under any future indebtedness. In addition, failure to comply with the covenants under any future debt instruments could result in an event of default under those instruments. An event of default could result in the acceleration of amounts due under a particular debt instrument and a cross default and acceleration under any future debt instruments, and we may not have sufficient funds or be able to obtain additional financing to make any accelerated payments. Under these circumstances, our lenders could seek to enforce security interests, if any, in our assets securing our indebtedness.

We may not achieve profitability in future periods or on a consistent basis.

Our ability to become profitable will be substantially dependent on the receipt of the $65 million total cash contributions from Emergent, our product sales revenues and revenues from collaboration and licensing arrangements. Accordingly, our ability to become profitable may be adversely affected as we progress through various stages of ongoing or planned clinical trials for our product candidates. We may not be able to achieve or sustain profitability. In addition, we anticipate incurring significant costs associated with the separation from Emergent and making substantial expenditures to further develop and commercialize our products and product candidates. We anticipate needing to generate greater revenue in future periods from our marketed products and from our products in development in order to achieve profitability in light of our planned expenditures. If we are

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unable to generate greater revenue, we may not achieve profitability in future periods, and may not be able to maintain any profitability we do achieve. If we are unable to generate sufficient revenues, we will not become profitable and may be unable to continue operations without additional funding.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturns.

Our results of operations could be materially negatively affected by general economic conditions, both in the United States and elsewhere around the world. Continuing concerns over inflation, energy costs, geopolitical issues, and the availability and cost of credit have contributed to increased volatility and diminished expectations for the economy and the markets going forward. Domestic and international equity markets continue to experience heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on us. In the event of a continuing market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds, if necessary, and our stock price may further decline.

Credit and financial market conditions may exacerbate certain risks affecting our business.

Sales of our products are made, in part, through direct sales to our customers, which include hospitals, physicians and other health care providers. As a result of adverse global credit and financial market conditions, our customers may be unable to satisfy their payment obligations for invoiced product sales or may delay payments, which could negatively affect our revenues, income and cash flow. In addition, we rely upon third parties for many aspects of our business, including our collaboration partners, wholesale distributors for our products, contract clinical trial providers, research organizations, manufacturers and third-party suppliers. Because of the tightening of global credit and the volatility in the financial markets, there may be a delay or disruption in the performance or satisfaction of commitments to us by these third parties, which could adversely affect our business.

The way that we account for our operational and business activities is based on estimates and assumptions that may differ from actual results.

The preparation of our combined financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, our management evaluates its critical estimates and judgments, including, among others: those related to revenue recognition, including product rebates, chargeback and return accruals; inventory; clinical research costs; business combinations; intangible assets and impairment; income taxes; stock-based compensation; and contingent consideration. Those critical estimates and assumptions are based on our historical experience, future projections, our observance of trends in the industry, and various other factors that are believed to be reasonable under the circumstances, and they form the basis for making judgments about the carrying values and fair values of assets and liabilities that may not be readily apparent from other sources. If actual results differ from these estimates as a result of unexpected conditions or events occurring which cause us to have to reassess our assumptions, there could be a material adverse impact on our financial results and the performance of our stock.

We face product liability exposure, which could cause us to incur substantial liabilities and negatively affect our business, financial condition and results of operations.

The nature of our business exposes us to potential liability inherent in pharmaceutical products, including with respect to the sale of our products, any other products that we successfully develop and the testing of our product candidates in clinical trials. Product liability claims might be made by patients in clinical trials, consumers, health care providers or pharmaceutical companies or others that sell our products. These claims may be made even with respect to those products that are manufactured in licensed and regulated facilities or otherwise possess regulatory approval for commercial sale or study. We cannot predict the frequency, outcome or cost to defend any such claims.

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If we cannot successfully defend ourselves against future claims that our products or product candidates caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur. Further product liability insurance may be difficult and expensive to obtain. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy all potential liabilities. Claims or losses in excess of our product liability insurance coverage could have a material adverse effect on our business, financial condition and results of operations. The cost of defending any products liability litigation or other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation of products liability litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Product liability claims, regardless of merit or eventual outcome, may absorb significant management time and result in reputational

harm, potential loss of revenue from decreased demand for our products and/or product candidates, withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical programs, and could cause our stock price to fall.

Product recalls may be issued at our discretion or at the discretion of our suppliers, government agencies and other entities that have regulatory authority for pharmaceutical sales. Any recall of our products could materially adversely affect our business by rendering us unable to sell that product for some time and by adversely affecting our reputation. A recall could also result in product liability claims by individuals and third- party payors. In addition, product liability claims could result in an investigation of the safety or efficacy of our products, our manufacturing processes and facilities, or our marketing programs conducted by the FDA, the EMA, or the competent authorities of the EU Member States. Such investigations could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the indications for which they may be used, or suspension, variation, or withdrawal of approval. Any such regulatory action by the FDA, the EMA or the competent authorities of the EU Member States could lead to product liability lawsuits as well.

We rely significantly on information technology systems and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively or result in data leakage of proprietary and confidential business and employee information.

Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to interruption, invasion, computer viruses, destruction, malicious intrusion and additional related disruptions, which may result in the impairment of production and key business processes.

We will install and implement information technology infrastructure to support our critical business functions, as discussed in greater detail in the risk factor below entitled “As we continue to build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.”

In addition, our systems are potentially vulnerable to data security breaches—whether by employee error, malfeasance or other disruption—which may expose sensitive data to unauthorized persons. Such data security

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breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information, including sensitive personal information, of our employees, clinical trial patients, customers and others.

A significant business disruption or a breach in security resulting in misappropriation, theft or sabotage with respect to our proprietary and confidential business and employee information could result in financial, legal, business or reputational harm to us, any of which could adversely affect our business, financial condition and operating results.

Our success is dependent on our continued ability to attract, motivate and retain key personnel, and any failure to attract or retain key personnel may negatively affect our business.

Because of the specialized scientific nature of our business, our ability to develop products and to compete with our current and future competitors largely depends upon our ability to attract, retain and motivate highly qualified managerial and key scientific and technical personnel. If we are unable to retain the services of one or more of the principal members of senior management, including our Chief Executive Officer, Marvin L. White, and Chief Financial Officer, Jeffrey G. Lamothe, and Chief Medical Officer, Scott C. Stromatt, or other key employees, our ability to implement our business strategy could be materially harmed. Our industry has experienced a high rate of turnover of management personnel in recent years. We face intense competition for qualified employees from biotechnology companies, research organizations and academic institutions. Attracting, retaining or replacing these personnel on acceptable terms may be difficult and time-consuming given the high demand in our industry for similar personnel. We believe part of being able to attract, motivate and retain personnel is our ability to offer a competitive compensation package, including equity incentive awards. If we cannot offer a competitive compensation package or otherwise attract and retain the qualified personnel necessary for the continued development of our business, we may not be able to maintain our operations or grow our business.

We are subject to periodic litigation, which could result in losses or unexpected expenditure of time and resources.

From time to time, we may be called upon to defend ourselves against lawsuits relating to our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome in any such proceedings could have an adverse impact on our business, financial condition and results of operations. If our stock price is volatile, we may become involved in securities class action lawsuits in the future. Any litigation in the future, regardless of its merits, could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. For a more detailed discussion of litigation, see “Business—Legal Proceedings.”

RISKS RELATED TO THE SEPARATION

Until the separation occurs, Emergent has sole discretion to change the terms of the separation in ways which may be unfavorable to us.

We expect to complete the separation from Emergent on August 1, 2016. Unanticipated developments, including possible delays in obtaining a tax opinion, covenant waivers or other required clearances, uncertainty of the financial markets and challenges in establishing infrastructure or processes, could delay or prevent the proposed spin-off or cause it to occur on terms or conditions that are less favorable or different than currently contemplated. Executing the proposed spin-off also requires significant time and attention from management and employees, which could distract them from other tasks in operating our business and, as a result, negatively impact our operations and our earnings.

Until the separation occurs, we will be a wholly-owned subsidiary of Emergent. Accordingly, Emergent will effectively have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to us. Emergent may also decide at any time not to proceed with the separation and distribution. In addition, the

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separation is subject to material conditions and may not be completed on the currently contemplated timeline or at all.

If the proposed separation is consummated, we may not realize some or all of the anticipated benefits due to a number of factors.

Even if the transaction is completed, we may not realize some or all of the anticipated strategic, financial or other benefits from the separation. These expected benefits include the benefits described in “The Separation and Distribution—Reasons for the Separation.” We may not achieve these and other anticipated benefits for a variety of reasons. We will be smaller, less diversified and with a narrower business focus than the currently combined company, and may be more vulnerable to changing market conditions, which could materially and adversely affect our business, financial condition and results of operations. Execution of the spin-off transaction presents a number of significant risks to our internal processes, including the failure to maintain an adequate control environment due to changes to our information technology systems and financial reporting processes, both as we execute the transaction and following consummation. There may also be dis-synergies from separating the businesses that could negatively impact the financial condition and results of operations of either or both businesses. There also can be no assurance that the separation will not adversely affect our business. Further, the combined value of the common stock of the two publicly-traded companies may not be equal to or greater than what the value of our common stock would have been had the proposed spin-off not occurred.

We have no history operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company and may not be a reliable indicator of our future results.

The historical information about us in this information statement refers to our business as operated by and integrated with Emergent. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Emergent. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly-traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

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Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as an independent company. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements, see “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.

Emergent may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

In connection with the separation, we will enter into a separation and distribution agreement and various other agreements with Emergent, including a non-negotiable promissory note, a transition services agreement, a tax matters agreement, an employee matters agreement, a manufacturing services agreement, a Canadian distributor agreement, a trademark license agreement and a product license agreement. These agreements are discussed in greater detail in the section entitled “Certain Relationships and Related Party Transactions.” Certain of these agreements will provide for the performance of services by Emergent for a period of time after the separation. We will rely on Emergent to satisfy its performance obligations under these agreements. If Emergent is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses.

If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services when the transition services or longer-term agreements terminate, we may not be able to operate our business effectively and our results of operations may be adversely affected. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services Emergent currently provides to us. We may not be successful in effectively or efficiently implementing these systems and services or in transitioning data from Emergent’s systems to ours. These systems and services may also be more expensive or less efficient than the systems and services Emergent is expected to provide during the transition period.

As we continue to build our information technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and experience temporary business interruptions.

We are continuing to install and implement our own information technology infrastructure to support our critical business functions, including accounting and reporting, customer service, inventory control and distribution. We may incur temporary interruptions in business operations if we cannot transition effectively from Emergent’s existing transactional and operational systems, data centers and the transition services that support these functions as we transition these systems. We may not be successful in implementing our new systems and transitioning our data, and we may incur substantially higher costs for implementation than currently anticipated. Our failure to avoid operational interruptions as we transition systems and replace Emergent’s IT services, or our failure to transition

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systems to replace Emergent’s services successfully, could disrupt our business and have a material adverse effect on our results of operations. In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory requirements could be impaired.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject as a standalone publicly-traded company following the distribution.

Our financial results previously were included within the consolidated results of Emergent, and we believe that our reporting and control systems were appropriate for those of divisions of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. After the distribution, we believe we will qualify as an Emerging Growth Company, or EGC. Although an EGC has certain reduced reporting and regulatory requirements, we will still be directly subject to substantial reporting and other obligations under the Exchange Act. These reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources. We may not have sufficient time following the separation to meet these obligations by the applicable deadlines.

Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures and potentially need to hire additional accounting and finance staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In connection with our separation from Emergent, Emergent will indemnify us for certain liabilities and we will indemnify Emergent for certain liabilities. If we are required to pay under these indemnities to Emergent, our financial results could be negatively impacted. The Emergent indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Emergent will be allocated responsibility, and Emergent may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation agreement and certain other agreements with Emergent, Emergent will agree to indemnify us for certain liabilities, and we will agree to indemnify Emergent for certain liabilities, in each case for uncapped amounts, as discussed further in “Certain Relationships and Related Party Transactions.” Indemnities that we may be required to provide Emergent are not subject to any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax- free nature of the distribution. Third parties could also seek to hold us responsible for any of the liabilities that Emergent has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from Emergent may not be sufficient to protect us against the full amount of such liabilities, and Emergent may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Emergent any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

If the distribution, together with certain related transactions, does not qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code, Emergent, Aptevo, and Emergent stockholders could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify Emergent for taxes and related expenses resulting from the failure of the transaction to so qualify.

It is intended that the distribution, together with certain related transactions, will generally be tax-free to Emergent and its stockholders for U.S. federal income tax purposes. Emergent has received a favorable private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the distribution and certain related transactions. It is a condition to the distribution that (i) the private letter ruling from the IRS continue to be valid and in full force and effect and (ii) Emergent receive an opinion from WilmerHale LLP, in a form and substance

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satisfactory to Emergent, substantially to the effect that, for U.S. federal income tax purposes, the distribution and certain related transactions, taken together, will qualify as a transaction described under Sections 355(a) and 368(a)(1)(D) of the Code. The IRS private letter ruling is based upon certain facts and representations submitted by Emergent to the IRS. In addition, the opinion from WilmerHale LLP will be based upon and rely on, among other things, the IRS private letter ruling and certain facts and assumptions, as well as certain representations and covenants of Emergent and Aptevo contained in the tax matters agreement and certain representations contained in representation letters provided by Emergent, Aptevo and certain stockholders to WilmerHale LLP, including representations and covenants relating to the past and future conduct of Emergent, Aptevo and such stockholders. If any of these facts, assumptions, representations, or covenants is, or becomes, inaccurate or incomplete, the IRS private letter ruling and/or the opinion of WilmerHale LLP may be invalid and the conclusions reached therein could be jeopardized. In addition, the IRS private letter ruling only addresses certain limited matters relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, and the opinion of WilmerHale LLP will represent the judgment of such counsel which is not binding on the IRS or any court. Accordingly, notwithstanding the IRS private letter ruling and the opinion of WilmerHale LLP, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions should be treated as a taxable transaction for U.S. federal income tax purposes or that a court would not sustain such a challenge.

If the distribution, together with certain related transactions, does not qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code, for U.S. federal income tax purposes, in general, (i) Emergent would recognize taxable gain on the distribution equal to the amount by which the fair market value of the Aptevo common stock distributed to Emergent stockholders exceeds Emergent’s tax basis in its shares of Aptevo common stock and (ii) each Emergent stockholder would be treated as receiving a taxable distribution in an amount equal to the fair market value of the Aptevo common stock received by such stockholder. For more information, see “Material U.S. Federal Income Tax Consequences.”

Under the tax matters agreement that we will enter into with Emergent, we may be required to indemnify Emergent against any tax liabilities and related expenses resulting from the failure of the distribution, together with certain related transactions, to qualify as a transaction described under Sections 355 and 368(a)(1)(D) of the Code to the extent that the failure to so qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or covenants made by us in the tax matters agreement or the IRS private letter ruling or in the representation letters provided to WilmerHale LLP. For a more detailed discussion, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

We may have received better terms from unaffiliated third parties than the terms we will receive in our agreements with Emergent.

The agreements we will enter into with Emergent in connection with the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, a manufacturing services agreement, a Canadian distributor agreement, a trademark license agreement and a product license agreement, were prepared in the context of the separation while we were still a wholly-owned subsidiary of Emergent. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of Emergent. As a result, while we believe that the commercial agreements between Emergent and us generally reflect arm’s-length pricing and other terms, it is possible that we may have received more favorable terms had the intercompany agreements between Emergent and us been negotiated with third parties.

We expect to incur both one-time and ongoing material costs and expenses as a result of our separation from Emergent, which could adversely affect our results of operations.

We expect to incur both one-time and ongoing costs and expenses greater than those we currently incur as a result of our separation from Emergent. These increased costs and expenses may arise from various factors, including financial reporting, costs associated with complying with federal securities laws (including potential future compliance with the Sarbanes-Oxley Act of 2002), tax administration, and legal and human resources related functions, and it is possible that these costs will be material to our business.

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The transfer or assignment to us of certain contracts and other assets requires the consent of a third party. If such consent is not given, we may not be entitled to the benefit of such contracts and other assets in the future.

The transfer or assignment of certain of the contracts and other assets in connection with our separation from Emergent require the consent of a third party to the transfer or assignment. In addition, in some circumstances, we are joint beneficiaries of contracts, and we will need to enter into a new agreement with the third party to replicate the existing contract or assign the portion of the existing contract related to our business. Some parties may use the consent requirement to seek more favorable contractual terms from us, which we expect would primarily take the form of price increases, which may require us to expend additional resources in order to obtain the services or assets previously provided under the contract, or to seek arrangements with new third parties. If we are unable to obtain such consents on commercially reasonable and satisfactory terms, we may be unable to obtain some of the benefits, assets and contractual commitments that are intended to be allocated to us as part of our separation from Emergent, and we may be required to seek alternative arrangements to obtain the distribution, legal, accounting, auditing, administrative and other services and assets that we would otherwise have had under such agreements. In addition, where we do not intend to obtain consent from third- party counterparties based on our belief that no consent is required, the third-party counterparties may challenge a transfer of assets to us on the basis that the terms of the applicable commercial arrangements require their consent. We may incur substantial litigation and other costs in connection with any such claims and, if we do not prevail, our ability to use these assets could be adversely impacted.

If the distribution occurs and you do not want to receive Aptevo common stock in the distribution, your sole recourse will be to divest yourself of your Emergent common stock prior to the record date.

No vote of Emergent stockholders is required in connection with the distribution. Accordingly, if the distribution occurs and you do not want to receive our common stock in the distribution, your only recourse will be to divest yourself of your Emergent common stock prior to the record date for the distribution.

The combined post-separation value of one share of Emergent common stock and 0.5 shares of Aptevo common stock may not equal or exceed the pre-distribution value of a share of Emergent common stock.

As a result of the distribution, Emergent expects the trading price of shares of Emergent common stock immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the business held by Aptevo. There can be no assurance that the aggregate market value of one share of Emergent common stock and 0.5 shares of Aptevo common stock following the separation will be higher or lower than the market value of a share of Emergent common stock if the separation did not occur.

We may not be able to engage in certain corporate transactions after the separation.

To preserve the tax-free treatment to Emergent and its stockholders of the distribution, together with certain related transactions, we will be restricted, under the tax matters agreement that we will enter into with Emergent, from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. In particular, for a period of two years following the separation, we will be restricted from taking certain actions (including restrictions on share issuances, business combinations, sales of assets, amendments to organizational documents and similar transactions) that could cause the distribution, together with certain related transactions, to fail to qualify as a tax-free transaction for U.S. federal income tax purposes. These restrictions may limit our ability to pursue certain strategic transactions or engage in other transactions that might increase the value of our business, including use of our common stock to make acquisitions and equity capital market transactions. In addition, under the tax matters agreement, we are required to indemnify Emergent against any tax liabilities and related expenses arising from the failure of the distribution, together with certain related transactions, to be tax- free to the extent such failure is attributable to actions, events or transactions relating to our stock, assets or business, including the acquisition of our stock even if we did not participate in or otherwise facilitate the acquisition. For more information, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

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After the separation, certain of our executive officers and/or directors may have actual or potential conflicts of interest because of their previous positions at Emergent.

The ownership by our expected executive officers and/or directors of shares of Emergent common stock, stock options or other equity awards may create, or may create the appearance of, conflicts of interest. Because of their current or former positions with Emergent, certain of our expected executive officers and/or directors own shares of Emergent common stock, stock options to purchase Emergent common stock or other equity awards. Shares of Emergent common stock, stock options to purchase Emergent common stock or other equity awards may comprise a significant portion of some of these individuals’ total personal financial assets. Following the separation, even though expected executive officers and/or directors who are currently employees of Emergent will cease to be employees of Emergent, some of our executive officers and/or directors will continue to have a financial interest in Emergent common stock, which may create, or may create the appearance of, conflicts of interest when these individuals are faced with decisions that could have different implications for Emergent than the decisions have for Aptevo.

RISKS RELATED TO APTEVO’S COMMON STOCK

We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation, and following the separation, our stock price may fluctuate significantly.

A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the separation. Nor can we predict the prices at which shares of our common stock may trade after the separation. Similarly, we cannot predict whether the combined market value of the shares of our common stock and Emergent’s common shares will be less than, equal to or greater than the market value of Emergent’s common shares prior to the separation.

The stock market in general, and the market for biotechnology companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control or unrelated to our operations, including, among others:

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In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

The public announcement of data from clinical studies or news of any developments related to our product pipeline may cause significant volatility in our stock price. If the development of any of our key pipeline products is delayed or discontinued, our stock price could decline significantly.

As we evolve into a standalone company, we will be focusing efforts and resources in building a diversified pipeline of products. We expect that investors may place heightened scrutiny on some of our products in development when making investment decisions in Aptevo compared to historic Emergent. The announcement of data from clinical studies by us or our collaborative partners or news of any developments related to our key pipeline products may cause significant volatility in our stock price. Furthermore, the announcement of any negative or unexpected data or the discontinuation of development of any of our key pipeline products, or any delay in our anticipated timelines for filing for regulatory approval, could cause our stock price to decline significantly. There can be no assurance that data from clinical studies will support a filing for regulatory approval or even if approved, that any of our key pipeline products will become commercially successful.

Your percentage of ownership in Aptevo may be diluted in the future.

In the future, your percentage ownership in Aptevo may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we will be granting to our directors, officers and employees. Our employees will have options to purchase shares of our common stock after the distribution as a result of conversion of their Emergent stock options to Aptevo stock options. We anticipate our compensation committee will grant additional stock options or other stock-based awards to our employees after the distribution. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we may issue additional options or other stock- based awards to our employees under our employee benefits plans.

In addition, our restated certificate of incorporation will authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Aptevo’s Capital Stock.”

Fuad El-Hibri, the chairman of our Board of Directors, has significant influence over us through his substantial beneficial ownership of our common stock, including an ability to influence the election of the members of our Board of Directors, or delay or prevent a change of control of us.

Mr. El-Hibri has the ability to significantly influence the election of the members of our Board of Directors due to his substantial beneficial ownership of our common stock. As of the distribution date, Mr. El-Hibri will be the beneficial owner of approximately 14% of our outstanding common stock. As a result, Mr. El-Hibri could delay or prevent a change of control of us that may be favored by other directors or stockholders and otherwise exercise substantial control over all corporate actions requiring board or stockholder approval, including any amendment of our certificate of incorporation or by-laws. The control by Mr. El-Hibri may prevent other stockholders from influencing significant corporate decisions. In addition, Mr. El-Hibri’s significant beneficial ownership of our shares could present the potential for a conflict of interest.

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Provisions under Delaware law and in our restated certificate of incorporation and amended and restated by- laws may discourage acquisition proposals, delay a change in control or prevent transactions that stockholders may consider favorable.

Certain provisions in our restated certificate of incorporation and amended and restated by-laws, and under Delaware law, may discourage, delay or prevent a merger, acquisition or other changes in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our incumbent directors and management.

These provisions include:

The affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal the above provisions of our certificate of incorporation. The affirmative vote of either a majority of the directors present at a meeting of our Board of Directors or holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal our by-laws.

In addition, Section 203 of the General Corporation Law of Delaware prohibits a corporation from engaging in a business combination with an interested stockholder, generally a person which, together with its affiliates, owns or within the last three years has owned 15% or more of the corporation’s voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of us.

Several of the agreements that we will enter into with Emergent require Emergent’s consent to any assignment by us of our rights and obligations under the agreements. These agreements will generally expire within two years of our separation from Emergent, except for certain agreements that will continue for longer terms and in some cases for the life of the products covered by the agreements. The consent and termination rights set forth in these agreements might discourage, delay or prevent a change of control that you may consider favorable. See “Certain Relationships and Related Party Transactions” and “Description of Aptevo’s Capital Stock” for a more detailed description of these agreements and provisions.

In addition, under the tax matters agreement, for a period of two years following the separation, we will be restricted from taking certain actions (including restrictions on business combinations and share issuances) that could cause the distribution, together with certain related transactions, to fail to qualify as a tax-free transaction for U.S. federal income tax purposes. We would be required to indemnify Emergent for any taxes and related expenses resulting from the failure of the transactions to so qualify to the extent that the failure is attributable to actions, events or transactions relating our stock, assets or business, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

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Our by-laws include an exclusive forum provision that could limit our stockholders’ ability to obtain a judicial forum viewed by stockholders as more favorable for disputes with us or our directors, officers or other employees or certain stockholders.

Our by-laws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for: (1) any derivative action or proceeding brought on behalf of Aptevo; (2) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee or stockholder of Aptevo to us or our stockholders; (3) any action asserting a claim arising pursuant to any provision of General Corporation Law of the State of Delaware, which we refer to as the DGCL; (4) any action asserting a claim arising pursuant to any provision of our Certificate of Incorporation or by-laws (as they may be amended from time to time); or (5) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage lawsuits against us or our directors or officers. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

Because we currently do not expect to pay dividends following the distribution, investors will benefit from an investment in our common stock only if it appreciates in value.

Prior to completion of the distribution, our Board of Directors will adopt a dividend policy with respect to the payment of dividends on our common stock following the distribution. We currently do not expect to pay dividends following the distribution. We anticipate that we will retain all our future earnings, if any, to support our operations and our proprietary drug development programs and product candidates and pursue other opportunities. Any future determination to pay dividends will be at the sole discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, restrictions contained in future financing instruments and such other factors as our Board of Directors deems relevant. For more information, see “Dividend Policy.” We cannot guarantee that we will pay any dividends in the future or continue to pay any dividend if we were to commence paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.

A significant portion of our shares may be sold into the market at any time. This could cause the market price of our common stock to drop significantly.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales or the perception in the market that the holders of a large number of shares intend to sell shares, in connection with the distribution or otherwise, could reduce the market price of our common stock. We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers would be in the market at that time. Upon completion of the distribution, we expect that we will have an aggregate of approximately 20,215,000 shares of our common stock issued and outstanding based on approximately 40,430,000 shares of Emergent common stock outstanding as of June 30, 2016. These shares will be freely tradeable without restriction or further registration under the U.S. Securities Act of 1933, as amended, or the Securities Act, unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act. Moreover, holders of an aggregate of approximately 3 million shares of our common stock immediately following the distribution will have the right to require us to register these shares of common stock under the Securities Act under specified circumstances. For a further discussion of registration rights, see “Description of Aptevo’s Capital Stock—Registration Rights.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This information statement and other materials Emergent and Aptevo have filed or will file with the SEC contain, or will contain, certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,” “expect,” “expectation,” “anticipate,” “may,” “could,” “intend,” “belief,” “estimate,” “plan,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook” or other similar words or phrases, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. In particular, information included under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and “The Separation and Distribution” contain forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. Except as may be required by law, we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this information statement. Factors that could cause our actual results or events to differ materially from those anticipated include the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in addition to the following other factors, many of which are beyond our control:

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In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of any such forward-looking statements. The list of factors described above is illustrative, but by no means exhaustive.

All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Additional risks and uncertainties include those detailed from time to time in our publicly-filed documents.

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DIVIDEND POLICY

We currently do not expect to pay dividends following the distribution. We anticipate that we will retain all our future earnings, if any, to support our operations and our proprietary drug development programs, acquire or in-license additional products and product candidates, and pursue other opportunities, and do not intend to pay dividends in the foreseeable future. The timing, declaration, amount of, and payment of any dividends following the separation by Aptevo is within the sole discretion of its board of directors and will depend upon many factors, including Aptevo’s financial condition, earnings, corporate strategy, capital requirements of its operating subsidiaries, covenants associated with any future debt service obligations, legal requirements, regulatory constraints, industry practice, ability to access capital markets and other factors deemed relevant by Aptevo’s board of directors.

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CAPITALIZATION

The following table sets forth Aptevo’s capitalization as of March 31, 2016 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in the Biosciences Business of Emergent BioSolutions Inc. unaudited pro forma combined balance sheet. The information below is not necessarily indicative of what Aptevo’s capitalization would have been had the separation and distribution been completed as of March 31, 2016. In addition, it is not indicative of Aptevo’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements of the Biosciences Business of Emergent BioSolutions Inc. and notes included elsewhere in this information statement:

 

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The statement of operations data for the three months ended March 31, 2016 and 2015 and the balance sheet data as of March 31, 2016 have been derived from the unaudited condensed combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., which are included elsewhere in this information statement. The combined statement of operations data for the years ended December 31, 2015, 2014 and 2013 and the combined balance sheet data as of December 31, 2015 and 2014 have been derived from the audited combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., which are included elsewhere in this information statement. The combined statements of operations data for the years ended December 31, 2012 and 2011 and the combined balance sheet data as of December 31, 2013, 2012 and 2011 have been derived from the unaudited combined financial statements of the Biosciences Business of Emergent BioSolutions Inc., which are not included in this information statement.

The combined financial statements have been prepared on a “carve-out” basis for the purpose of presenting the Biosciences Business of Emergent BioSolutions Inc. financial position, results of operations and cash flows. Aptevo did not operate as a standalone entity in the past and accordingly the selected financial data presented herein is not necessarily indicative of Aptevo’s future performance and does not reflect what Aptevo’s performance would have been had Aptevo operated as an independent publicly-traded company during the periods presented.

The selected financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the “Unaudited Pro Forma Combined Financial Information” and the corresponding notes included elsewhere in this information statement.

 

 

 

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The unaudited pro forma combined financial statements discussed and presented below have been prepared from the Biosciences Business of Emergent BioSolutions Inc.; which include: (1) the historical audited statement of operations for the year ended December 31, 2015; (2) the unaudited statement of operations for the three months ended March 31, 2016; and (3) the unaudited condensed combined balance sheet as of March 31, 2016. As of formation, and as of March 31, 2016, the newly-formed Aptevo Therapeutics Inc. entity did not hold any assets or liabilities and had no operations. The pro forma adjustments and notes to the pro forma financial information give effect to the legal formation and capitalization of Aptevo and the contribution of the assets and liabilities to Aptevo by Emergent as described below. The unaudited pro forma combined financial statements should be read together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical audited combined financial statements, the unaudited condensed combined financial statements and notes related to those financial statements of the Biosciences Business of Emergent BioSolutions Inc. included elsewhere in this information statement.

The unaudited pro forma combined balance sheet as of March 31, 2016 has been prepared as if the separation had occurred on March 31, 2016. The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available. While such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements, in management’s opinion, the pro forma adjustments are not expected to materially differ from the final adjustments.

The unaudited pro forma combined statement of operations for the three months ended March 31, 2016 and the year ended December 31, 2015 have been prepared as if the separation had occurred on January 1, 2015. Aptevo’s historical combined statements of operations include an allocation of expenses related to certain Emergent corporate functions, including senior management, legal, human resources, finance, investor relations, information technology and quality assurance. These expenses have been allocated to Aptevo based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, square footage, or other measures. Aptevo considers the expense allocation methodology and results to be reasonable for all periods presented. Additionally, the unaudited pro forma statements of operations do not reflect certain estimated incremental expenses and/or cost savings associated with Aptevo being an independent, publicly-traded company because such amounts are not associated with the contractual agreements directly attributable to the separation and would be based on management’s judgmental estimates and operating plans. The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available. While such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements, in management’s opinion, the pro forma adjustments are not expected to materially differ from the final adjustments.

The unaudited pro forma combined balance sheet and statements of operations have been have been adjusted to give effect to the following items related to the separation and the associated transactions:

The unaudited pro forma basic and diluted net loss per share is computed using the average number of shares of common stock outstanding after giving pro forma effect to the planned Emergent distribution of all Aptevo Therapeutics Inc. shares of common stock as if such distribution had occurred at January 1, 2015. The number of Aptevo Therapeutics Inc. shares used to compute basic and diluted net loss per share for the year ended December 31, 2015 and the three months ended March 31, 2016 are based on the average number of shares of Emergent common stock outstanding during the respective period assuming the distribution ratio of one share of Aptevo Therapeutics Inc. common stock for every two shares of Emergent common stock outstanding.

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A significant amount of charges to effect the separation that are not ongoing in nature have been and will continue to be incurred by Emergent, such as financial, legal, tax, accounting and other advisory fees and regulatory fees. Aptevo may also incur costs in connection with the separation such as, among other things, facility and information technology system reconfiguration costs. The total amount of such separation charges to be incurred by Aptevo is not estimable at this time.

The unaudited pro forma combined financial statements are for illustrative and information purposes only and are not intended to represent, or be indicative of, what Aptevo’s financial position or results of operations would have been had the separation occurred on the date(s) indicated.

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Aptevo Therapeutics Inc.

Unaudited Pro Forma Combined Statement of Operations

(in thousands, except per share data)

 

 

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Aptevo Therapeutics Inc.

Unaudited Pro Forma Combined Statement of Operations

(in thousands, except per share data)

 

 

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Aptevo Therapeutics Inc.

Unaudited Pro Forma Combined Balance Sheet

(in thousands)

 

 

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BUSINESS

OVERVIEW

Aptevo Therapeutics Inc. is a biotechnology company focused on novel oncology (cancer) and hematology (blood disease) therapeutics to meaningfully improve patients’ lives. Our core technology is the ADAPTIR™ (modular protein technology) platform. We also have four revenue-generating products in the areas of hematology and infectious diseases, as well as various investigational stage product candidates in immuno- oncology. Aptevo was formed to own and operate certain assets from the biosciences business of Emergent BioSolutions Inc. in connection with the separation and distribution described in this information statement.

We were incorporated in the state of Delaware in February 2016. Aptevo’s common stock has been approved for listing on the NASDAQ Global Select Market under the symbol “APVO.” Our principal executive offices will be located at 2401 4th Ave., Suite 1050, Seattle, Washington 98121. Our telephone number following the separation will be (206) 838-0500. We will maintain an internet site at www.AptevoTherapeutics.com. Our website and the information contained on the website or connected to the website shall not be deemed to be incorporated into this information statement, and you should not rely on any such information in making an investment decision.

Our investigational stage product candidates MOR209/ES414, ES210, ES425 and otlertuzumab are built on our novel ADAPTIRTM (modular protein technology) platform, which is designed to expand on the utility and effectiveness of therapeutic antibodies. The technology can produce monospecific and multispecific immunotherapeutic proteins that specifically bind to one or more targets, for example, bispecific therapeutic molecules, which may have structural advantages over monoclonal antibodies. The mechanisms of action for MOR209/ES414, ES210, ES425 and otlertuzumab include redirected T-cell cytotoxicity, or RTCC, and targeted cytokine delivery. The structural differences of ADAPTIR molecules over monoclonal antibodies allow for the development of other ADAPTIR immunotherapeutics that engage disease targets in a novel manner and produce a unique signaling response. We are skilled at product candidate generation, validation and subsequent pre- clinical and clinical development using the ADAPTIR platform. We have the ability to progress ADAPTIR molecules from concept to marketed product by way of our protein engineering, pre-clinical development and process development capabilities and cGMP manufacturing oversight. We also have the ability to launch, market and commercialize these product candidates upon approval.

Our marketed products are:

Our investigational stage product candidates include:

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Alzheimer’s disease;

For information regarding revenue, profit and loss, total assets and other information concerning our results of operations for each of the last three fiscal years, please refer to “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Biosciences Business of Emergent BioSolutions Inc. combined financial statements and notes included elsewhere in this information statement.

STRATEGY

We seek to grow our business by, among other things:

Advancing our ADAPTIR platform, initially focusing upon immuno-oncology, to develop novel treatments. We intend to focus on product development using ADAPTIR, our modular protein platform technology. We intend to develop the MOR209/ES414 program in collaboration with MorphoSys AG, with the goal of commercializing the product in North America. We plan to select and create redirected T-cell cytotoxicity, or RTCC, candidates for early development, potentially with other collaborative partners, to further validate the potential of the ADAPTIR platform and expand the pipeline. As part of the selection process, we intend to strongly favor candidates that we believe have the potential to demonstrate proof of concept early in development. We expect to continue to develop the platform to address unmet medical needs, through directed cytokine delivery via bispecifics in areas including oncology, and multispecific molecules in oncology, autoimmune disease and other therapeutic areas. Our goal is to leverage this technology to seek targeted investment in bispecific ADAPTIR therapeutics.

Continuing to develop new products. We are committed to new product development. We have expertise in molecular biology, antibody engineering and the development of protein therapeutics, including cell line development, protein purification, process development and analytical characterization. We believe that these core areas of expertise enable the development of therapeutics based on the ADAPTIR platform technology from design, pre-clinical testing, and clinical development to preparation of a Biologics License Application, or BLA.

Establishing collaborative partnerships to broaden our pipeline and provide funding for research and development. We intend to continue to develop and grow our product portfolio through internal research and development as well as through collaborations potentially with other biotechnology and pharmaceutical companies, academia and non-governmental organizations.

Successfully commercializing specialty products to create financial capacity for investment in our pipeline. We intend to continue to maximize the financial contribution of our hyperimmune products WinRho, HepaGam B and VARIZIG and expand sales of IXINITY for the purpose of funding our research and development efforts. This may require further investments.

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COLLABORATIONS, LICENSES AND SUPPORT AGREEMENTS

We have entered into several significant collaborations and transactions to support our growth. These include the following:

Collaboration with MorphoSys AG to develop MOR209/ES414

In August 2014, we entered into an agreement with MorphoSys AG to co-develop and commercialize our novel oncology immunotherapeutic, MOR209/ES414, developed for treatment of metastatic castration-resistant prostate cancer. In December 2015, after a joint review of data from the ongoing Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys concluded that the dosing regimen and administration required adjustment. The decision to adjust development of MOR209/ES414 was not based on safety aspects but was driven by the high complexity and properties of this first generation ADAPTIR bispecific molecule. Patients receiving weekly doses of MOR209/ES414 developed antibodies against the drug; this is called anti-drug antibodies, or ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug, reduced the concentration of MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. We plan to continue the current clinical trial under the amended protocol with recruitment expected to start around mid-2016. As a result of the dosing regimen change and the impact to the overall development timeline and technical risk, our co-development agreement with MorphoSys was restructured. Under the terms of the restructured agreement, MorphoSys’ cost sharing in the years 2016 to 2018 was reduced and future milestone payments payable by MorphoSys to us were reduced to a total of up to $74 million. In addition, the amended collaboration agreement changed the total expected funding requirement for us to up to approximately $250 million. After 2018, the cost sharing returns to the rates of the original agreement. Other financial terms and the split of the commercial rights remained unchanged. Aptevo retains commercialization rights in the U.S. and Canada under the MorphoSys collaboration agreement, with a tiered royalty obligation to MorphoSys, ranging from mid-single digit up to 20% of sales. MorphoSys has worldwide commercialization rights excluding the U.S. and Canada, with a low single digit royalty obligation to Aptevo. The royalty term is determined on a product-by-product and country-by- country basis and begins on the date at which a substantial amount of cumulative net sales has been reached and ends on the expiration of patents covering such licensed product in such country or twelve years after the initiation of royalty payments if there is no such valid claim. The termination provisions under the MorphoSys collaboration agreement were also amended to give MorphoSys a one-time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial.

Agreements with Emergent for Commercial Manufacturing Services and Transition Services

In connection with our separation from Emergent, we will enter into a manufacturing services agreement with Emergent. Under the agreement, Emergent will continue to manufacture our hyperimmune specialty plasma products WinRho SDF, HepaGam B and VARIZIG at its Winnipeg, Manitoba, Canada facilities. The expiration date of the manufacturing services agreement is ten years following the date of its execution, which is expected to occur on the separation date. We will consider contract manufacturing organization relationships with third- party providers for our products and product candidates going forward and seek to finalize agreements with the party that provides the best terms and conditions in support of Aptevo’s business. See “Certain Relationships and Related Party Transactions-Commercial Agreements” for further discussion of the manufacturing services agreement.

In addition, we anticipate that Emergent will also provide transition services to Aptevo for up to two years following the separation. These services may cover such functions as regulatory, pharmacovigilance,8 clinical research and quality assurance under our supervision.

Product License and Trademark License Agreements with Emergent

Prior to the distribution, we will enter into a product license agreement with Emergent pursuant to which Emergent will grant us a perpetual, exclusive royalty-free, nontransferable worldwide license, under certain licensed

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intellectual property rights, to research, develop, make, have made, use, sell, offer to sell and import WinRho SDF, HepaGam B and VARIZIG in their respective indications to support our hyperimmune products. Under the product license agreement, we will only be permitted to exercise rights with respect to Emergent’s human hyperimmune platform manufacturing know-how through a third-party contract manufacturer, and then only if the manufacturer is bound to protect the manufacturing know-how and is either approved by Emergent (in Emergent’s sole and absolute discretion) or there has been a manufacturing failure under the manufacturing services agreement. Aptevo may terminate its rights under the agreement at any time by providing written notice to Emergent. Emergent may terminate the agreement if Aptevo breaches the agreement and the breach is not cured within a specified period of time or is uncurable. Each party may terminate the agreement if the other party experiences certain bankruptcy events. See “Certain Relationships and Related Party Transactions—Intellectual Property Agreements” for further discussion of the Product License Agreement.

Prior to the distribution, we will enter into a trademark license agreement with Emergent pursuant to which Emergent will grant us a non-exclusive, royalty-free, worldwide, non-sublicenseable license under certain trademarks of Emergent to distribute the physical inventory of packaging and marketing materials assigned to us as part of the distribution, solely to sell, offer to sell and otherwise commercialize the commercial products until such inventory of packaging and marketing materials is depleted but in no event after the third anniversary of the distribution. Aptevo may terminate its rights under the agreement at any time by providing written notice to Emergent. Emergent may terminate the agreement if Aptevo breaches the agreement and the breach is not cured within a specified period of time or is uncurable. See “Intellectual Property Agreements—Certain Relationships and Related Party Transactions” for further discussion of the Trademark License Agreement.

License with the University of North Carolina to IXINITY intellectual property rights

Emergent has an exclusive license from the University of North Carolina to make, have made, use, offer for sale, sell and import factor IX and factor VI(a) therapeutics under certain of the University’s patents. We are required to pay a low single digit royalty obligation to the University under the license. The license agreement expires when the last of the licensed patents expire, on a country-by-country basis. The last of the licensed patents expires in or around September 2024. Patent term extension is being sought in the US, and if granted, the last patent to expire in the US will expire in or around November 2028. The University of North Carolina may terminate the license if a material breach is not cured 45 days after notice, Aptevo becomes bankrupt or insolvent, or Aptevo does not pay a yearly minimum earned royalty (in the mid-five digits). Aptevo can terminate the license with sixty days’ notice to the University of North Carolina. In connection with our separation from Emergent, the University has consented to the assignment of this license to us.

 

8   Pharmacovigilance refers to the drug safety evaluation process during clinical trials or after market approval where the effects of therapeutics or medical drugs are monitored to identify and evaluate adverse reactions.

 

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PLATFORM TECHNOLOGY AND PRODUCT PORTFOLIO

Platform Technology

ADAPTIR Platform. We believe Aptevo is well-positioned for the development of bispecific therapeutics, which are antibody-based molecules that are able to bind multiple targets of therapeutic interest, utilizing its innovative ADAPTIR™ (modular protein technology) platform. This allows Aptevo to take a novel approach to cancer immunotherapy. The platform can be used to produce monospecific and multispecific immunotherapeutic proteins that specifically bind to one or more targets, monospecific, bispecific and multispecific molecules.

Structurally, monospecific ADAPTIR molecules are similar to antibodies; they are somewhat smaller than antibodies and the various functions of an antibody can be significantly modified via the ADAPTIR format. The monospecific ADAPTIR molecules are single-chain polypeptides comprising customized elements including a protein domain that binds to a specific target linked by a hinge domain to a set of antibody constant domains known as an Fc region. The Fc region is a component in antibodies that allows antibodies to direct immune responses by binding to Fc receptors found on various immune cells and also provides for an extended serum half-life, which is how long the drug remains in circulation after injection. Multispecific ADAPTIR molecules are similar in structure to monospecific ADAPTIR molecules with the exception that they have two or more customized target binding domains. Multiple targeting domains allow multispecific ADAPTIR molecules to bind multiple targets.

The structural differences between ADAPTIR molecules and monoclonal antibodies that bind to one target allow for the development of new ADAPTIR immunotherapeutics that engage disease targets in a novel manner and produce a unique signaling response. By customizing the domains of our ADAPTIR molecules, we are able to select for desired potency, half-life, toxicity and good manufacturability. We are skilled at product candidate generation, validation and clinical development using the ADAPTIR platform. We have created various bispecific molecules that are able to redirect T-cell cytotoxicity, or RTCC. T-cells are white blood cells that fight infections and tumor cells. These bispecific ADAPTIR molecules causes T-cells to specifically kill a tumor by binding to a common component on the T-cell and then binding to a specific tumor antigen on a specific tumor, activating a T-cell to kill the tumor. We have the ability to develop ADAPTIR molecules from concept to marketed product by way of our protein engineering, pre-clinical development and process development capabilities and cGMP manufacturing oversight.

An ADAPTIR molecule is derived from a monoclonal antibody. As illustrated in the graphic below, it is composed of a pair of binding regions on either end of the molecule connected by an Fc region. The Fc region (fragment crystallizable region) in an antibody binds to complement and also to various effector cells such as Natural Killer cells (NK) which destroy bacteria and other targeted cells. In the ADAPTIR format these functions may be enhanced or eliminated depending on the function desired from the molecule. The Fc region is connected to the binding domains via a hinge region composed of amino acids. The binding domains in an ADAPTIR molecule is a single chain variable fragment (scFv), which is a fusion protein of the variable domains of the heavy and light chains of immunoglobulins or antibodies and they are connected with a short linker peptide of ten to about 25 amino acids.

 

scFv = Single Chain Fragment Variable

ECD = ExtraCellular Domain of a receptor

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We believe the ADAPTIR platform is a promising platform technology within the rapidly growing field of immuno-oncology therapeutics. With the platform, we have the potential to develop products with mechanisms of action including but not limited to RTCC and targeted cytokine delivery. With targeted cytokine delivery, one end of a bispecific molecule targets a specific cell, while at the other end a cytokine “payload” is attached. This provides the capability to more precisely deliver a therapeutic cytokine and could prevent toxicity of a cytokine by limiting its delivery to other areas in the body. We believe the ADAPTIR RTCC platform may prove to have advantages over other immuno-therapeutics and other bispecific T-cell engaging technologies. In particular, in pre-clinical studies, we have gathered data indicating that the ADAPTIR therapeutic MOR209/ES414 may have high potency and activity at low doses, a long half-life, and reduced cytokine release. This molecule is able to be produced using standard manufacturing practices. Further clinical and preclinical studies may not confirm or establish the anticipated benefits of this platform.

Aptevo owns all ADAPTIR platform intellectual property except that Aptevo has a non-exclusive research license with Lonza to certain Chinese hamster ovary, or CHO, cell lines, which are cells derived from the ovary of a Chinese hamster and often used in biological and medical research and commercially in the production of therapeutic proteins, for use in protein expression and the GS Gene Expression SystemTM. See section entitled “Platform Technology and Product Portfolio—Product Portfolio” for additional information about the ownership rights to ADAPTIR.

Product Portfolio

Our portfolio consists of marketed products in the areas of hematology and infectious diseases, as well as investigational stage product candidates in immuno-oncology.

Marketed Products

 

 

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WinRho® SDF [Rho(D) Immune Globulin Intravenous (Human)]. WinRho SDF is made from human plasma and is comprised of purified polyclonal human immune globulins (antibodies) that bind to red blood cells that are positive for Rho(D) (also known as Rho(D)(+) red blood cells). The purified polyclonal antibodies of WinRho SDF are a collection of immunoglobulin molecules that react against Rho(D), each identifying a different epitope9 or binding site on Rho(D). As antibodies that are directed to the Rho(D) antigen on these red blood cells, WinRho SDF can generally be referred to as an anti-D product, which means that it is a solution of IgG anti-RhD, which are two different types of antibodies.10 WinRho SDF is approved in the United States and Canada to treat an autoimmune platelet disorder called immune thrombocytopenic purpura, or ITP, a disease in which platelets are destroyed by a patient’s own immune system, resulting in the need for an increased platelet count. Because platelets are required for blood clotting, this disorder can result in uncontrolled bleeding, either spontaneously or as a result of even minor trauma. According to a study published in 2010 in the American Journal of Hematology, U.S. incidence rates of ITP are about 3.3 cases per 100,000 people per year in adults and up to 6.4 cases per 100,000 people per year in children. WinRho SDF is also approved in the United States and Canada to prevent hemolytic disease of the newborn, or HDN, in which the mother’s immune system attacks the newborn’s red blood cells. HDN results from a Rho(D)(-) female giving birth to a Rho(D)(+) child.

HepaGam B® [Hepatitis B Immune Globulin Intravenous (Human)]. HepaGam B is administered intravenously and is comprised of purified polyclonal human immune globulins (antibodies) that are directed to the hepatitis B surface antigen, which is a protein found on the surface of the hepatitis B virus and in the blood or serum of hepatitis B infected individuals. In the United States, HepaGam B has been approved for two indications: for the prevention of hepatitis B reinfection after liver transplantation and for use following exposure to the hepatitis B virus. Hepatitis B is a chronic infection and a major global health concern. HepaGam B is the first hepatitis B immune globulin product to be licensed in the United States for the liver transplant-related indication. HepaGam B is also approved for both the treatment following exposure to hepatitis B and the post- liver transplantation indication in Canada, Israel, Kuwait and Turkey.

VARIZIG® [Varicella Zoster Immune Globulin [Human]]. VARIZIG is comprised of purified polyclonal human immune globulins (antibodies) directed to the varicella zoster virus, the disease agent that causes chickenpox. While most North American adults have developed immunity to chickenpox, certain at-risk patient populations may be susceptible to infection. VARIZIG is approved in the United States for treatment following exposure to varicella (chickenpox) in high-risk patient groups, including children with compromised immune systems, newborns and pregnant women. VARIZIG has orphan drug exclusivity in the United States through December 2019. In Canada, VARIZIG is approved for the prevention and reduction of severity in maternal infections within four days of exposure to varicella zoster virus.

IXINITY® (coagulation factor IX (recombinant)). IXINITY is an intravenous therapeutic comprising an active pharmaceutical ingredient of recombinant human coagulation factor IX that was approved by the U.S. Food and Drug Administration, or FDA, in April 2015 for the prevention of bleeding episodes in people with hemophilia B. Hemophilia B, also known as Christmas disease, is a rare, inherited bleeding disorder. The blood of hemophilia B patients has an impaired clotting ability, which results from its substantially reduced or missing factor IX activity. People with hemophilia B require factor IX injections to restore normal blood coagulation and to prevent frequent bleeding that could otherwise result in pain, irreversible joint damage or life-threatening hemorrhages. Prophylaxis or on-demand treatment of hemophilia B typically requires multiple injections of factor IX to maintain adequate levels of clotting factor in the blood. Current therapies are either plasma-derived or recombinant products.

 

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Product Candidates

MOR209/ES414 . MOR209/ES414 is a targeted immunotherapeutic protein under development for metastatic castration-resistant prostate cancer. MOR209/ES414, a bispecific protein, was constructed using our ADAPTIR platform technology. It activates host T-cell immunity to specifically kill tumor cells expressing prostate specific membrane antigen, or PSMA, an enzyme that is commonly overexpressed on the surface of prostate cancer cells. MOR209/ES414 contains two pairs of binding domains, one targeting the T-cell receptor, or TCR, and one targeting PSMA on tumor cells; these binding domains are linked to opposite ends of an antibody Fc region which extends the serum half-life and enables use of a purification process typical of antibodies. In pre-clinical studies, MOR209/ES414 has been shown to redirect T-cell cytotoxicity towards prostate cancer cells expressing PSMA. According to the American Cancer Society, prostate cancer is the most common cancer in men in the United States. Screening, radiation, surgery and hormone ablation therapy have greatly improved the detection and treatment of early stage prostate cancer. However, new therapies approved recently for patients with metastatic castration-resistant prostate cancer only improve life expectancy by a few months, and a significant medical need still exists for these individuals.

ES210. ES210 is an anti-inflammatory molecule engineered using our ADAPTIR platform technology. It is under development for the treatment of inflammatory bowel disease, including ulcerative colitis and Crohn’s disease, and other autoimmune and inflammatory diseases. ES210 is a targeted cytokine therapeutic, specifically, it is designed to deliver a safer form of the anti-inflammatory cytokine, IL-10, to antigen presenting cells, or APCs, that express CD86. APCs are a therapeutic target of interest for an anti-inflammatory therapeutic such as ES210 because, as described further below, APCs play a critical role in the immune response. Structurally, ES210 contains a modified form of IL-10, coupled to binding sites specific for CD86, linked by an antibody Fc region. The mechanism of action results in suppression of T-cell responses through inhibition of antigen presentation. Antigen presenting cells play a central role in the generation and regulation of immunity; therefore, inhibiting their function represents a therapeutic opportunity to suppress immunopathological processes in autoimmune and inflammatory disease. ES210 preclinical data demonstrate potent in vitro and in vivo antagonism of T-cell proliferation in human mixed lymphocyte reactions and in a humanized11 graft-versus-host disease model. The ES210 ADAPTIR molecule also has potential anti-inflammation applications in rheumatoid arthritis and in the treatment of transplant rejection. As a molecule designed using our ADAPTIR platform technology, the ES210 half-life is extended in preclinical models. Also, manufacturing benefits are realized because the platform enables use of a purification process that is typically used for making antibodies.

ES425. ES425 is a bispecific immunotherapeutic protein that targets ROR1, an antigen found on several solid tumors and hematologic malignancies. ES425 was constructed using our ADAPTIR platform; one pair of binding domains bind to ROR1 on tumors and the other pair of binding domains bind to the T-cell receptor, or TCR. Its mechanism of action is to redirect T-cell cytotoxicity against tumors expressing ROR1. Initial preclinical data demonstrate significant redirected T-cell cytotoxicity against tumors in preclinical models. We plan to conduct animal toxicology and pharmacokinetic studies (used to determine how the human body processes the drug after absorption) in order to file an investigational new drug application, or IND, with the FDA.

otlertuzumab. Otlertuzumab is a monospecific protein therapeutic intended for the treatment of chronic lymphocytic leukemia, or CLL. CLL is a type of cancer that affects the blood and bone marrow and is caused by B-cells within the blood and bone marrow that abnormally proliferate and die. Otlertuzumab is a humanized anti- CD37 monospecific protein therapeutic built using the ADAPTIR platform technology. It specifically binds to CD37, a receptor found on malignant B-cells. It functions like an antibody and engages natural killer cells, which are lymphocytes of the immune system, and other effector cells to kill the tumor cell. We believe that otlertuzumab’s novel properties may provide patients with improved therapeutic options and enhanced efficacy when used in combination with chemotherapy or other targeted therapeutics.

 

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We completed a Phase 2 clinical trial evaluating the combination of otlertuzumab and bendamustine (a chemotherapy agent) versus bendamustine alone in people with relapsed CLL (Study 16201). In that study the combination of otlertuzumab and bendamustine was superior to bendamustine alone. The combination was well tolerated with significantly increased response rate (69% vs. 39%, p=0.003) and prolonged progression free survival rate (15.9 months vs. 10.1 months, p=0.0059) over single agent bendamustine treatment. The overall incidence of adverse events was similar between the two treatment cohorts, but there was a higher incidence of fever, neutropenia (which is a low white blood cell count that could predispose a patient to infection) and thrombocytopenia (which is a low platelet count that if severe could lead to bleeding) with the combination. The addition of otlertuzumab did not appear to increase the number of serious adverse events, as there were fewer discontinuations for adverse events with the combination compared to bendamustine alone.

We are conducting a Phase 1b study to evaluate the safety and efficacy of otlertuzumab in combination with rituximab, an anti-CD20-directed biologic that binds to CD20, a receptor found primarily on the surface of immune system B-cells. We amended our Phase 1b single-arm study to include evaluating otlertuzumab in combination with obinutuzumab in people with previously untreated CLL (Study 16009). Patients began enrolling in this arm of the study mid-2015. The preliminary data showed that the combination was active and generally well-tolerated. We continue to evaluate opportunities for otlertuzumab as a product candidate in the treatment of CLL.

5E3. 5E3 is an investigational drug in preclinical development for the treatment of Alzheimer’s disease and derived from a murine antibody. 5E3 is a humanized monoclonal antibody, not an ADAPTIR molecule, that selectively binds the oligomeric form of amyloid beta that have been associated with neurotoxicity. An oligomer is a type of polymer whose molecular units consist of relatively few repeating units. 5E3 targets a unique conformational epitope that is not present on the monomer or plaque forms of amyloid beta. This selective binding has been observed in pre-clinical studies and is linked to slowing the progress of neurodegeneration (the loss of nerve cells). Currently, no disease modifying therapies are available to treat this disease. According to the Alzheimer’s Association, this disease affects approximately 5.3 million Americans and is anticipated to grow to 7.1 million by 2025. The technology platform licensed from University of British Columbia includes 5E3 mAb and a vaccine candidate based on an amyloid beta mimic that are being evaluated as therapeutics or diagnostics for Alzheimer’s disease and with support through research grants from Brain Canada and the Canadian Institutes of Health Research, or CIHR.

ADAPTIR Therapeutic Candidates. Multiple candidates that are focused on immuno-oncology and based on the ADAPTIR platform technology are in different stages of pre-clinical development. As described above, these candidates include but are not limited to MOR209/ES414, ES210, ES425 and otlertuzumab.

Potential adverse events related to our product candidates

Experimental drugs may have a variety of adverse events related to their target, mechanism of action or off target toxicities. Clinical trials are conducted to define the efficacy and safety of a new molecule and this data is reviewed by the FDA prior to FDA approval. The majority of the drugs that we are developing are intended for the treatment of cancer. Because cancer is a serious and life threatening disease, these patients experience a number of serious adverse events as part of their disease. The risk-benefit ratio for new treatments of cancer is different than other less serious diseases. For example, for the treatment of hypertension, it is not acceptable for a drug to lower the number of white blood cells that fight infections. However, chemotherapy for the treatment of cancer frequently lowers the number of white blood cells and infections do occur, which physicians manage in the course of a patient’s cancer treatment. In order to distinguish whether a new drug causes adverse events, a controlled trial is frequently conducted comparing a new drug to another therapy.

In clinical trials to date with otlertuzumab, a variety of serious adverse events have been reported. The events that have been reported with infusion of the drug include: infusion reactions, neutropenia and thrombocytopenia. Severe infusion reactions were infrequent. When these reactions are severe they lead to hypotension (low blood pressure) and bronchospasm (difficulty breathing). Neutropenia is a low white blood cell count that could predispose a patient to infection. The neutropenia observed with otlertuzumab was mild to moderate, not prolonged and did not increase the infection rate in a controlled clinical trial. Thrombocytopenia is a low platelet count that if severe could lead to bleeding. The thrombocytopenia observed with otlertuzumab was infrequent and not associated

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with bleeding. Any of these events or others that have not yet been experienced, could lead to serious adverse events, including death and severely limit the drug’s use in the market or even its ability to be approved by a regulatory body.

MOR209/ES414 is currently being tested in its first clinical trial in humans. Twelve patients have received the drug. One of the significant serious adverse events associated with the drug is infusion reactions. Infusion reactions are often associated with the infusion of a protein and are expected with this drug that activates T-cells. The events that have been reported with infusion of the drug include: fever, fatigue, hypertension, bronchospasm, chills and rigors. The severity of these reactions varied by patient and were managed medically and resolved.

As previously noted, in December 2015, after a joint review of data from the Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys concluded that the dosing regimen and administration required adjustment. Patients receiving weekly doses of MOR209/ES414 developed ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There is no guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA. We plan to continue the current clinical trial under an amended protocol with recruitment expected to start around mid-2016. As a result of the required dosing regimen change and the impact to the overall development timeline and technical risk, our co-development agreement with MorphoSys was restructured.

Research and Development

We are engaged in research and development of therapeutics including the product candidates listed above and other new candidates. We incur substantial expenses for these activities. These expenses generally include the cost of inventing new technologies and products, as well as development work on new product candidates. We pursue partnerships with various third parties and these partnerships and the sales of our approved products partially offset these expenditures. Research and development expenses for the years ended December 31, 2015, 2014 and 2013 totaled approximately $34.7 million, $46.6 million and $38.1 million, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Research and Development Expense” in this information statement for additional information regarding expenditures related to material research and development activities.

Distribution

Our products are sold in the United States by our commercial sales force and distributed to end-users through major U.S. distributors and wholesalers, including Cardinal Health, Inc., McKesson Corporation, AmerisourceBergen Corporation and other specialty distributors. In Canada, our products are sold to Canadian Blood Services and Héma-Québec, with Emergent acting as our exclusive Canadian distributor. Outside of North America, our commercial products are distributed primarily through third-party distributors. All third-party logistics (including, for instance, warehousing, inventory management, and shipping) of final drug product are provided by Emergent out of its facilities in either Winnipeg or Baltimore.

Marketing & Sales

We have biotechnology commercial operations and medical affairs teams with experience in sales, marketing, distribution, reimbursement and medical support.

The commercial operations team includes a U.S.-based field sales force that focuses its selling efforts on hemophilia treatment centers, hematology clinics, medical oncology clinics, transplant centers and public and private hospitals. Our team also has a group focused on immunology. Our teams consists of 14 representatives and two managers for hemophilia and six representatives and one manager for immunology. We have a field- based national accounts director and manager and a national sales director overseeing these functions. This team is also

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responsible for managing day-to-day relationships with third parties, including managed care organizations, pharmacy benefit managers, group purchasing organizations, wholesalers, specialty distributors and specialty pharmacies. Outside the United States, our products are sold through a network of regional independent distributors. The commercial operations team also includes a marketing team with experience in building pharmaceutical and biological brands across all stages of the product life cycle. Reimbursement support, patient assistance/compassionate use and non-medical customer inquiries are handled by customer service personnel within our commercial operations team.

Our medical affairs team includes field-based medical science liaisons, who respond to customer requests for information, establish and maintain company relationships with researchers and clinicians, train our product specialists and sales personnel and interface with clinical trial investigators. Our medical affairs team also supports customers by providing medical information, drug safety and pharmacovigilance services.

Orders are filled upon receipt, and we generally have no orders on backlog.

Competition

Our products and product candidates face significant competition. Any product or product candidate that we successfully develop and commercialize is likely to compete with currently marketed products, as well as other novel product candidates that are in development for the same indications. Specifically, the competition with respect to our products and product candidates includes the following:

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MANUFACTURING

In connection with our separation from Emergent, we will enter into a manufacturing services agreement with Emergent. Emergent owns facilities with manufacturing and other capabilities located in Winnipeg, Manitoba, Canada, where our hyperimmune specialty plasma products WinRho SDF, HepaGam B and VARIZIG are currently manufactured. Under the agreement, Emergent will continue to manufacture our hyperimmune specialty plasma products. Under this Agreement, Emergent will also provide third-party logistics services for our hyperimmune specialty plasma products and IXINITY.

The manufacturing services agreement with Emergent will cover each step in the manufacturing process from raw materials procurement, bulk manufacturing, filling and finishing, testing, labeling, and packaging of final product, as well as third-party logistics services for delivery of such product to Aptevo customers on behalf of Aptevo. We will be reliant exclusively on Emergent for the provision of each of these services as it relates to WinRho SDF, HepaGam B and VARIZIG and as it relates to third-party logistics services for IXINITY. Emergent will also serve as a distributor in Canada under the Canadian distributor agreement we will enter into with Emergent. Pursuant to this arrangement, Emergent will receive product intended for sale in Canada on our behalf and deliver it to our other Canadian distributors: Canadian Blood Services and Hema-Quebec. See “Certain Relationships and Related Party Transactions—Commercial Agreements” for further discussion of the manufacturing services agreement and Canadian distributor agreement.

As more fully explained below, we rely primarily on CMC Biologics for drug substance manufacture of IXINITY, on Patheon UK Limited for fill-finish services of IXINITY, and on Rovi Contract Manufacturing, S.L. for supply of a water for injection syringe packaged with IXINITY. IXINITY will be delivered to Aptevo customers by Emergent as part of the third-party logistics services it provides to Aptevo under the manufacturing services agreement. For additional information, see the section entitled “Risk Factors—Risks Related to Aptevo’s Business.” Commercial packaging, packaging component procurement and release, ancillary procurement and distribution for IXINITY will be provided by Emergent and various other parties.

Sources and Availability of Raw Materials

We expect to rely on Emergent for all supplies and raw materials used in the production of WinRho SDF, HepaGam B and VARIZIG.

Agreement with CMC Biologics. We expect to rely on CMC Biologics for the manufacture of the substance that becomes the active ingredient (the bulk drug substance) in the production of our IXINITY product. We have an exclusive Commercial Supply (Manufacturing Services) Agreement with CMC pursuant to which, subject to specified exceptions, we are obligated to purchase at least eight batches and CMC is obligated to maintain a maximum capacity for 16 batches of IXINITY bulk drug substance per full year. The agreement has a six-year term expiring on June 17, 2017. CMC is obligated to use commercially reasonable endeavors to perform services in accordance with Aptevo’s forecast and projected delivery dates. In the event there is a supply failure as defined under the agreement, the agreement becomes non-exclusive with respect to 50% of Aptevo’s forecasted demand (or up to the unsupplied quantities until supply reinstatement). The agreement provides for milestone payments in addition to fees for services. The milestone payments set forth in the agreement have been paid. To the extent an invoice dispute is not resolved within 60 days of Aptevo’s original notice, if Aptevo has withheld payment, CMC is entitled to suspend the services. In addition to other limitations on damages (e.g. specific to replacement of defective product), with several exceptions, neither party is liable under the agreement for loss or damage in respect of indirect, special or consequential damages or losses. With several exceptions, CMC’s aggregate liability to Aptevo for any loss or damage suffered by Aptevo under the agreement in respect of services in a calendar year is limited to an amount equal to 1.1 times the total price of the services performed under the agreement subject to a maximum of $30 million. Each party may terminate the agreement if the other party fails to pay any amount properly due and payable with 10 days of notice demanding payment after the expiration of the original payment term or if the other party materially breaches the agreement and fails to remedy any such breach capable of remedy during a 20-day notice period. Each party may terminate the agreement if the other party experiences certain bankruptcy events. Aptevo can terminate its rights under the agreement if CMC’s breach of the agreement is in manufacturing or performance of a batch, and CMC fails to commence manufacture of a replacement batch within 90 days of notice (except if CMC has during the term with reasonable consistency delivered non-defective product to Aptevo in

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accordance with its obligations under the agreement). Aptevo may also terminate its rights under the agreement with a specified amount of prior notice, if CMC has any material permit or regulatory license permanently revoked preventing the performance of services by CMC, if CMC is subject to certain competitor change of control events, or where there is a supply failure prior to a supply reinstatement where CMC does not reinstate supply within 12 months of the supply failure.

Agreement with Patheon UK Limited. Patheon UK Limited, through an affiliate, is currently the sole source third-party manufacturer that performs the services of filling the bulk drug substance into vials for our IXINITY product. Aptevo has a non-exclusive Manufacturing Services Agreement with Patheon pursuant to which Aptevo is obligated to order, and Patheon agrees to perform, a specified amount of such services on an annual basis. Under the agreement, Patheon also agrees to use commercially reasonable efforts to perform services in excess of such minimum purchase commitments subject to its available capacity. The agreement has an initial three-year term expiring on May 27, 2018, and thereafter renews for successive terms of two years each, unless either party gives the other party at least 18 months’ notice. Aptevo may terminate its rights under the agreement on a specified amount of notice if a regulatory authority prevents Aptevo from importing, exporting, purchasing or selling the product or if Aptevo no longer orders services for a product due to the product’s discontinuance in the market. Patheon may terminate the agreement upon six months’ notice if Aptevo assigns its rights under the agreement to an assignee that, in Patheon’s opinion acting reasonably, is not a credit-worthy substitute, a Patheon competitor, or an entity with whom Patheon has had prior unsatisfactory business relations. Each party may terminate the agreement if the other party breaches the agreement and the breach is not cured within a specified period of time, if the other party experiences certain bankruptcy events, or upon a period of notice if the parties do not agree upon certain pricing adjustments. Except in respect of liability for certain third party claims, breach of confidentiality obligations, or replacement of defective product, Patheon’s liability is limited under the agreement to 10% of the revenues for such year to Patheon under the agreement. Patheon’s liability in respect of replacement of defective product is limited to the amount paid by Aptevo to Patheon for such product. Except in respect of a breach of confidentiality obligations, neither party is liable to the other under the agreement for any loss of profits or other damages of an indirect or consequential nature.

Agreement with Rovi Contract Manufacturing, S.L. Rovi Contract Manufacturing, S.L. is currently the sole source third-party manufacturer that supplies the syringe pre-filled with water for injection, that is packaged with and required for reconstitution of our IXINITY product. Aptevo has a non-exclusive supply agreement with Rovi pursuant to which Rovi is obligated to use its best efforts to supply the quantity of syringes ordered by Aptevo. The agreement has a five-year term expiring on April 29, 2019, and thereafter renews for successive five-year terms, unless Rovi provides Aptevo with written notice of its intent not to renew at least 24 months prior to the expiration of the term. Aptevo may terminate the agreement for any reason on at least 12 months’ prior notice. Each party may terminate the agreement if the other party breaches the agreement and the breach is not cured within a specified period of time. Neither party is liable under the agreement for loss or damage in respect of indirect, special or consequential damages or losses except to the extent such damages are caused by willful misconduct. Each party’s liability under the agreement, annually and in the aggregate, is limited to three times the amount invoiced by Rovi under the agreement for products during the 12-month period preceding the incident with a maximum limit of six million Euros; provided that in respect of certain third-party claims or costs resulting or arising from defective or infringing products or claims for injunctive relief, each party’s liability under the agreement, annually and in the aggregate, is limited to six million Euros.

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INTELLECTUAL PROPERTY

We actively seek intellectual property protection for our products. We will own or exclusively license patent rights supporting IXINITY, the ADAPTIR platform and pipeline products including MOR209/ES414, ES210, ES425, otlertuzumab and 5E3. We practice patent life cycle management by filing patent applications to protect new inventions relating to meaningful improvements to our products and related methods. We primarily seek patent protection for inventions that support our products and product candidates, but from time to time we seek patent protection for inventions that could, for instance, support a potential business opportunity or block a competitor from designing around our existing patents.

In general and where possible, we pursue patent protection in countries where we believe there will be a significant market for the corresponding product or product candidate. We generally do not seek patent protection in countries where we have reason to believe we would not be able to enforce patents. For instance, we tend to not file in countries that are frequently listed on the Priority Watch List of the Special 301 Report prepared by the Office of the United States Trade Representative, with the exception that we occasionally file patent applications in China, Russia and India. We may also decide to take a more narrow filing approach for secondary and improvement type inventions as compared to inventions that are more foundational to our products. We do not seek patent protection in countries which are on the United Nation’s, or U.N., list of Least Developed Countries.

The term of protection for various patents associated with and expected to be associated with our marketed products and product candidates is typically 20 years from the filing date but may vary depending on a variety of factors including the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. The protection afforded by a patent varies on a product-by- product basis and country-to-country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the necessity for terminal disclaimers, the availability of legal remedies in a particular country and the validity and enforceability of the patents.

In some cases, we may decide that the best way to protect our intellectual property is to retain proprietary information as trade secrets and confidential information rather than to apply for patents, which would involve disclosure of proprietary information to the public. When determining whether to protect intellectual property as a trade secret, we consider many factors including, for instance, our ability to maintain the trade secret, the likelihood that a competitor will independently develop the information, our ability to patent protect the intellectual property and the likelihood we would be able to enforce a resulting patent.

We are a party to a number of license agreements under which we license patents, patent applications and other intellectual property. These agreements impose various commercial diligence and financial payment obligations on us. We expect to continue to enter into these types of license agreements in the future.

ADAPTIR Platform. Aptevo protects the ADAPTIR platform technology through a combination of patents and trade secrets. Aptevo owns all ADAPTIR platform intellectual property, except that Aptevo has a non- exclusive research license with Lonza to certain CHO cell lines, which are cells derived from the ovary of a Chinese hamster and often used in biological and medical research and commercially in the production of therapeutic proteins, for use in protein expression and the GS Gene Expression SystemTM. The GS System is a cell transfection and protein expression system that uses a robust viral promoter and selection via glutamine metabolism to provide rapid development of high-yielding and stable mammalian cell lines that express transfected proteins of therapeutic interest. The GS System is well known in the industry, and according to Lonza, is a familiar system that has been used by over 100 global pharmaceutical and biotechnology companies. Under our Lonza research license, we have an option to take a license to use the GS System to develop and manufacture therapeutic proteins for our commercial purposes.

The intellectual property we own that supports our ADAPTIR platform was generated internally at Emergent or at Trubion Pharmaceuticals, Inc. prior to its acquisition by Emergent in 2010. One patent family which supports use of unique linkers in the homodimer (a molecule consisting of two identical halves) version of the platform was invented jointly by Trubion and Wyeth Pharmaceuticals as part of a collaboration between the two companies. Upon termination of a product license agreement between Wyeth and Trubion, Wyeth assigned the rights it had in that platform patent family to Trubion. These rights will be assigned to Aptevo in connection with the separation.

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In order to differentiate our platform inventions from antibodies and other antibody-like constructs that have been publicly disclosed, many of our patents and patent applications are directed to unique aspects or components of our platform such as linkers or binding domains. Our ADAPTIR platform can be homodimeric or heterodimeric. Although most of our patent families protect both homodimeric and heterodimeric forms of the platform, we also have a patent family that is focused on the heterodimeric form of the platform.

We have filed patent applications for the ADAPTIR platform in the U.S. and in countries and territories, including Australia, Brazil, Canada, China, Egypt, Europe, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Singapore, South Africa, South Korea, United Arab Emirates and Vietnam. We plan to continue to improve our ADAPTIR platform and to file patent applications on those improvements. Our decision as to where to file any new ADAPTIR improvement inventions will be based in part on the significance of the improvement. If patents issue on the pending ADAPTIR patent applications, the patent term for those patents are estimated to expire between June 2027 and September 2036.

Hyperimmune products, WinRho, HepaGam B and VARIZIG. We rely on the confidential nature of our in-licensed manufacturing know-how as well as trade secret protection to protect our licensed products to the extent we are able to do so. In connection with our separation from Emergent, we will have received a license from Emergent under certain of its proprietary human hyperimmune platform manufacturing know-how that we may exercise under specified circumstances. We rely on this intellectual property to protect our WinRho SDF, HepaGam B and VARIZIG products. We do not have patent protection for WinRho SDF, HepaGam B or VARIZIG.

IXINITY® (coagulation factor IX (recombinant)). We license patents and patent applications from the University of North Carolina, which support the manufacture of factor IX and other Vitamin K Dependent Proteins. In addition to the patent assets licensed from the University of North Carolina, we own a patent portfolio with claims generally directed to factor IX pharmaceutical compositions, methods of making recombinant factor IX protein, and cell lines producing recombinant factor IX protein. This patent portfolio includes issued patents in Australia, Europe and Japan and pending patent applications in other territories including the U.S. If patents issue on our pending patent applications, the patent term for those patents is estimated to expire between December 2026 and October 2030. The estimated patent expirations are subject to change based on patent term adjustments, extensions or terminal disclaimers.

MOR209/ES414. We have patents and pending patent applications supporting the MOR209/ES414 product candidate. We have foundational patents and patent applications in countries including the U.S., Australia, Brazil, Canada, China, Egypt, Europe, Hong Kong, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Singapore, South Africa, United Arab Emirates and Vietnam. The foundational patents which grant in this patent family are estimated to expire in April 2032. The estimated patent expirations are subject to change based on patent term adjustments, extensions or terminal disclaimers.

ES210 . We have patents and pending patent applications supporting our ES210 product candidate. We have foundational patents and patent applications in countries and territories, including the U.S., Australia, Brazil, Canada, China, Eurasia, Europe, Hong Kong, India, Japan, Mexico, New Zealand, Singapore, South Africa and South Korea. The foundational patents which grant in this patent family are estimated to expire in October 2029. The estimated patent expirations are subject to change based on patent term adjustments, extensions or terminal disclaimers.

ES425. We have a patent application covering our ES425 product candidate. We plan to broadly nationalize this application, and any resulting patents are estimated to expire in December 2035. In addition to the patent application family that we own, we have an exclusive license from the U.S. Department of Health and Human Services to a patent family that discloses ROR-1 antibodies that are related to the ROR-1 binding domain of ES425. The license from the U.S. Department of Health and Human Services is limited to use in the field of bispecific and multispecific therapeutic molecules with redirected T-cell cytotoxicity activity. If patent applications grant in the licensed patent family, the patents are estimated to expire in November 2031. The U.S. Department of Health and Human Services can terminate the license if we are in default in the performance of any material obligations under the agreement and do not cure the default within 90 days after receiving notice. The U.S. Department of Health and Human Services can also terminate the license if it determines that termination is necessary to meet the requirements for public use specified by federal regulations and those requirements are determined not to be adequately satisfied by our activities.

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otlertuzumab. We have patents and pending patent applications supporting the otlertuzumab product candidate. We have foundational patents and patent applications in countries and territories, including the U.S., Canada, China, Europe, Hong Kong, India, Israel, Japan, Mexico, New Zealand, Russia, South Africa and South Korea. The foundational patents and patent applications which grant in these patent families are estimated to expire between July 2026 and April 2029. The estimated patent expirations are subject to change based on patent term adjustments, extensions or terminal disclaimers.

5E3. We have licensed from the University of British Columbia the right to make, have made, use, offer for sale, sell, and import products in the field of beta-amyloid disorders under certain of the University’s patents. The University’s patents and patent applications encompassed by the license are generally directed to antibodies that bind a specific conformational amyloid beta epitope and related pharmaceutical compositions, antigenic peptides and related pharmaceutical compositions, and methods of treating and preventing Alzheimer’s disease. If patents issue on the currently pending patent applications, the projected expiration dates of the licensed patent portfolio range from March 2031 to July 2035. The estimated patent expirations are subject to change based on patent term adjustments, extensions or terminal disclaimers.

Corporate Trademarks. Where possible, we pursue registered trademarks for our marketed products in significant markets. In addition, we have pending trademark applications covering APTEVO, a graphic logo, APTEVO THERAPEUTICS, APTEVO BIOTHERAPEUTICS, APTEVO RESEARCH AND DEVELOPMENT and ADAPTIR.

REGULATION

Regulations in the United States and other countries have a significant impact on our product development, manufacturing and marketing activities.

Product Development for Therapeutics

Pre-clinical Testing. Before beginning testing of any compounds with potential therapeutic value in human subjects in the United States, stringent government requirements for pre-clinical data must be satisfied. Pre- clinical testing includes both in vitro, or in an artificial environment outside of a living organism, and in vivo, or within a living organism, laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. We perform pre-clinical testing on all of our product candidates before we initiate any human trials.

Investigational New Drug Application. Before clinical testing may begin, the results of pre-clinical testing, together with manufacturing information, analytical data and any other available clinical data or literature, must be submitted to the FDA as part of an IND. The sponsor must also include an initial protocol detailing the first phase of the proposed clinical investigation, together with information regarding the qualifications of the clinical investigators. The pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial clinical studies in human volunteers. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA imposes a clinical hold within that 30-day time period.

Clinical Trials. Clinical trials involve the administration of the drug to healthy human volunteers or to patients with the target disease or disorder under the supervision of a qualified physician (also called an investigator) pursuant to an FDA-reviewed protocol. Human clinical trials typically are conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria, if any, to be evaluated. Each protocol must be submitted to the FDA as part of the IND.

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Good Clinical Practice. All of the phases of clinical studies must be conducted in conformance with the FDA’s bioresearch monitoring regulations and Good Clinical Practices, or GCP, which are ethical and scientific quality standards for conducting, recording and reporting clinical trials to assure that the data and reported results are credible and accurate and that the rights, safety and well-being of trial participants are protected.

Marketing Approval—Biologics and Drugs

Biologics License Application/New Drug Application. All data obtained from a comprehensive development program, including research and product development, manufacturing, pre-clinical and clinical trials, labeling and related information are submitted in a Biologics License Application, or BLA, to the FDA and in similar regulatory filings with the corresponding agencies in other countries for review and approval. For small molecule drugs, this information is submitted in a filing called a New Drug Application, or NDA. The submission of an application is not a guarantee that the FDA will find the application complete and accept it for filing. The FDA may refuse to file the application and request additional information rather than accept the application for filing, in which case the application must be resubmitted with the supplemental information. The FDA has two months to review an application for its acceptability for filing. Once an application is accepted for filing, the Prescription Drug User Fee Act, or PDUFA, establishes a two-tiered review system: Standard Review and Priority Review. When conducting Priority Review, the FDA has a goal to review and act on BLA and NDA submissions within six months from the date of the FDA’s acceptance for filing of the application, rather than the 10-month month goal under a Standard Review. The FDA gives Priority Review status to product candidates that provide safe and effective therapies where no satisfactory alternative exists or to a product candidate that constitutes a significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease.

In addition, under the Pediatric Research Equity Act of 2003, or PREA, BLAs, NDAs and certain supplements must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug or biologic for an indication for which orphan designation has been granted.

In reviewing a BLA or NDA, the FDA may grant approval, deny the application if it determines the application does not provide an adequate basis for approval or again request additional information. Even if such additional information and data are submitted, the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. The receipt of regulatory approval often takes many years, involving the expenditure of substantial financial resources. The speed with which approval is granted often depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. The FDA may also impose conditions upon approval. For example, it may require a Risk Evaluation and Mitigation Strategy, or REMS, for a product. This can include various required elements, such as publication of a medication guide, patient package insert, a communication plan to educate health care providers of the drug’s risks and/or restrictions on distribution and use, such as limitations on who may prescribe or dispense the drug. The FDA may also significantly limit the indications approved for a given product and/or require, as a condition of approval, enhanced labeling, special packaging or labeling, post-approval clinical trials, expedited reporting of certain adverse events, pre-approval of promotional materials or restrictions on direct-to-consumer advertising, any of which could negatively impact the commercial success of a drug.

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Fast Track Designation. The FDA may designate a product as a fast track drug if it is intended for the treatment of a serious or life-threatening disease or condition and demonstrates the potential to address unmet medical needs for this disease or condition. Sponsors granted a fast track designation for a drug are granted more opportunities to interact with the FDA during the approval process and are eligible for FDA review of the application on a rolling basis, before the application has been completed.

Breakthrough Therapy. Under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA may designate a product as a breakthrough therapy if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Products designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Orphan Drugs. Under the Orphan Drug Act, an applicant can request the FDA to designate a product as an “orphan drug” in the United States if the drug is intended to treat an orphan, or rare, disease or condition. A disease or condition is considered orphan if it affects fewer than 200,000 people in the United States. Orphan Drug designation must be requested before submitting a BLA or NDA. Products designated as orphan drugs are eligible for special grant funding for research and development, FDA assistance with the review of clinical trial protocols, potential tax credits for research, reduced filing fees for marketing applications and a special seven- year period of market exclusivity after marketing approval. Orphan drug exclusivity (afforded to the first applicant to receive approval for an orphan designated drug) prevents FDA approval of applications by others for the same drug for the designated orphan disease or condition. The FDA may approve a subsequent application from another applicant if the FDA determines that the application is for a different drug or different use, or if the FDA determines that the subsequent product is clinically superior, or that the holder of the initial orphan drug approval cannot assure the availability of sufficient quantities of the drug to meet the public’s need. A grant of an orphan designation is not a guarantee that a product will be approved. The FDA has designated VARIZIG with Orphan Drug exclusivity through December 2019 for treatment following exposure to varicella (chickenpox) in high-risk patient groups, including children with compromised immune systems, newborns and pregnant women. Our product candidate otlertuzumab was granted orphan drug designation by the FDA in November 2011 and received orphan medicinal product designation from the European Commission in December 2012 for the treatment of chronic lymphocytic leukemia. Orphan designation in Europe qualifies a drug for certain development and commercial incentives, including protocol assistance, access to centralized authorization procedures, reduced fees for regulatory activities, and 10 years of market exclusivity after approval.

Post-Approval Requirements. Any drug, biologic or medical device product for which we receive FDA approval will be subject to continuing regulation by the FDA, including, among other things, record keeping requirements, reporting of adverse experiences, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, current good manufacturing practices, or cGMP, and restrictions on advertising and promotion. Adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s distribution or use and, potentially, withdrawal or suspension of the product from the market. In addition, the FDA has post-approval authority to require post-approval clinical trials and/or safety labeling changes if warranted by the appearance of new safety information. In certain circumstances, the FDA may impose a REMS after a product has been approved. Facilities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA for compliance with cGMP and other laws. The FDA also closely monitors advertising and promotional materials we may disseminate for our products for compliance with restrictions on off-label promotion and other laws. We may not promote our products for conditions of use that are not included in the approved package inserts for our products. Certain additional restrictions on advertising and promotion exist for products that have so-called “black box warnings” in their approved package inserts, such as WinRho SDF.

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Pricing and Reimbursement

In the United States and internationally, sales of our products and our ability to generate revenues on such sales are dependent, in significant part, on the availability and level of reimbursement from third-party payors, including state and federal governments and private insurance plans. Insurers have implemented cost-cutting measures and other initiatives to enforce more stringent reimbursement standards and likely will continue to do so in the future. These measures include the establishment of more restrictive formularies and increases in the out-of-pocket obligations of patients for such products. In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities. Various provisions of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act), collectively referred to as the Affordable Care Act, increased the levels of rebates and discounts that we have to provide in connection with sales of such products that are paid for, or reimbursed by, certain state and federal government agencies and programs. It is possible that future legislation in the United States and other jurisdictions could be enacted, which could potentially impact the reimbursement rates for our products and also could further impact the levels of discounts and rebates we are required to pay to state and federal government entities. The most significant governmental reimbursement programs in the United States relevant to our products are described below:

Medicare Part B. Medicare Part B covers certain drug products provided in a physician’s office or hospital outpatient setting under a payment methodology using “average sales price,” or ASP, information. We are required to provide ASP information to the Centers for Medicare & Medicaid Services, or CMS, on a quarterly basis. Medicare payment rates using an ASP methodology are currently set at ASP plus six percent, although this rate could change in future years. If we fail to timely or accurately submit ASP, we could be subject to civil, monetary and other penalties. WinRho SDF, HepaGam B, VARIZIG and IXINITY are all eligible to be reimbursed under Medicare Part B.

Medicaid Rebate Program. For products to be covered by Medicaid, drug manufacturers must enter into a rebate agreement with the Secretary of HHS on behalf of the states and must regularly submit certain pricing information to CMS. The pricing information submitted, including information about the “average manufacturer price,” or AMP, and “best price” for each of our covered drugs, determines the amount of the rebate we must pay. The total rebate also includes an “additional” rebate, which functions as an “inflation penalty.” The Affordable Care Act increased the amount of the basic rebate and, for some “line extensions,” increased the additional rebate. It also requires manufacturers to pay rebates on utilization by enrollees in managed care organizations. If we fail to timely or accurately submit required pricing information, we could be subject to civil, monetary and other penalties. In addition, the Affordable Care Act made changed the definition of AMP to address which manufacturer sales are to be considered, which affected the rebate liability for our products. Sales of WinRho SDF, HepaGam B, VARIZIG and IXINITY that are reimbursed through Medicaid are subject to the obligations related to this program.

340B/PHS Drug Pricing Program. The availability of federal funds to pay for WinRho SDF, HepaGam B, VARIZIG and IXINITY under the Medicaid and Medicare Part B programs requires that we extend discounts under the 340B/Public Health Service, or PHS, drug pricing program. The 340B/PHS drug pricing program requires participating manufacturers to charge no more than a statutorily-defined “ceiling” price to a variety of community health clinics and other covered entities that receive health services grants from the PHS, as well as the outpatient departments of hospitals that serve a disproportionate share of Medicaid and Medicare beneficiaries. A product’s ceiling price for a quarter reflects its Medicaid AMP from two quarters earlier less its Medicaid rebate amount from two quarters earlier. Therefore, the above-mentioned revisions to the Medicaid rebate formula and AMP definition enacted by the Affordable Care Act could cause the discount produced by the ceiling price to increase. Under the Affordable Care Act, several additional classes of entities were made eligible for these discounts, increasing the volume of sales for which we must now offer the 340B/PHS discounts.

Federal Supply Schedule. We make WinRho SDF, HepaGam B, VARIZIG and IXINITY available for purchase by authorized users of the Federal Supply Schedule, or FSS, administered by the Department of Veterans Affairs, or DVA, pursuant to our FSS contract with the DVA. Under the Veterans Health Care Act of 1992, we are required to offer deeply discounted FSS contract pricing to four federal agencies—the DVA, the DoD, the Coast Guard and the PHS (including the Indian Health Service)—for federal funding to be made available for reimbursement of any of our products under the Medicaid program, Medicare Part B and for our products to be

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eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the “Federal Ceiling Price,” which is, at a minimum, 24% less than the Non-Federal Average Manufacturer Price for the prior fiscal year.

Foreign Regulation

Currently, we maintain a commercial presence in the United States and Canada. In the future, we may further expand our commercial presence to additional foreign countries and territories. In the European Union, medicinal products are authorized following a process similarly demanding as the process required in the United States. Medicinal products must be authorized in one of two ways, either through the decentralized procedure, which provides for the mutual recognition procedure of national approval decisions by the competent authorities of the EU Member States or through the centralized procedure by the European Commission, which provides for the grant of a single marketing authorization that is valid for all EU member states. The authorization process is essentially the same irrespective of which route is used. We are also subject to many of the same continuing post- approval requirements in the EU as we are in the United States (e.g., good manufacturing practices).

Anti-Corruption Laws

We are subject to various federal and state laws pertaining to health care “fraud and abuse,” including state and federal anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment, to third-party payors (including

Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. If we violate the kickback or false claims laws, we could be subject to civil and criminal penalties, including exclusion from participation in federal healthcare programs such as Medicare and Medicaid. Similar restrictions are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct are often strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have implications for us. In addition, as part of the Affordable Care Act, the federal government enacted the Physician Payment Sunshine Act. Manufacturers of drugs are required to publicly report payments and transfers of value made to physicians and teaching hospitals. This information is posted on a public website. Failure to timely and accurately submit required information could subject us to civil penalties. Some states have similar laws. Many of these transparency requirements are new and uncertain and the extent to which the laws will be enforced is not always clear.

Our operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits corporations and individuals from directly or indirectly paying, offering to pay, or authorizing the payment of anything of value to any foreign government official or employee, or any foreign political party or political candidate in an attempt to obtain or retain business or to otherwise influence such official, employee, party or candidate in his or her or its official capacity. We also may be implicated under the FCPA by activities taken on our behalf by our partners, collaborative partners, consultants, distributors, contract research organizations, vendors or other agents and representatives. As a public company, the FCPA also requires us to make and keep books and records that accurately and fairly reflect all of our transactions and to devise and maintain an adequate system of internal accounting controls. Our operations are also subject to compliance with the Bribery Act of 2010, which applies to activities both in the public and private sector, Canada’s Corruption of Foreign Public Officials Act and similar laws in other countries where we do business.

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Other Regulation

Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import, export, use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents used in connection with our product development, are or may be applicable to our activities.

EMPLOYEES

Following the separation, we expect to employ approximately 140 full-time persons. The team is comprised of a dedicated group of accomplished professionals who bring a broad range of academic achievements combined with significant industry experience. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees is represented by a labor union or covered by collective bargaining agreements. We believe that our relations with our employees are good.

AVAILABLE INFORMATION

The Aptevo investor website www.AptevoTherapeutics.com will be operational as of our separation date. We will make available, free of charge on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the Securities and Exchange Commission, or SEC.

We will also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. In addition, we intend to make available on our website all disclosures that are required to be posted by applicable law, the rules of the SEC or the NASDAQ listing standards regarding any amendment to, or waiver of, our code of business conduct and ethics. We have included our website address as an inactive textual reference only. The information contained on, or that can be accessed through, our website is not a part of, or incorporated by reference into, this information statement.

PROPERTIES

We lease our headquarters office and laboratory space in Seattle, Washington. The Seattle facility is approximately 51,000 square feet. The Seattle lease expires in April of 2020. We also lease approximately 5,000 square feet of satellite office space in Berwyn, Pennsylvania. The Berwyn lease expires in May 2017.

LEGAL PROCEEDINGS

From time to time, we are involved in various routine legal proceedings incident to the ordinary course of our business. We believe that the outcome of all pending legal proceedings in the aggregate is unlikely to have a material adverse effect on our business, financial condition or results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the audited combined financial statements and the corresponding notes and the unaudited pro forma combined financial statements and the corresponding notes included elsewhere in this information statement. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. You should review the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this information statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, references to “Aptevo,” “we,” “us,” “our,” “our company” and “the company” refer to Aptevo Therapeutics Inc., a Delaware corporation, and its combined subsidiaries as they will exist assuming the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references to “Emergent” and “Emergent BioSolutions” refer to Emergent BioSolutions Inc., a Delaware corporation, and its consolidated subsidiaries. This information statement describes the business to be transferred to Aptevo by Emergent in the separation as if the transferred business were Aptevo’s business for all historical periods described. Unless the context otherwise requires, references to Aptevo’s historical assets, liabilities, products, businesses or activities are intended to refer to certain historical assets, liabilities, products, businesses or activities of the biosciences business of Emergent, as further described in this information statement, as the business was conducted as part of Emergent prior to completion of the separation.

Overview

On August 6, 2015, Emergent BioSolutions Inc. announced its plan to separate into two independent publicly-traded companies, one a biotechnology company focused on novel oncology (cancer) and hematology (blood disease) therapeutics to meaningfully improve patients’ lives and the other a global specialty life sciences company focused on providing specialty products for civilian and military populations that address intentional and naturally emerging public health threats. To accomplish this separation, Emergent created a new company, Aptevo Therapeutics Inc., to be the parent company for the biosciences business focused on novel oncology and hematology therapeutics. Aptevo Therapeutics Inc. was incorporated in Delaware in February 2016 and is currently a wholly-owned subsidiary of Emergent. To effect the separation, Emergent will make a pro rata distribution of Aptevo Therapeutics Inc. common stock to Emergent’s stockholders. See “The Separation and Distribution” section of this information statement for additional details on these conditions. After the distribution, Aptevo will operate as an independent, publicly-traded company.

Aptevo will consist of certain assets currently in Emergent’s biosciences business, including commercial products and development programs, and the ADAPTIR platform technology. Emergent will retain the biodefense marketed products and development programs, platform technologies, including the hyperimmune specialty plasma product manufacturing platform, and manufacturing infrastructure, including the contract fill/ finish business. Certain historical operations that were included by Emergent in its biosciences segment have been reallocated to Emergent’s continuing operations, and as a result these financial statements differ from Emergent’s historically reportable biosciences segment. Effective January 1, 2016, Emergent changed its segment presentation to reflect this new structure and recast its biosciences segment reporting for the newly named “Aptevo segment”.

Aptevo’s historical combined financial statements have been prepared on a standalone basis and are derived from Emergent’s consolidated financial statements and accounting records. The combined financial statements reflect Aptevo’s financial position, results of operations, and cash flows as its business was operated as part of Emergent prior to the distribution, in conformity with U.S. generally accepted accounting principles.

The combined financial statements include the allocation of certain assets and liabilities that have historically been held at the Emergent corporate level but which are specifically identifiable or allocable to Aptevo. Cash and cash equivalents held by Emergent were not allocated to Aptevo unless the cash was held by an entity that will be

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transferred to Aptevo in the distribution. All Aptevo intracompany transactions and accounts have been eliminated. All intercompany transactions between Aptevo and Emergent are considered to be effectively settled in the combined financial statements at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as net investment from Emergent.

The historical financial statements do not necessarily include all of the expenses that would have been incurred had Aptevo been a separate, standalone entity and may not necessarily reflect Aptevo’s results of operations, financial position and cash flows had Aptevo been a standalone company during the periods presented. Aptevo’s combined financial statements include an allocation of expenses related to certain Emergent corporate functions, including senior management, legal, human resources, finance, information technology, and quality assurance. These expenses have been allocated to Aptevo based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, square footage, or other measures. Aptevo considers the expense allocation methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had Aptevo operated as an independent, publicly-traded company for the periods presented.

Aptevo’s investigational stage products MOR209/ES414, ES210, ES425 and otlertuzumab are built on our novel ADAPTIRTM (modular protein technology) platform, which is designed to expand on the utility and effectiveness of therapeutic antibodies. The technology can produce monospecific and multispecific, for example, bispecific therapeutic molecules, which may have structural advantages over monoclonal antibodies (identical antibodies from clones or copies of a unique parent cell that bind to the same target in the same way). The mechanisms of action for MOR209/ES414, ES210, ES425 and otlertuzumab include redirected T-cell cytotoxicity, or RTCC, and targeted cytokine delivery. The structural differences of ADAPTIR molecules over monoclonal antibodies allow for the development of other ADAPTIR immunotherapeutics that engage disease targets in a unique manner and produce a unique signaling response. We are skilled at product candidate generation, validation and subsequent clinical development using the ADAPTIR platform. We have the ability to progress ADAPTIR molecules from concept to marketed product by way of our protein engineering, pre-clinical development and process development capabilities and cGMP manufacturing oversight. We also have the ability to launch, market and commercialize these product candidates upon approval.

Aptevo’s marketed products are:

Aptevo’s investigational stage product candidates include:

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Alzheimer’s disease;

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenues, accrued expenses, income taxes, stock-based compensation, inventory, intangible assets, in-process research and development and goodwill. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Aptevo recognizes revenues if four basic criteria have been met (1) there is persuasive evidence of an arrangement, (2) delivery has occurred or services have been rendered, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

Aptevo markets and sells its products through commercial wholesalers (direct customers) who purchase the products at a price referred to as the wholesale acquisition cost (“WAC”). Additionally, Aptevo may enter into separate agreements with indirect customers to acquire its products for a contracted price that is less than the product’s WAC. The indirect customers, such as group-purchasing organizations, physician practice- management groups and hospitals, continue to purchase Aptevo’s products from the wholesalers, but at their respective contractual prices. Per its wholesaler agreements, Aptevo guarantees to credit the wholesaler for the difference between the WAC and the indirect customers’ contracted price. This credit is referred to as a chargeback and revenues from product sales are recorded net of estimated chargebacks. Adjustments to the chargeback provisions are made periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results.

All revenues from product sales are also recorded net of applicable allowances for sales and government rebates, special promotional programs, and discounts. These allowances are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels, contract terms, and actual discounts offered. In arriving at these estimates, Aptevo further utilizes information received from third parties including market data, inventory reports from major wholesalers, historical information and analysis. These estimates are subject to the inherent limitations of estimates that rely on third-party data, as certain third- party information may itself rely on estimates and reflect other limitations.

Aptevo defers the recognition of revenue from the sales of new product introductions until the commercial wholesalers resell the product through to healthcare providers. This is due to the inherent uncertainties in estimating

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normal wholesaler inventory levels of new products in addition to Aptevo provided extended payment terms and expanded return rights that allow the wholesalers to return the product. Once Aptevo gains enough historical experience to reasonably estimate ultimate product sales, revenue from sales are no longer deferred. As of March 31, 2016, Aptevo had $1.8 million of deferred revenue for sales related to the IXINITY product introduction.

Revenue generating collaborative research and development agreements may contain one or more provisions including licensing, research services and milestone deliverables. Aptevo analyzes its multiple element revenue generating arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting. An item can generally be considered a separate unit of accounting if both of the following criteria are met: (1) the delivered item(s) has value to the customer on a standalone basis and (2) if the arrangement includes a general right of return and delivery, the performance of the undelivered item(s) is considered probable and substantially in the control of Aptevo. Items that cannot be divided into separate units are consolidated with other units of accounting, as appropriate. Consideration to be received is allocated among the separate units based on each unit’s relative selling price and is then recognized when the appropriate revenue recognition criteria are met. Aptevo deems services to be rendered if no continuing obligation exists on the part of Aptevo.

Revenue associated with non-refundable upfront license fees that can be treated as a single unit of accounting are recognized when all ongoing obligations have been delivered. Revenue associated with non- refundable upfront license fees under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting are deferred and recognized as revenue either on a straight-line basis over Aptevo’s continued involvement in the research and development process or based on the proportional performance of Aptevo’s expected future obligations under the contract.

Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved and the milestone payments are due and collectible. Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non- refundable, (2) achievement of the milestone was not reasonably assured at the inception of the arrangement, (3) substantive effort is involved to achieve the milestone and (4) the amount of the milestone payment appears reasonable in relation to the effort expended. If not deemed substantive, Aptevo recognizes such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process. Payments received in advance of revenue recognized are recorded as deferred revenue.

Mergers and Acquisitions

In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the merger or acquisition at their respective fair values with limited exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are recognized at fair value if fair value can reasonably be estimated. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, Aptevo may be required to value assets at fair value measures that do not reflect Aptevo’s intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in Aptevo’s combined financial statements after the date of the merger or acquisition.

The fair values of intangible assets are determined utilizing information available near the merger or acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, Aptevo typically obtains assistance from third-party valuation specialists for significant items. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as asset lives, can materially affect Aptevo’s results of operations.

The fair values of identifiable intangible assets related to currently marketed products and product rights are primarily determined by using an “income approach” through which fair value is estimated based on each asset’s discounted projected net cash flows. Aptevo’s estimates of net cash flows consider historical and projected pricing,

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margins and expense levels, the performance of competing products where applicable, relevant industry and therapeutic area growth drivers and factors, current and expected trends in technology and product life cycles, the time and investment that will be required to develop products and technologies, the ability to obtain marketing and regulatory approvals, the ability to manufacture and commercialize the products, the extent and timing of potential new product introductions by Aptevo’s competitors, and the life of each asset’s underlying patent, if any. The net cash flows are then probability-adjusted where appropriate to consider the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future net cash flows of each product are then discounted to present value utilizing an appropriate discount rate.

The fair values of identifiable intangible assets related to in-process research and development (“IPR&D”) are determined using an income approach, through which fair value is estimated based on each asset’s probability-adjusted future net cash flows, which reflect the different stages of development of each product and the associated probability of successful completion. The net cash flows are then discounted to present value using an appropriate discount rate. Amounts allocated to acquired IPR&D are capitalized and accounted for as indefinite-lived intangible assets. Upon successful completion of each project, Aptevo will make a separate determination as to the then useful life of the asset and begin amortization.

Provision for Chargebacks

We record sales for our products primarily net of provisions for chargebacks, administration fees, rebates and other adjustments. These provisions are primarily estimated based on historical experience, future expectations, contractual arrangements with wholesalers and indirect customers, and other factors known to management at the time of accrual. Provisions for chargebacks, administration fees, rebates and other adjustments require varying degrees of subjectivity. While rebates generally are based on contractual terms and require minimal estimation, chargebacks require management to make more subjective assumptions.

The provision for chargebacks is a significant and complex estimate used in the recognition of revenue. We sell our products directly primarily to large commercial wholesale distributors. We also sell our products indirectly to group-purchasing organizations, physician practice-management groups and hospitals, collectively referred to as “indirect customers.” We enter into agreements with our indirect customers to establish pricing for certain of our products. The indirect customers then independently select a wholesaler from which to purchase the products. If the price paid by the indirect customers is lower than the price paid by the wholesaler, we will provide a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesaler purchase price. The provision for chargebacks is based on expected sell- through levels by our wholesale customers to the indirect customers and estimated wholesaler inventory levels.

As sales to large wholesale customers fluctuate the reserve for chargebacks will also generally fluctuate in the same direction. However, the degree of the fluctuation depends on product mix and the amount of sales made to indirect customers with which we have specific chargeback agreements.

On a quarterly basis, management reviews actual payments for provisions, wholesaler and distributor sales to our indirect customers, inventory balances at the wholesalers and distributors, as well as any known market factors that may impact our estimate, and we make adjustments when we believe that actual expected chargebacks may differ from the actual chargeback reserve.

Financial Operations Overview

Revenues

Revenues consist primarily of product sales of our marketed products and collaboration revenues from our collaborative partners, generally in the form of upfront or milestone payments.

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Cost of Product Sales

The primary expense that we incur to deliver our marketed products to our customers is manufacturing costs consisting of fixed and variable costs. Variable manufacturing costs consist primarily of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing and filling operations, and sales-based royalties. Fixed manufacturing costs include facilities, utilities and amortization of intangible assets. We determine the cost of product sales for products sold during a reporting period based on the average manufacturing cost per unit in the period those units were manufactured.

Research and Development Expenses

We expense research and development costs as incurred. Our research and development expenses consist primarily of:

We expect our research and development spending will be dependent upon such factors as the results from our clinical trials, the availability of reimbursement of research and development spending, the number of product candidates under development, the size, structure and duration of any clinical programs that we may initiate, and the costs associated with manufacturing our product candidates on a large-scale basis for later stage clinical trials. These research and development costs may be partially offset by cost-sharing arrangements with collaborative partners, such as our collaboration with MorphoSys AG.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executive, sales and marketing, business development, finance, accounting, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in cost of product sales or research and development expense.

Collaboration with MorphoSys AG

In August 2014, Aptevo entered into a collaboration agreement, or MorphoSys Agreement, with MorphoSys AG for the joint worldwide development and commercialization of MOR209/ES414, a targeted immunotherapeutic protein, which activates host T-cell immunity specifically against cancer cells expressing prostate specific membrane antigen, an antigen commonly overexpressed on prostate cancer cells. MOR209/ES414 was constructed using Aptevo’s proprietary ADAPTIR platform technology.

In accordance with the initial terms of the MorphoSys Agreement, Aptevo received a nonrefundable $20.0 million upfront payment and could have received up to $163.0 million in additional contingent payments, comprised of up to $80.0 million and up to $83.0 million, respectively, due upon the achievement of specified development and regulatory milestones. MorphoSys and Aptevo agreed to jointly fund further development of MOR209/ES414, with Aptevo responsible for 36% of the total development costs and MorphoSys responsible for the remainder, with Aptevo’s funding requirement capped at $186.0 million. Aptevo’s development effort includes the performance of non-clinical, clinical, manufacturing and regulatory activities. Aptevo retains commercialization rights in the U.S. and Canada, with a tiered royalty obligation to MorphoSys, ranging from mid-single digit up to 20% of sales. MorphoSys has worldwide commercialization rights excluding the U.S. and Canada, with a low single digit royalty obligation to Aptevo.

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In December 2015, after a joint review of data from the ongoing Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, Aptevo and MorphoSys decided to adjust the dosing regimen and administration of MOR209/ES414. Patients receiving weekly doses of MOR209/ES414 developed antibodies against the drug; this is called anti-drug antibodies, or ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active MOR209/ES414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. Hence, the protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. We plan to continue the current clinical trial under an amended protocol with recruitment expected to start around mid-2016. As a result of the required dosing regimen change and the impact to the overall development timeline and technical risk, our co-development agreement with MorphoSys was restructured. In December 2015, Aptevo and MorphoSys amended the collaboration agreement to (1) decrease the additional contingent payments due Aptevo upon the achievement of specified development and regulatory milestones of up to $32.5 million and up to $41.5 million, respectively, (2) change the total funding requirement cap for Aptevo to up to approximately $250.0 million and (3) change the jointly funded development cost allocation to the following:

In addition, the termination provisions under the MorphoSys collaboration agreement were amended to give MorphoSys a one-time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial.

Aptevo evaluated the MorphoSys Agreement and determined that it was a revenue arrangement with multiple deliverables or performance obligations. Aptevo determined there were two units of accounting under the MorphoSys Agreement: (1) the delivered license to further develop and commercialize MOR209/ES414 and (2) undelivered items related to development services. Aptevo determined that the license had standalone value as the drug candidate has been (1) developed and is currently Phase 1 clinical trial ready, (2) MorphoSys possesses the knowledge, technology, skills, experience and infrastructure necessary to complete all further development of the drug through commercialization, and (3) MorphoSys has the right to further sublicense the product. Aptevo allocated the $20.0 million upfront payment to the two units of accounting using the relative selling price method. Aptevo determined the estimated selling price for the license using the income approach and an appropriate discount rate. The estimated selling price includes unobservable inputs (Level 3), such as estimates of revenues and operating margins; the time and resources needed to complete the development and approval of the product candidate; and the risk related to the viability of and potential for alternative treatments. Aptevo determined the estimated selling price of the development services unit of accounting based on the estimated number of full-time equivalent personnel at the contractual rate as defined in the MorphoSys Agreement, whose rates and terms approximate those of other Emergent or Aptevo service related contracts and those observed generally through other collaboration negotiations. The allocation resulted in $15.3 million of the $20.0 million upfront payment being allocated to the license and $4.7 million being allocated to the development services. Aptevo determined the license fee unit of accounting was delivered and completed on the date the MorphoSys Agreement was executed and thus recognized $15.3 million of license revenue in August 2014. Revenue related to the development services is recognized as the services are performed with $0.7 million and $0.2 million, respectively, recognized in the years ended December 31, 2015 and 2014. The current estimated service period for the undelivered development services under the MorphoSys Agreement is through 2023.

Further, Aptevo determined that contingent payments for the achievement of the development and regulatory milestones are substantive milestones and will be accounted for as revenue in the period in which the milestones are achieved. Aptevo received a $5.0 million milestone payment from MorphoSys reflecting the initiation of a Phase I clinical study to evaluate the safety, tolerability, and clinical activity of MOR209/ES414 in patients with metastatic castration-resistant prostate cancer. Aptevo recognized this substantive milestone achievement payment as collaborations revenue during the year ended December 31, 2015.

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IXINITY

In the acquisition of Cangene Corporation, or Cangene, in February 2014, Aptevo acquired the IXINITY product candidate, an IPR&D intangible asset. As part of the purchase price allocation, Aptevo’s management determined that the estimated acquisition date fair value related to the IXINITY IPR&D asset was $8.3 million. The estimated fair value was determined using the income approach, which discounts probability-adjusted future net cash flows to present value. The projected cash flows used in determining the fair value of IXINITY were based on key assumptions, including: estimates of revenues and operating profits considering its stage of development on the acquisition date, the time and resources needed to complete the development and approval of the product candidate, the life of the potential commercialized product and associated risks, including the inherent difficulties and uncertainties in developing a product candidate such as obtaining marketing approval from the FDA and other regulatory agencies, and risks related to the viability of and potential alternative treatments in any future target markets.

Amounts allocated to acquired IPR&D are capitalized and accounted for as indefinite-lived intangible assets. Upon successful completion of each project, Aptevo made a separate determination as to the then useful life of the asset and begin amortization. In April 2015, the Food and Drug Administration, or FDA, approved IXINITY for the treatment of Hemophilia B in adults and children. As a result, the $8.3 million IXINITY IPR&D asset was reclassified as a definite-live intangible asset and is being amortized over 10 years. Since April 2015, we have incurred approximately $8 million in research and development expense related to IXINITY, primarily for clinical trial activities (approximately $3 million) and development and qualification activities (approximately $5 million). The clinical trial activities are associated with: (1) obtaining licensure of IXINITY for pediatric use (children under the age of 12); and (2) continued treatment of clinical subjects as part of a post- licensure extension clinical study required by the FDA. The development and qualification expenses are primarily associated with: (1) ongoing non-clinical process development studies related to the optimization of the manufacturing of drug substance (2); continuation of pre-licensure stability study commitments; (3) developing fill/finish capabilities at Emergent’s Baltimore, MD fill/finish contract manufacturing facility.

CMC ICOS Biologics, Inc., or CMC, is the exclusive manufacturer of bulk drug substance for our IXINITY product. During 2015, we ordered nine manufacturing lots of bulk drug substance from CMC and only one of those lots was successfully manufactured and released in 2015. We continue to work with CMC to resolve the manufacturing delays, although to date in 2016 no lots of bulk drug substance have been successfully manufactured and released. Additionally, Patheon UK Limited, through an affiliate, is currently the sole source fill-finish service manufacturer for our IXINITY product. The release of drug product by Patheon may be impacted by several factors, including Patheon requiring approval from its affiliate’s foreign regulatory authority of recent changes to its facility. If current efforts to proceed with the manufacturing and release of bulk drug substance and filled product are not successful, the resulting lack of supply of bulk drug substance or filled product could lead to a projected supply shortage of IXINITY requiring notification to the FDA. This inability to supply IXINITY would adversely affect its sales, market position and viability.

Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Revenue

Product Sales:

Product sales revenue increased by $1.6 million, or 25%, to $7.9 million for the three months ended March 31, 2016 from $6.3 million for the three months ended March 31, 2015. This increase was primarily related to IXINITY sales of $1.7 million for the three months ended March 31, 2016 following IXINITY’s FDA approval in the second quarter of 2015. As of March 31, 2016, an additional $1.8 million of IXINITY product sales revenue has been deferred and recorded as deferred revenue on the combined balance sheet until such time as we can reasonably estimate chargebacks and other allowances related to this new product from certain commercial wholesalers.

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Collaborations:

Collaborations revenue decreased by $5.2 million, or 98%, to $0.1 million for the three months ended March 31, 2016 from $5.3 million for the three months ended March 31, 2015. The decrease in collaboration revenue was from our collaboration with MorphoSys, primarily related to recognition of a $5.0 million development milestone achievement and payment for the three months ended March 31, 2015.

Cost of Product Sales

Cost of product sales decreased by $0.2 million, or 5%, to $3.5 million for the three months ended March 31, 2016 from $3.7 million for the three months ended March 31, 2015. The decrease in cost of product sales was primarily due to lower HepaGam cost of sales partially offset by the commencement of IXINITY product sales in the second quarter of 2015 after FDA approval.

Research and Development Expense

Research and development expenses decreased by $1.0 million, or 11%, to $8.1 million for the three months ended March 31, 2016 from $9.1 million for the three months ended March 31, 2015. Our principal research and development expenses by program for the three months ended March 31, 2016 and 2015 are shown in the following table:

 

The increase in expense for our MOR209/ES414 product candidate was primarily due to the timing of reimbursable development activities coupled with a reduction in reimbursement funding under our collaboration agreement with MorphoSys. The decrease in expense for our IXINITY product candidate (which was approved by the FDA in April 2015) was primarily due to a $3.2 million decrease in manufacturing process development activities. The increase in ES425 was primarily due to lead construct selection and characterization studies. The decrease in expense for our otlertuzumab product candidate was primarily related to the timing of clinical trial activities. The decrease in ES210 was primarily due to process development along with clinical and non-clinical strategy activities. The decrease in expense for 5E3 was primarily due to early stage non-clinical activities. The increase in expense for Other ADAPTIR related programs was primarily due to characterization studies and non- clinical activities. The expenses for our Other activities were primarily due to centralized research and development activities not otherwise attributable to specific product candidates or programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.5 million, or 5%, to $9.4 million for 2016 from $9.9 million for 2015. This decrease was primarily due to lower costs associated with IXINITY prelaunch selling and marketing costs in 2015 partially offset by increased costs associated with Aptevo infrastructure activities in 2016.

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Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenue

Our total revenues by major product and geographic area are as follows:

 

 

 

Revenues from our significant customers or collaboration partners as a percentage of total revenues are as follows:

 

 

Product Sales:

Product sales revenue decreased by $2.1 million, or 7%, to $27.9 million for 2015 from $30.0 million for 2014. This decrease was primarily related to a decrease in non-U.S. sales of WinRho.

Product sales of IXINITY commenced in the second quarter of 2015 following FDA approval. As of December 31, 2015, $3.3 million of IXINITY product sales revenue has been deferred and recorded as deferred revenue on the combined balance sheet until such time as we can reasonably estimate chargebacks and other allowances related to this new product.

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Collaborations:

Collaborations revenue decreased by $9.9 million, or 63%, to $5.7 million for 2015 from $15.6 million for 2014. The decrease in collaboration revenue was from our collaboration with MorphoSys, primarily related to recognition of $15.3 million in revenue in 2014 related to an upfront license fee payment as compared to the achievement and recognition of a $5.0 million research and development milestone payment in 2015.

Cost of Product Sales

Cost of product sales increased by $0.6 million, or 4%, to $16.9 million for 2015 from $16.3 million for 2014. The increase in cost of product sales was primarily due to commencement of IXINITY product sales in the second quarter of 2015 after FDA approval. This increase was partially offset by the decrease in WinRho non-US sales in 2015.

Research and Development Expense

Research and development expenses decreased by $11.9 million, or 26%, to $34.7 million for 2015 from $46.6 million for 2014. Our principal research and development expenses by program for 2015 and 2014 are shown in the following table:

 

The decrease in expense for our MOR209/ES414 product candidate was primarily due to the timing of manufacture of clinical material to support clinical trial activities ($0.1 million in 2015 versus $2.4 million in 2014) along with increased reimbursement from MorphoSys for development activities under our collaboration agreement, which was executed in August 2014. The decrease in expense for our IXINITY product candidate (which was approved by the FDA in April 2015) was primarily due to a $2.0 million decrease in expense for manufacturing process development activities along with a decrease in clinical trial activities, partially offset by an increase in fill/finish process development and qualification activities. The decrease in expense for our otlertuzumab product candidate was primarily related to the timing of clinical trial activities. The spending for ES425 was for lead construct selection and characterization studies. The decrease in ES210 was primarily due to process development along with clinical and non-clinical strategy activities. The increase in expense for 5E3 was primarily due to early stage non-clinical activities. The increase in expense for Other ADAPTIR related programs was primarily due to characterization studies and non-clinical activities. The decrease in expense for our Other activities was primarily due to centralized research and development activities not otherwise attributable to specific product candidates or programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $8.7 million, or 25%, to $43.0 million for 2015 from $34.3 million for 2014. This increase was primarily due to an increase in selling costs of $5.0 million associated with a full year in 2015 of the operations acquired through the acquisition of Cangene in February 2014, including product launch costs for IXINITY in 2015, and an increase in general and administrative expense of $3.8 million, due primarily to an increase in our provision for uncollectable accounts in 2015.

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Other (Expense) Income, net

Other expense, net was $0.2 million for both 2015 and 2014. The amount is primarily from foreign exchange losses associated with the timing of receipt of a VAT receivable in Germany.

Income Taxes

Benefit from income taxes increased by $1.4 million, or 233%, to $2.0 million for 2015 from $0.6 million for 2014. The increase in the benefit was primarily due to increased Canadian scientific research and experimental development tax credits.

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Revenue

Product Sales:

Product sales revenue was $30.0 million for 2014 due to the products acquired from Cangene in February 2014. There were no product sales in 2013.

Collaborations:

Collaborations revenue increased by $15.4 million to $15.6 million for 2014 from $0.2 million for 2013. The increase was primarily related to recognition of $15.3 million in upfront license fee revenue in 2014 from MorphoSys.

Cost of Product Sales

Cost of product sales was $16.3 million for 2014 due to the products acquired from Cangene in February 2014. There were no product sales in 2013.

Research and Development Expense

Research and development expenses increased by $8.5 million, or 22%, to $46.6 million for 2014 from $38.1 million for 2013. Our principal research and development expenses by program for 2014 and 2013 are shown in the following table:

 

 

The increase in expense for our MOR209/ES414 product candidate was primarily due to the timing of manufacture of clinical material to support clinical trial activities ($2.4 million in 2014 versus $0.2 million in 2013). The expense for our IXINITY product candidate, acquired from Cangene in February 2014, was primarily for clinical trial and manufacturing process development activities. The decrease in expense for our otlertuzumab (formerly TRU-016) product candidate was primarily related to the timing of clinical trial activities. The increase in expense for ES210 was primarily for process development along with clinical and non-clinical strategy activities. The expense for 5E3, was primarily due to early stage non-clinical activities. The increase in expense for Other

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ADAPTIR related programs was primarily due to characterization studies and non-clinical activities. The increase in expense for our Other activities was primarily due to centralized research and development activities not otherwise attributable to product candidates or programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $18.8 million, or 121%, to $34.3 million for 2014 from $15.5 million for 2013. The increase in selling general and administrative expenses was primarily due to ongoing post-acquisition selling, general and administrative costs of $14.7 million associated with the operations of Cangene, acquired in February 2014, including selling and marketing costs for Aptevo’s products.

Other (Expense) Income, net

Other expense, net was $0.2 million for 2014, an increase of $0.2 million from 2013. The increase was primarily due to foreign exchange losses associated with the timing of receipt of a VAT receivable in Germany.

Liquidity and Capital Resources

Sources of Liquidity

At the closing of the spin-off of Aptevo from Emergent, Emergent will provide Aptevo, from its cash reserves on hand, cash of approximately $45 million, along with a commitment in the form of a promissory note to provide another $20 million within six to 12 months after the separation. We expect this initial cash funding will support Aptevo’s operations for at least 12 months after the completion of the spin-off, based on current operating plans and financial forecasts. Prior to the spin-off, the development-based biosciences business of Emergent was funded entirely by Emergent. In addition, to enhance long-term financial flexibility, Aptevo is evaluating entering into a credit facility or other debt financing arrangement for up to $40 million with one or more financial institutions that would be entered into in connection with the completion of the spin-off.

Capital Requirements

Aptevo expects to incur losses from operations for the foreseeable future primarily due to research and development expenses, including expenses related to conducting clinical trials. Aptevo’s future capital requirements will depend on a number of factors, including:

Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2016 and 2015 and for the years ended December 31, 2015, 2014 and 2013.

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Net cash used in operating activities of $14.1 million for the three months ended March 31, 2016 was primarily due to our net loss of $12.9 million along with an increase of $3.1 million in prepaid expenses and other assets related to IXINITY manufacturing activities, partially offset by a decrease in accounts receivable of $3.0 million due to the timing of collections for product sales. Net cash used in operating activities of $15.9 million for the three months ended March 31, 2015 was primarily due to our net loss of $11.0 million and a decrease in accrued payroll of $2.5 million related to payment of annual bonuses during the period.

Net cash used in operating activities of $48.8 million in 2015 was primarily due to our net loss of $59.3 million and an increase in inventory of $2.7 million due to the timing of sales of IXINITY, partially offset by a decrease in accounts receivable of $3.9 million due to the timing of collection of WinRho receivables, an increase in deferred revenue of $2.6 million due primarily to the timing of revenue recognition for IXINITY, along with a non-cash charge of $3.5 million as a provision for uncollectible accounts.

Net cash used in operating activities of $47.0 million in 2014 was primarily due to our net loss of $51.1 million and an increase in accounts receivable of $6.1 million due to the timing of collection of product sales receivables, partially offset by a decrease in inventory of $5.0 million due to the acquisition of Cangene and an increase in deferred revenue of $4.5 million due the timing of revenue recognition for our MorphoSys collaboration.

Net cash used in operating activities of $51.4 million in 2013 was primarily due to our net loss of $53.4 million.

Net cash used in investing activities for the periods presented was primarily due to the purchases of property, plant and equipment, and, in 2014, the $47.8 million acquisition of the Aptevo related portion of Cangene.

Net cash provided by financing activities for the periods presented was principally due to the net investment from Emergent to support the operations of Aptevo.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2015:

 

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MANAGEMENT

Executive Officers Following the Separation

While some of Aptevo’s executive officers are currently officers and employees of Emergent, upon the separation, none of these individuals will continue to be employees or executive officers of Emergent. The following table sets forth information regarding individuals who are expected to serve as Aptevo’s executive officers, including their positions after the separation. One of Aptevo’s executive officers will also hold a position as a member of Aptevo’s board of directors. For more information see “Board of Directors Following the Separation” below.

 

Marvin L. White will be the Chief Executive Officer of Aptevo and will serve on Aptevo’s board of directors. Mr. White served as a director of Emergent from June 2010, until his resignation from the Emergent board of directors in May 2016. Mr. White has also served as a consultant to Emergent since November 2015, under a consulting agreement with Emergent, which is discussed under “Compensation Discussion and Analysis—Marvin White Compensation.” Since April 2014, Mr. White has served as president and chief executive officer of The MLW Advisory Group, LLC, a management advisory company targeting the needs of healthcare and related companies. From 2008 to March 2014, Mr. White served as system vice president and chief financial officer of St. Vincent Health, and was responsible for finance, materials management, accounting, patient financial services and managed care for all 19 hospitals and 36 joint ventures. Prior to joining St. Vincent Health in 2008, Mr. White was executive director and chief financial officer of LillyUSA, a subsidiary of Eli Lilly and Company, where he also held leadership positions in Corporate Finance and Investment Banking in the Corporate Strategy Group. He serves on the boards of CoLucid Pharmaceuticals, Inc., a public pharmaceutical company, WP Glimcher Inc., a public retail real estate investment trust, and OneAmerica Financial Insurance Partners, Inc., a private insurance and financial services company. We believe Mr. White’s service as our Chief Executive Officer and his prior financial experience and service on other boards make him strongly qualified to serve on our board of directors.

Jeffrey G. Lamothe will be the Senior Vice President and Chief Financial Officer of Aptevo. He currently serves as Emergent’s Vice President Finance, Biosciences Division. Mr. Lamothe assumed this role in February 2014 when Emergent concluded the acquisition of Cangene Corporation, where he was Chief Financial Officer. Mr. Lamothe assumed the role of Chief Financial Officer of Cangene in August 2012. Prior to that, Mr. Lamothe was the Chief Financial Officer for Smith Carter Architects and Engineers Incorporated, a position which he held from January 2010 until July 2012. He also previously served as President and Chief Executive Officer of Kitchen Craft Cabinetry after occupying the position of VP Finance and Chief Financial Officer with that organization. Mr. Lamothe’s other past experience includes serving as Chief Financial Officer for Motor Coach Industries and he has held various roles at James Richardson & Sons, Limited and Ernst & Young LLP. Mr. Lamothe is a Chartered Accountant and a graduate of the University of Manitoba where he obtained a Bachelor of Commerce (honours) degree.

Scott C. Stromatt, M.D. will be the Chief Medical Officer and Senior Vice President, Clinical Development & Medical Affairs of Aptevo. He will continue the clinical development programs for the ADAPTIR molecules that he has designed and directed. Since 2008, Dr. Stromatt has served as Chief Medical Officer, Senior Vice President at Emergent and Chief Medical Officer, Senior Vice President at Trubion Pharmaceuticals Inc. From 2003 to 2008, Mr. Stromatt worked at Cell Therapeutics, Inc., where he held the positions of Executive Vice President, Clinical Development and Regulatory Affairs from 2005 to 2008, Senior Vice President, Clinical Development and Regulatory Affairs from 2004 to 2005 and Vice President, Clinical Development from 2003 to 2004. In 2002, Dr. Stromatt worked at Northwest Biotherapeutics, Inc. as Vice President Clinical Research, Chief Medical Officer. From 2000-2002, Dr. Stromatt worked as a biotechnology analyst for Wall Street investment firm C.E. Unterberg. Dr. Stromatt received his medical degree from the University of Chicago and an MBA and Bachelor of Arts from the University of Colorado.

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Board of Directors Following the Separation

The following table sets forth information with respect to those persons who are expected to serve on Aptevo’s board of directors following the completion of the separation, including Mr. White, whose biographical information is included above in the section entitled “Executive Officers Following the Separation.” The nominees will be presented to Aptevo’s sole stockholder, Emergent, for election prior to the separation. Aptevo may name and present additional nominees for election prior to the separation.

 

At the time of the separation, Aptevo expects that its board of directors will consist of the directors set forth above. Upon completion of the separation, Aptevo’s board of directors will be divided into three classes. Each class will be as equal in number as is possible. The directors designated as Class I directors will have terms expiring at the first annual meeting of stockholders following the distribution, which Aptevo expects to hold in 2017. The directors designated as Class II directors will have terms expiring at the following year’s annual meeting of stockholders, which Aptevo expects to hold in 2018, and the directors designated as Class III directors will have terms expiring at the following year’s annual meeting of stockholders, which Aptevo expects to hold in 2019. Aptevo expects that Class I will be comprised of Mr. Harsanyi and Ms. Kunz; Class II will be comprised of Mr. Abdun-Nabi and Mr. Grant; and Class III will be comprised of Mr. El-Hibri, Dr. Niederhuber and Mr. White. Commencing with the first annual meeting of stockholders following the separation, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires and thereafter will serve for a term of three years. At any meeting of stockholders for the election of directors at which a quorum is present, the election will be determined by a plurality of the votes cast by the stockholders entitled to vote in the election.

Fuad El-Hibri will be the Chairman of Aptevo’s board of directors. Mr. El-Hibri is the founder and Executive Chairman of the board of directors of Emergent. Mr. El-Hibri has served as the executive chairman of Emergent’s board of directors since April 2012. From June 2004 to March 2012, Mr. El-Hibri served as chief executive officer and chairman of Emergent’s board of directors. Mr. El-Hibri previously served as president of Emergent from March 2006 to April 2007. Mr. El-Hibri served as chief executive officer and chairman of the board of directors of BioPort Corporation, or BioPort, from May 1998 until June 2004, when, as a result of Emergent’s corporate reorganization, BioPort became a wholly-owned subsidiary of Emergent and was subsequently renamed Emergent BioDefense Operations Lansing Inc. Mr. El-Hibri is chairman of East West Resources Corporation, a venture capital and business consulting firm, a position he has held since June 1990. He served as president of East West Resources from September 1990 to January 2004. We believe Mr. El-Hibri’s qualifications to serve on our board of directors include his service on other boards as well as his prior business experience, including as Emergent’s chief executive officer and as an Emergent director.

Daniel J. Abdun-Nabi is the President and Chief Executive Officer of Emergent, a position he has held since April 2012. He has also served as a director of Emergent since May 2009. From May 2007 to March 2012, Mr. Abdun-Nabi served as Emergent’s president and chief operating officer. Mr. Abdun-Nabi previously served as Emergent’s corporate secretary from December 2004 to January 2008, Emergent’s senior vice president, corporate affairs and general counsel from December 2004 to April 2007 and Emergent’s vice president and general counsel from May 2004 to December 2004. Mr. Abdun-Nabi served as general counsel for IGEN International, Inc., a biotechnology company, and its successor BioVeris Corporation, from September 1999 to May 2004. Prior to joining IGEN, Mr. Abdun-Nabi served as senior vice president, legal affairs, general counsel and secretary of North American Vaccine, Inc., a private vaccine company acquired by Baxter International Inc. in 2000. We believe Mr. Abdun-Nabi’s qualifications to serve on our board of directors include his extensive experience in senior management positions and his demonstrated business judgment, including his long service as a senior executive of Emergent.

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Grady Grant, III is the Vice President of Medical Sales for Mead Johnson Nutrition, a public company focused on pediatric nutrition. He has held this position since December 2011, preceded by 30 years of service at Eli Lilly and Company which includes his service as Vice President of Sales Neuroscience from January 2006 to December 2011. We believe Mr. Grant’s qualifications to serve on our board of directors include his operating and senior management experience in the industry.

Zsolt Harsanyi, Ph.D. has served on the board of directors of Emergent since August 2004. Dr. Harsanyi has served as chairman of the board of N-Gene Research Laboratories, Inc., a privately-held biotechnology company, since March 2011. Prior to that, Dr. Harsanyi served as chief executive officer and chairman of the board of directors of Exponential Biotherapies Inc., a private biotechnology company, from December 2004 to February 2011. Dr. Harsanyi served as president of Porton International plc, or Porton International, a pharmaceutical and vaccine company, from January 1983 to December 2004. Dr. Harsanyi was a founder of Dynport Vaccine Company LLC in September 1996. Prior to joining Porton International, Dr. Harsanyi was vice president of corporate finance at E.F. Hutton, Inc. Previously, Dr. Harsanyi directed the first assessment of biotechnology for the U.S. Congress’ Office of Technology Assessment, served as a consultant to the President’s Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research and was on the faculties of Microbiology and Genetics at Cornell Medical College. We believe Dr. Harsanyi’s qualifications to serve on our board of directors include his industry experience, including his senior executive and financial positions.

Barbara Lopez Kunz is currently the Global Chief Executive of the Drug Information Association, a private health care products company. From January 2007 to March 2013, she worked as President of Health and Life Sciences at Battelle Memorial Institute, a private nonprofit applied science and technology development company. From August 2003 to December 2007, she worked as Senior VP/GM for Thermo Fisher Scientific’s Fisher Biosciences and led the Latin America regional business from January 2000 to July 2003 at Uniqema, a private company acquired by Croda International plc in 2006. We believe that Ms. Kunz is qualified to serve on our board of directors because of her extensive leadership experience and knowledge of the industry.

John E. Niederhuber, M.D. is the founder, Executive Vice President, and Chief Executive Officer of the Inova Translational Medicine Institute, a not-for-profit genomics research institute. Dr. Niederhuber served as a director of Emergent from August 2010, until his resignation from the Emergent board of directors in May 2016. He previously served as the director of the National Cancer Institute (NCI), the National Institutes of Health from 2006 to 2010. Dr. Niederhuber joined the Inova Health System in August 2010 as Executive Vice President and CEO of the Inova Translational Medicine Institute. Dr. Niederhuber is also an adjunct professor of surgery and oncology at the Johns Hopkins University School of Medicine. He currently serves on the board of directors of PierianDX, a private genomics analytics company. Prior to joining NCI, Dr. Niederhuber was Director of the University of Wisconsin Comprehensive Cancer Center and professor of surgery and oncology (member of the McArdle Laboratory) at the University of Wisconsin School of Medicine from 1997 to 2005. He chaired the Department of Surgery at Stanford University School of Medicine from 1991 to 1997 and held professorships at the Johns Hopkins University School of Medicine from 1987 to 1991 and at the University of Michigan from 1973 to 1987. We believe that Dr. Niederhuber’s medical background in oncology, his laboratory research in immunology and cancer biology, and his extensive leadership experience in public and government institutions make him uniquely qualified to serve on our board of directors.

In anticipation of their appointments as chief executive officer and director of Aptevo, respectively, Mr. White and Dr. Niederhuber resigned as directors of Emergent in May 2016, prior to Emergent’s 2016 annual meeting of stockholders. Messrs. El-Hibri and Abdun-Nabi and Dr. Harsanyi are expected to continue as directors of Emergent. Mr. Abdun-Nabi is expected to continue as President and Chief Executive Officer of Emergent.

On May 18, 2016, Dr. Niederhuber entered into a consulting agreement with Emergent. For further discussion of the consulting agreements entered into by Emergent in anticipation of the separation, see the section entitled “Certain Relationships and Related Party Transactions—Consulting Arrangements Entered into in Connection with the Separation.”

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Director Independence

It is expected that a majority of our board of directors, and the entire membership of our Audit and Compensation Committees of our Board, will consist of directors who are “independent” as defined by the applicable rules of The NASDAQ Stock Market Rules, the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the corporate governance guidelines to be adopted by our board of directors.

Rule 5605 of The NASDAQ Stock Market Rules requires a majority of a listed company’s board of directors to be comprised of independent directors. In addition, The NASDAQ Stock Market Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and corporate governance and nominating committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. Under Rule 5605(a)(2), a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. In addition, in affirmatively determining the independence of any director who will serve on a company’s compensation committee, Rule 10C-1 under the Exchange Act requires that a company’s board of directors consider all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by such company to the director; and (ii) whether the director is affiliated with the company or any of its subsidiaries or affiliates.

Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that none of Mr. Grant, Dr. Harsanyi, Ms. Kunz or Dr. Niederhuber, representing four of our seven directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Our board of directors has also determined that Mr. Grant, Dr. Harsanyi and Ms. Kunz, who will comprise our audit committee, and Mr. Grant, Ms. Kunz and Dr. Niederhuber, who will comprise our compensation committee, each satisfy the independence standards for such committees established by the SEC and the NASDAQ Marketplace Rules, as applicable.

Committees of the Board of Directors

Effective upon the completion of the separation, Aptevo’s board of directors will have the following standing committees: an Audit Committee and a Compensation Committee.

Audit Committee. Mr. Grant, Dr. Harsanyi and Ms. Kunz are expected to be the members of the board’s Audit Committee. Dr. Harsanyi is expected to be the Audit Committee Chairman. The board of directors is expected to determine that at least one member of the Audit Committee meets the criteria of the SEC for an “audit committee financial expert”. In addition, Aptevo expects that the board of directors will determine that each of the members of the Audit Committee will be “independent” under Rule 5605 of The NASDAQ Stock Market Rules and Rule 10A-3 of the Exchange Act. The Audit Committee’s responsibilities will include: (1) appointing, approving the compensation of and assessing the independence of Aptevo’s independent registered public accounting firm; (2) overseeing the work of Aptevo’s independent registered public accounting firm; (3) reviewing and discussing with management and the independent registered public accounting firm Aptevo’s annual and quarterly financial statements and related disclosures; (4) monitoring Aptevo’s internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; (5) overseeing Aptevo’s internal audit function; (6) assisting the board in overseeing Aptevo’s compliance with legal and regulatory requirements; (7) periodically discussing Aptevo’s risk management policies, and reviewing and commenting on a periodic risk assessment by management; (8) establishing policies regarding hiring employees from Aptevo’s independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; (9) meeting independently with Aptevo’s

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internal auditing staff, independent registered public accounting firm and management; (10) reviewing and approving or ratifying any related party transactions; and (11) preparing audit committee reports required by SEC rules.

Compensation Committee. Mr. Grant, Ms. Kunz and Dr. Niederhuber are expected to be the members of the board’s Compensation Committee. Dr. Niederhuber is expected to be the Compensation Committee Chairman. The board of directors is expected to determine that each member of the Compensation Committee will be “independent” under Rule 5605 of The NASDAQ Stock Market Rules and Rule 10A-3 of the Exchange Act. The Compensation Committee’s responsibilities will include: (1) annually reviewing and approving corporate goals and objectives relevant to the compensation of Aptevo’s executive officers; (2) determining the compensation of Aptevo’s chief executive officer; (3) reviewing and approving the compensation of Aptevo’s other named executive officers; (4) overseeing the evaluation of Aptevo’s senior executives; (5) overseeing and administering Aptevo’s cash and equity incentive plans; and (6) preparing the compensation committee report required by SEC rules.

The board of directors is expected to adopt a written charter for each of the Audit Committee and the Compensation Committee. These charters will be posted on Aptevo’s website in connection with the separation.

Compensation Committee Interlocks and Insider Participation

During the company’s fiscal year ended December 31, 2015, Aptevo was not an independent company, and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of Aptevo’s executive officers who currently serve as Emergent’s executive officers were made by Emergent, as described in the section of this information statement captioned “Compensation Discussion and Analysis.”

Corporate Governance

Director Nominations

Aptevo’s amended and restated by-laws will contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the board of directors. We do not expect to have a standing nominating committee upon completion of the separation and distribution, though we intend to form a corporate governance and nominating committee as and when required to do so by law or NASDAQ rules. Accordingly, pursuant to Rule 5605(e)(1)(A) of the NASDAQ rules, director nominees will be selected, or recommended for our board’s selection, by a majority of the independent directors. We believe that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who we expect to participate in the consideration and recommendation of director nominees are Mr. Grant, Dr. Harsanyi, Ms. Kunz and Dr. Niederhuber. In accordance with Rule 5605(e)(1)(A) of the NASDAQ rules, we expect that all such directors will be independent. As there will be no standing nominating committee, we do not have a nominating committee charter in place. Aptevo expects that the board of directors will adopt a policy concerning the evaluation of stockholder recommendations of board candidates by the independent directors.

Corporate Governance Guidelines

We do not have a standing nominating and corporate governance committee, although, as discussed above, we intend to form a nominating and corporate governance committee as and when required to do so by law or NASDAQ rules. Our board of directors believes that the independent directors can satisfactorily carry out the responsibility of developing and recommending to the board of directors corporate governance principles without the formation of a standing nominating and corporate governance committee. The directors who participate in the consideration and recommendation of director nominees are Mr. Grant, Dr. Harsanyi, Ms. Kunz or Dr. Niederhuber. As there is no standing nominating and corporate governance committee, we do not have a nominating and corporate governance committee charter in place.

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Aptevo’s board of directors is expected to adopt a set of corporate governance guidelines in connection with the separation to assist it in guiding Aptevo’s governance practices. These practices will be regularly re-evaluated by the independent directors in light of changing circumstances in order to continue serving the company’s best interests and the best interests of its stockholders.

Communicating with the Board of Directors

Aptevo’s board of directors will give appropriate attention to written communications that are submitted by stockholders and other interested parties and will respond if and as appropriate. The lead director, with the assistance of Aptevo’s corporate secretary, will be primarily responsible for monitoring communications from stockholders and other interested parties and for providing copies or summaries to the other directors as the lead director considers appropriate.

Under procedures that will be approved by a majority of Aptevo’s independent directors, communications will be forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the lead director considers to be important for the directors to know. In general, communications relating to corporate governance and corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which Aptevo receives repetitive or duplicative communications.

Stockholders and other interested parties who wish to send communications on any topic to the board of directors, lead director or independent directors as a group should address such communications to the board of directors, Lead Director or Independent Directors, as applicable, c/o Corporate Secretary, Aptevo Therapeutics Inc., 2401 4th Ave., Suite 1050, Seattle, Washington 98121. The Corporate Secretary will review all such correspondence and forward to the board, lead director or independent directors a summary and/or copies of any such correspondence that deals with the functions of the board or its committees or that he otherwise determines requires their attention.

Governance Structure and Lead Director

Aptevo’s corporate governance guidelines are expected to provide the board of directors flexibility in determining its leadership structure. The board of directors is expected to keep separate the positions of chief executive officer and board chairman. The board of directors believes this separate governance structure is optimal because it will enable Mr. White to focus his entire energy on running the company while affording us the benefits of continued leadership and other contributions from Mr. El-Hibri.

Aptevo’s corporate governance guidelines are expected to provide that in the event the chairman of the board of directors is not an independent director, a majority of the board’s independent directors may appoint an independent director, who has been nominated by a majority of our independent directors, to serve as lead director. Because Mr. El-Hibri is not expected to be an independent director, Aptevo’s independent directors, based on the recommendation of a majority of our independent directors, will appoint a lead director in connection with the separation. The lead director will serve as the presiding director at all executive sessions of the non-management or independent directors, facilitate communications between Mr. El-Hibri and other members of the board of directors, determine the need for special meetings of the board of directors and consult with Mr. El-Hibri on matters relating to corporate governance and board performance.

Policies on Business Ethics

In connection with the separation, Aptevo will adopt a Code of Business Conduct and Ethics that will require all business activities to be conducted in compliance with laws, regulations and ethical principles and values. All directors, officers, and employees of Aptevo will be required to read, understand and abide by the requirements of the Code of Conduct.

The Code of Conduct will be accessible on the company’s website. Any waiver of the Code of Conduct for directors or executive officers may be made only by the board of directors. Aptevo will disclose any amendment to,

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or waiver from, a provision of the Code of Conduct for the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on its website within four business days following the date of the amendment or waiver. In addition, Aptevo will disclose any waiver from the Code of Conduct for the other executive officers and for directors on its website.

Risk Oversight and Risk Management

Aptevo’s board of directors will be actively engaged in oversight of risks Aptevo faces and consideration of the appropriate responses to those risks. The Audit Committee will periodically discuss risk management, including guidelines and policies to govern the process by which Aptevo’s exposure to risk is handled, with senior management. The Audit Committee will also review and comment on a periodic risk assessment performed by management. After the Audit Committee performs its review and comment function, it will report any significant findings to the board of directors. The board of directors will be responsible for oversight of Aptevo’s risk management programs and, in performing this function, will receive periodic risk assessment and mitigation initiatives for information and approval as necessary.

Procedures for Treatment of Complaints Regarding Accounting, Internal Accounting Controls, and Auditing Matters

In accordance with the Sarbanes-Oxley Act of 2002, Aptevo expects that its Audit Committee will adopt procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, and auditing matters and to allow for the confidential, anonymous submission by employees and others of concerns regarding questionable accounting or auditing matters.

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

For purposes of this Compensation Discussion and Analysis and the disclosure under the various executive compensation tables included herein, the persons who we currently expect will be our named executive officers as of the distribution date have been identified. The information provided reflects summary information concerning Aptevo’s executive compensation approach developed to date in connection with planning for the separation.

As a result, this Compensation Discussion and Analysis has two main parts:

The persons we expect will be our named executive officers, or the Aptevo named executive officers, are as follows:

We are currently a wholly-owned subsidiary of Emergent and not an independent company, and our compensation committee has not yet been formed. Decisions as to the past compensation of those individuals who are expected to serve as our named executive officers upon the separation have been made by Emergent. This Compensation Discussion and Analysis discusses the Emergent historical compensation and practices that applied to the Aptevo named executive officers in 2015 and attempts to outline certain aspects of Aptevo’s anticipated compensation structure for the Aptevo named executive officers following the separation.

While Aptevo has discussed its anticipated programs and policies with the compensation committee of Emergent’s board of directors, or the Emergent compensation committee, they remain subject to the review and approval of Aptevo’s own compensation committee, which may decide to change these programs and policies following the completion of the separation.

Anticipated Aptevo Compensation Programs

Because our compensation committee has not yet been formed, Aptevo has not established its own specific set of objectives or principles for its executive compensation program. Until the separation, the Emergent compensation committee will continue to make compensation decisions and take actions regarding our compensation philosophy, principles and program design. Following the separation, these decisions will be made, and related actions taken, by our compensation committee.

Executive Compensation Principles

In anticipation of the separation, the Emergent compensation committee engaged Willis Towers Watson, its independent compensation consultant, to prepare a potential compensation philosophy for Aptevo, which includes the following:

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Elements of Executive Compensation

In anticipation of the separation, the Emergent compensation committee reviewed competitive market data and industry surveys to assist in setting salaries, target bonus percentages and long-term incentive award guidelines. Willis Towers Watson advised Emergent in connection with this process. Compensation for Aptevo’s named executive officers is expected to consist of the following elements:

The competitive market data reviewed by the Emergent compensation committee consisted of proxy data and published survey data, as described below:

We refer to this customized data as the “Aptevo 2016 Radford Survey data.”

The Aptevo 2016 proxy peer group includes the following list of companies.

 

2016 Aptevo Proxy Peer Group

Advaxis, Inc.

Agenus Inc.

Argos Therapeutics, Inc.

Bellicum Pharmaceuticals, Inc.

BIND Therapeutics, Inc.

Caladrius Biosciences, Inc.

Curis, Inc.

Five Prime Therapeutics, Inc.

Idera Pharmaceuticals, Inc.

Immune Design Corp.

Immunomedics Inc.

Inovio Pharmaceuticals, Inc.

Omeros Corporation

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OncoGenex Pharmaceuticals, Inc.

Oncothyreon Inc.

Peregrine Pharmaceuticals, Inc.

Progenics Pharmaceuticals, Inc.

Rigel Pharmaceuticals, Inc.

Sorrento Therapeutics, Inc.

Sucampo Pharmaceuticals, Inc.

TG Therapeutics, Inc.

Vanda Pharmaceuticals, Inc.

XBiotech Inc.

Base Salary. Based upon a review of the market data from the Aptevo 2016 Radford Survey data and proxy peer data and taking into account the new positions of the Aptevo named executive officers, the annual base salaries of Mr. White, Mr. Lamothe and Dr. Stromatt at the time of the separation are expected to be $525,000, $372,500 and $402,500, respectively. Aptevo expects that post-separation adjustments to base salary, if any, will be made by Aptevo’s compensation committee and will reflect factors such as each Aptevo named executive officer’s post-separation level of responsibility as well as competitive market data for similar positions at comparable peer companies.

Annual Cash Bonuses. Based upon a review of the market data from the Aptevo 2016 Radford Survey data and proxy peer data and taking into account the new positions of the Aptevo named executive officers, the target annual cash bonus percentages for Mr. White, Mr. Lamothe and Dr. Stromatt at the time of the separation are expected to be 50%, 40% and 40% of their base salaries, respectively. Post-separation adjustments to these target annual cash bonus percentages, if any, will be made by Aptevo’s compensation committee. In connection with the separation, Aptevo expects to adopt an annual bonus plan with terms to be determined by its compensation committee. Aptevo expects that its compensation committee will establish performance goals based on an incentive structure that initially will be similar to that of Emergent. See section titled “2015 Emergent Compensation—Annual Cash Bonuses” for a general overview of Emergent’s incentive bonus structure and performance goals for the periods indicated. Aptevo also expects that the annual incentive objectives for the Aptevo named executive officers will be aligned with competitive market rates based on peer company comparisons.

Equity Awards. Aptevo expects its board of directors to adopt, and Emergent, as its sole stockholder prior to the distribution, to approve, the Aptevo Therapeutics Inc. 2016 Stock Incentive Plan, or the Aptevo Stock Incentive Plan, which will become effective upon Emergent’s approval. The Aptevo Stock Incentive Plan will provide for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, awards of restricted stock, restricted stock units, other stock-based awards, and cash-based awards.

Upon effectiveness of the Aptevo Stock Incentive Plan, the number of shares of Aptevo common stock that will be reserved for issuance under the Aptevo Stock Incentive Plan will be approximately 3.1 million shares. Aptevo’s employees, officers, directors, consultants and advisors will be eligible to receive awards under the Aptevo Stock Incentive Plan; however, incentive stock options may only be granted to Aptevo’s employees. The maximum number of shares of common stock with respect to which awards may be granted to any participant under the Aptevo Stock Incentive Plan is one million shares per calendar year. For purposes of this limit on the maximum number of shares that may be awarded to any participant, the combination of an option in tandem with a stock appreciation right will be treated as a single award. In addition, under the Aptevo Stock Incentive Plan, awards can provide for cash payments of up to $2.0 million per calendar year per individual. In addition, the Aptevo Stock Incentive Plan provides that in any calendar year, the sum of cash compensation paid to any non- employee director for service as a director and the value of awards under the Aptevo Stock Incentive Plan made to such non-employee director (calculated based on the grant date fair value for financial reporting purposes) may not exceed $1.0 million.

Pursuant to the terms of the Aptevo Stock Incentive Plan, Aptevo’s board of directors (or a committee delegated by our board of directors) administers the plan and, subject to any limitations set forth in the plan, will select the recipients of awards and determine:

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If Aptevo’s board of directors delegates authority to one or more of Aptevo’s officers to grant awards under the Aptevo Stock Incentive Plan, the executive officer will have the power to make awards to all of Aptevo’s employees, except executive officers (as defined by Rule 3b-7 under the Exchange Act) and officers (as defined by Rule 16a-1(f) under the Exchange Act) and to exercise such powers under the Aptevo Stock Incentive Plan as Aptevo’s board of directors may determine. However, Aptevo’s board of directors will fix the terms of the awards to be granted by such officers, the maximum number of shares subject to awards that such officers may grant, and the time period in which awards may be granted. Awards to Aptevo’s non-employee directors will be granted and administered by a committee of Aptevo’s board of directors, all of the members of which will be independent directors under The NASDAQ Marketplace Rules.

In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Aptevo’s common stock other than an ordinary cash dividend, Aptevo is required by the Aptevo Stock Incentive Plan to make equitable adjustments (or make substitute awards, if applicable), in a manner determined by Aptevo’s board, to:

Upon a merger or other reorganization event (as defined in the Aptevo Stock Incentive Plan) regardless of whether such event also constitutes a change in control event (as defined in the Aptevo Stock Incentive Plan), Aptevo’s board of directors may, on such terms as Aptevo’s board determines (except to the extent specifically provided otherwise in an applicable award agreement or other agreement between the participant and Aptevo), take any one or more of the following actions pursuant to the Aptevo Stock Incentive Plan, as to all or any (or any portion of) outstanding awards, other than awards of restricted stock:

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Aptevo’s board of directors is not obligated by the Aptevo Stock Incentive Plan to treat all awards, all awards held by a participant, or all awards of the same type, identically. In the case of certain restricted stock units, no assumption or substitution is permitted, and the restricted stock units will instead be settled in accordance with the terms of the applicable restricted stock unit agreement.

Notwithstanding the provisions described above and except to the extent specifically provided to the contrary in the applicable award agreement or any other agreement between the participant and Aptevo, each award (other than an award of restricted stock) will become immediately vested, exercisable or free from forfeiture, as applicable, if on or prior to the first anniversary of the date of the change in control event, the participant’s service with Aptevo or the successor corporation is terminated without cause by Aptevo or the successor corporation or is terminated for good reason by the participant (as such terms are defined in the Aptevo Stock Incentive Plan).

Upon the occurrence of a reorganization event (regardless of whether such event also constitutes a change in control event), the repurchase and other rights with respect to outstanding awards of restricted stock will continue for the benefit of the successor company and will, unless Aptevo’s board of directors otherwise determines, apply to the cash, securities or other property which Aptevo’s common stock is converted into or exchanged for pursuant to the reorganization event. However, Aptevo’s board of directors may provide for the termination or deemed satisfaction of such repurchase or other rights under the restricted stock award agreement or any other agreement between the participant and Aptevo, either initially or by amendment. Upon the occurrence of a change in control event (regardless of whether such event also constitutes a reorganization event), except to the extent specifically provided to the contrary in the applicable restricted stock award agreement or any other agreement between the participant and Aptevo, each award of restricted stock will become immediately vested and free from forfeiture if on or prior to the first anniversary of the date of the change in control event, the participant’s service with the Aptevo or the successor corporation is terminated without cause by Aptevo or the successor corporation or is terminated for good reason by the participant.

Aptevo’s board of directors will specify at the time of grant or thereafter the effect of (i) a reorganization event that is not a change in control event on any other stock-based award or cash-based award granted under the Aptevo Stock Incentive Plan and (ii) a change in control event (regardless of whether such event also constitutes a reorganization event) on any other stock-based award or cash-based award granted under the Aptevo Stock Incentive Plan.

Aptevo’s board of directors may at any time provide that any award under the Aptevo Stock Incentive Plan will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in whole or in part, as the case may be.

Aptevo’s board of directors may amend, modify or terminate any outstanding award under the Aptevo Stock Incentive Plan, including but not limited to, substituting therefor another award of the same or a different type, changing the date of exercise or realization, and converting an incentive stock option into a nonstatutory stock option, subject to certain participant consent requirements. However, unless Aptevo’s stockholders approve such action, the Aptevo Stock Incentive Plan provides that Aptevo may not (except as otherwise permitted in connection with a change in capitalization or reorganization event):

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No award may be granted under the Aptevo Stock Incentive Plan after 10 years from the effectiveness of the Aptevo Stock Incentive Plan but awards previously granted may extend beyond that date. Aptevo’s board of directors may amend, suspend or terminate the Aptevo Stock Incentive Plan at any time, except that stockholder approval will be required to comply with Section 162(m) of the Internal Revenue Code, applicable law or stock market requirements.

In connection with the separation, the Emergent compensation committee considered long term incentive program guidelines for Aptevo, or the Aptevo LTI Guidelines. These Aptevo LTI Guidelines anticipate that:

Fixed share guidelines were developed to provide market competitive grants. The value of the actual grants delivered annually will depend on movements in Aptevo’s stock price. Consistent with the Aptevo LTI Guidelines, which are subject to approval by Aptevo’s Compensation Committee, it is expected that following the separation, Aptevo’s compensation committee will make the following grants to the Aptevo named executive officers in 2017:

 

Each stock option is expected to vest in three equal instalments on the first, second and third annual anniversaries of the date of grant and to have an exercise price equal to the closing sales price per share of Aptevo’s common stock on The NASDAQ Global Select Market on the trading day immediately preceding the date of grant.

Inspiration Grant. It is currently anticipated that all active Aptevo employees, except for Mr. White, will receive a restricted stock unit inspiration grant effective upon the distribution having a value equal to 40% of their base salary. Vesting will occur in two increments. The first vesting event will occur six months from the distribution date and the second vesting event will take place within 18 months of the distribution.

White Transition Grant. In lieu of receiving an annual restricted stock unit award from Emergent for his service as an Emergent director and the inspiration grant described above, Mr. White is expected to receive a transition grant of options to purchase 209,250 shares of Aptevo common stock as part of his compensation package in connection with his appointment as chief executive officer of Aptevo, which will be granted in connection with the separation. Each stock option is expected to vest in three equal instalments on the first, second and third annual

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anniversaries of the date of grant and to have an exercise price equal to the closing sales price per share of Aptevo’s common stock on The NASDAQ Global Select Market on the trading day immediately preceding the date of grant.

This grant is roughly equal to 150% of the annual grant guideline established for the Aptevo chief executive officer position.

Stromatt Retention Grant. In addition to his inspiration grant (described above), Dr. Stromatt is expected to receive a retention grant of restricted stock units with a value equal to $229,682 based on the closing sales price per share of Aptevo’s common stock on The NASDAQ Global Select Market on the trading day immediately preceding the date of grant. These restricted stock units are expected to vest 12 months following the date of grant.

Following the distribution, Aptevo’s compensation committee may establish its own long-term incentive guidelines and practices, which may differ from the Aptevo LTI Guidelines initially approved.

The following table sets forth, for each Aptevo named executive officer, the percentage of base salary and period of continued employee benefits to which the participant is expected to be entitled under the Aptevo SMSP if Aptevo terminates the participant’s employment without cause, subject to the terms of the Aptevo SMSP.

 

The following table sets forth, for each Aptevo named executive officer, the percentage of base salary and bonus and the stated period for continued employee benefits to which each participant is expected to be entitled in connection with a change of control, subject to the terms of the Aptevo SMSP.

 

Benefits. It is anticipated that the Aptevo named executive officers will receive benefits similar to those provided to executives of Emergent. For a summary of provisions concerning retirement, health and welfare benefits to our employees upon completion of the separation, see the section entitled “Certain Relationships and Related Party Transactions—Employee Matters Agreement.”

Executive Severance Arrangements. In connection with the separation, the Aptevo board of directors is expected to adopt a senior management severance plan for Aptevo, or the Aptevo SMSP, with terms that are similar to those of Emergent’s Second Amended and Restated Senior Management Severance Plan, which is described below. See section titled “2015 Emergent Compensation—Executive Severance Arrangements” for a discussion regarding Emergent’s Second Amended and Restated Senior Management Severance Plan. The Aptevo SMSP will be effective upon the completion of the separation.

Aptevo Converted Equity Awards Incentive Plan. Prior to the completion of the distribution, our board of directors will adopt and Emergent, as sole stockholder of Aptevo, will approve, the Aptevo Converted Equity Awards Incentive Plan, or the Converted Equity Awards Plan. The sole purpose of the Converted Equity Awards Plan is to govern the terms of Emergent stock options and Emergent restricted stock units granted under the Emergent BioSolutions Inc. Fourth Amended and Restated 2006 Stock Incentive Plan (including any predecessor versions of such) that will be converted into Aptevo stock options and Aptevo restricted stock units in connection

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with the separation, or the Converted Aptevo Awards. For a description of the treatment of Emergent equity awards in connection with the separation, see “The Separation and Distribution—Treatment of Equity Based Compensation.” Upon effectiveness of the Converted Equity Awards Plan, awards with respect to approximately 250,000 shares of Emergent common stock will be converted into awards with respect to a number of shares of Aptevo common stock determined in accordance with the employee matters agreement to reflect the effect of the distribution, as described under “The Separation and Distribution—Treatment of Equity Based Compensation.” No awards may be granted under the Converted Equity Awards Plan in connection with or following the distribution other than the Converted Aptevo Awards. Except as otherwise described above, the material terms of the Converted Equity Awards Plan are similar to the terms of the Aptevo Stock Incentive Plan described above.

Effects of the Separation on Outstanding Executive Compensation Awards. For a discussion of the treatment of equity compensation awards in the separation, see the sections entitled “The Separation and Distribution— Treatment of Equity Based Compensation” and “Certain Relationships and Related Person Transactions— Employee Matters Agreement.”

2015 Emergent Compensation

This section describes the compensation programs at Emergent in 2015 that applied to the Aptevo named executive officers in 2015. None of the Aptevo named executive officers is a named executive officer of Emergent. Mr. White was a non-employee director of Emergent until his resignation from the Emergent board of directors, effective on May 18, 2016. Mr. Lamothe is currently a vice president at Emergent and Dr. Stromatt is a senior vice president at Emergent. Therefore, each Aptevo named executive officer was compensated differently from Emergent’s named executive officers in the fiscal year ending December 31, 2015. The section titled “Lamothe and Stromatt Compensation” contains a description of the compensation programs to which Mr. Lamothe and Dr. Stromatt were subject in the fiscal year ending December 31, 2015. The Section titled “Marvin White Compensation” contains a qualitative description of the compensation Mr. White received in the fiscal year ending December 31, 2015.

Lamothe and Stromatt Compensation

As employees of Emergent, Mr. Lamothe and Dr. Stromatt are compensated under Emergent’s standard compensation program, which is applicable to all senior level employees (other than the named executive officers), consisting of base salary and bonuses, which are set within a range for each position that is determined by senior management. Mr. Lamothe and Dr. Stromatt are also eligible for equity awards under the Third Amended and Restated Emergent BioSolutions Inc. 2006 Stock Incentive Plan.

Base Salary. Emergent generally provides base salaries to its employees that are externally competitive while appropriately recognizing individual contributions. Emergent initially used the Radford Global Life Sciences Survey data to set salaries for each Emergent role. Each Emergent role is assigned a pay grade in the salary structure based on prevailing market rates. Each pay grade consists of a minimum, a midpoint and a maximum pay rate that generally reflects the 25th, 50th and 75th percentile of the market value of the position. Salary ranges are updated annually to reflect market changes using surveys, such as Aon Hewitt and World at Work. New pay ranges are published annually and salary adjustments are recommended based on the review of the data and job performance. While Emergent attempts to target the market median, it recognizes that the percentile for any given position may vary below or above these targets based on a variety of factors, including the employee’s scope of responsibilities, individual performance and potential future contributions to Emergent. In addition, Emergent considers its overall financial performance in making decisions to adjust executive salaries.

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Emergent management used the information described above in approving the annual base salaries paid to Mr. Lamothe and Dr. Stromatt for 2014 and 2015, which are described below.

 

 

Annual Cash Bonuses. Management has the authority under Emergent’s Annual Bonus Plan to award annual cash bonuses. Such cash bonuses are intended to motivate and compensate each participant for achieving financial and operational goals and individual performance objectives. At the beginning of each fiscal year, Emergent establishes objective and clear corporate goals, which may be tied to achievement of specific goals including, but not limited to, specific revenue or net income targets, business development activities, manufacturing objectives, or product development milestones. The divisional group/divisional department goals support the achievement of the corporate goals and provide a framework for development of individual goals. The individual component includes consideration of the employee’s day-to-day job performance, achievement of specific annual goals, and performance against job related behavioral competencies. Each of the three components, corporate, divisional group/divisional department and individual, is assigned a rating, from 0% to 150% that is used to calculate the bonus award. At the end of the performance year, each performance factor is assessed. The maximum payout was capped at 200% of the employee’s bonus target for bonuses payable in 2015 based on 2014 performance. Management may also award discretionary bonuses outside of the framework of the bonus plan.

The Emergent compensation committee makes an annual assessment of the level of achievement of Emergent’s corporate goals to determine the “corporate factor.” In January 2015, the Emergent compensation committee met to determine the corporate factor to be applied to bonuses paid in 2015 for 2014 performance and approved a corporate factor of 0.90. In reviewing Emergent’s performance against goals set for 2014, the committee considered both financial and non-financial achievement of goals. In its deliberations, and given that Emergent’s financial performance is a key driver of shareholder value creation, the committee determined that Emergent had achieved 90% of its overall targets.

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The Emergent compensation committee reviewed the Emergent 2014 corporate goals and assessed the degree to which Emergent achieved those goals, as follows:

 

Lamothe Annual Bonus. Mr. Lamothe had a 30% bonus target, of which he received $58,953, based on Emergent’s 0.90 corporate factor, meeting 100% of his individual factor and exceeding 100% of his group or division level performance factor (actual was 103%). This amount also reflects 10 months proration based on the fact that Mr. Lamothe assumed his position with Emergent in late February 2014 in connection with Emergent’s acquisition of Cangene Corporation.

Stromatt Annual Bonus. Dr. Stromatt had a 35% bonus target, of which he received $119,384 based on Emergent’s 0.90 corporate factor and meeting 100% of his individual and group factors.

Retention Bonus . Mr. Lamothe also received a retention bonus in the amount of $275,586 in 2015 resulting from his decision to remain employed with Emergent in 2015 after its acquisition of Cangene Corporation in 2014.

Equity Awards. Emergent uses stock option and restricted stock unit awards as forms of long-term incentive compensation for executives and other employees. Equity awards to Mr. Lamothe and Dr. Stromatt in 2015 were valued at $103,240 and $212,570, respectively. Target equity award values are intended to align with the market 50th percentile, but actual grants may be positioned above or below based on individual performance, which is based on an evaluation of each participant’s performance of day-to-day responsibilities, behavioral competencies, and achievement of individual goals, which were assessed by management of Emergent for Mr. Lamothe and Dr. Stromatt. The Emergent compensation committee approves equity grant guidelines that set forth a dollar value for the amount of annual equity grants that Emergent may make to executives and other employees and includes a recommended minimum, midpoint and maximum target value of equity to be awarded at each participant level.

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Emergent generally makes an annual equity grant to all executives and eligible employees on the third full trading day following the release of its financial results for the prior fiscal year. Emergent generally makes an equity grant on the third full trading day following the release of its financial results for the most recently completed fiscal quarter to executives and eligible employees who have been hired or promoted since the occurrence of the last equity grant. If circumstances warrant, Emergent also may make equity grants at various other points throughout the year. Emergent’s chief executive officer, chief financial officer, and executive chairman have been authorized to make awards to certain eligible employees.

The exercise price of all stock options Emergent grants is equal to the fair market value of its common stock on the date of grant, which Emergent considers to be the closing sales price of its common stock on the NYSE on the trading day immediately preceding the date of grant. Stock options and restricted stock units generally vest in three equal annual instalments beginning one year from the date of grant and stock options have a seven-year term. The vesting feature of Emergent’s stock option and restricted stock unit awards is intended to aid in executive retention by providing an incentive to its eligible employees to remain in Emergent’s employ during the vesting period.

With stock options, eligible employees are rewarded if Emergent’s stock price increases above the exercise price of the stock option. Emergent believes that stock option awards are an effective method of motivating employees to manage the company in a manner that is consistent with the long-term interests of Emergent’s stockholders. Emergent believes that restricted stock units are another effective tool for motivating, retaining and incentivizing senior management, particularly when used in combination with stock option awards.

Benefits. Emergent maintains broad-based benefits that are generally available to all employees, including health insurance, life and disability insurance, dental insurance and, for its U.S. employees, a 401(k) plan. Senior management is eligible to participate in all of Emergent’s employee benefit plans, in each case on the same basis as other employees, except that Canadian employees, such as Mr. Lamothe receive benefits that are slightly different from their U.S. counterparts. Aptevo is not expected to have any Canadian employees after the separation.

Emergent provides a matching contribution for each 401(k) plan participant of 50% of the participant’s elective deferrals for the year up to 6% of the participant’s eligible compensation, subject to IRS limitations. The matching contribution is fully and immediately vested.

Executive Severance Arrangements. Dr. Stromatt is a participant in Emergent’s Second Amended and Restated Senior Management Severance Plan, or the Senior Management Severance Plan, which includes severance and change of control benefits. The Senior Management Severance Plan provides for payments and benefits as a result of involuntary termination without cause or termination of employment in particular circumstances in connection with a change of control (as such terms are defined in the Senior Management Severance Plan). The Senior Management Severance Plan is designed based on Emergent’s understanding of market practice at comparable companies for similarly situated employees and in a manner that Emergent believes is likely to attract and help retain high quality executive talent. The Senior Management Severance Plan is described in greater detail under “Payments Upon Termination or Change of Control.” Emergent does not provide any payments or benefits in the case of termination by an executive without good reason (as defined in the Senior Management Severance Plan) or in the case of termination for cause under its Senior Management Severance Plan.

With respect to Mr. Lamothe, in the event that the biosciences division of Emergent is spun-off, and in connection with such spin-off, he does not become the chief financial officer of the spin-off company, he will be entitled to $334,771 in total severance payments in lieu of any other severance benefits to which he might otherwise be entitled, so long as Mr. Lamothe does not voluntarily decline the position of chief financial officer or the Emergent biosciences division is not acquired by another company. In the event that this severance benefit is triggered, Mr. Lamothe would continue to be covered by the Emergent medical and dental benefits plan for Emergent Canadian employees for the 24 month period commencing on the last day of his employment.

Marvin White Compensation

Marvin L. White was a non-employee director of Emergent until his resignation from its board of directors, effective on May 18, 2016. Mr. White did not receive compensation from Emergent in 2015 beyond his board and

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committee retainers and the compensation he received under his consulting agreement, which is described in more detail below. Consistent with Emergent’s director compensation practices in 2015, Mr. White received 9,400 restricted stock units for his service as a director. Grants of restricted stock units are made by the board of directors effective on the date of Emergent’s annual meeting of stockholders, provided that the director continues serving as a director after the annual meeting and has served on the board of directors for at least six months.

On November 11, 2015, Emergent and Mr. White entered into a consulting agreement pursuant to which Mr. White provides consulting services to Emergent consisting of strategy, advice and guidance in connection with the separation. In accordance with the terms of the consulting agreement, Mr. White received a consulting fee of: $5,000 per month through December 31, 2015; $10,000 per month through March 31, 2016; has and will continue to receive $15,000 per month until completion of the spin-off and reimbursement for his reasonable out- of-pocket expenses, subject to a maximum limit of $120,000 for total compensation and non-travel-related expense reimbursement. For fiscal year ended December 31, 2015, Mr. White earned $8,000 in fees under this consulting agreement.

Other Executive Compensation Practices

Stock Ownership Requirements and Hedging Policies. Because Emergent believes it is important for executives to have an equity stake in the company to help align their interests with those of its stockholders, in January 2012 Emergent adopted a formal stock ownership requirement for its directors and employee executive officers. Directors and employee executive officers must directly or indirectly hold stock or restricted stock units in Emergent with a value equal to the amounts set forth in the table below. In May 2014, Emergent revised the stock ownership requirement for its non-employee directors from one to three times the base annual retainer.

 

Emergent’s directors, chief executive officer and employee executive officers have five years to satisfy the ownership requirements, which are measured from January 2012 for all its existing directors and executive officers or from the date of appointment for newly hired directors or executive officers. Until these ownership requirements are satisfied, Emergent’s directors, chief executive officer and employee executive officers must retain 50% of after-tax shares after vesting of restricted stock units or exercise of stock options. This requirement became effective beginning in 2014. Although Mr. White was subject to this policy as a director of Emergent, Mr. Lamothe and Dr. Stromatt are not.

Compensation Recovery Policy. In 2011, Emergent adopted a compensation recovery policy pursuant to which certain incentive based compensation can be recouped from a current or former executive officer if Emergent’s board of directors determines that:

Tax and Accounting Considerations. Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, generally disallows a tax deduction for compensation in excess of $1.0 million paid to the chief executive officer and to each other officer (other than the chief financial officer) whose compensation is required to be reported to stockholders pursuant to the Exchange Act by reason of being among the three most highly paid executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. Emergent periodically reviews the potential consequences of Section 162(m) of the Internal Revenue Code and it may structure the performance-based portion

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of its executive compensation, where feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to Emergent. However, the Emergent compensation committee may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent and are in the best interest of Emergent stockholders. We expect that the Aptevo compensation committee will develop its own policies and practices with respect to Section 162(m) of the Internal Revenue Code following completion of the separation.

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EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE

The following table sets forth information for the fiscal years ended December 31, 2015, 2014 and 2013 regarding the historical compensation that the Aptevo named executive officers received from Emergent.

 

 

Employment Agreements

None of the Aptevo named executive officers has an employment agreement with Emergent.

Emergent does not have any formal or informal policy for the amount of executive salary and bonus in proportion to total compensation.

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2015 GRANTS OF PLAN-BASED AWARDS

The following table sets forth information regarding each grant of an award made to each Aptevo named executive officer by Emergent during the fiscal year ended December 31, 2015 under any plan, contract, authorization or arrangement pursuant to which cash, securities, similar instruments or other property may be received.

 

 

In 2015, all equity awards granted to Emergent officers and directors were made under Emergent BioSolutions Inc. Third Amended and Restated 2006 Stock Incentive Plan, as amended, and vest in three equal instalments on the day prior to the first, second and third annual anniversaries of the grant date. All stock options have an exercise price equal to the closing sale price per share of Emergent’s common stock on the NYSE on the trading day immediately preceding the date of grant. Under the terms of the agreements governing the restricted stock unit awards granted to Emergent officers and directors in 2015, each is entitled to receive, at the time of the issuance of any shares upon vesting of the applicable restricted stock unit award, an amount of cash equal to the aggregate amount of all dividends paid by Emergent between the date of grant and the issuance of such shares, if any.

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2015 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth information regarding unexercised Emergent stock options and unvested restricted stock unit awards outstanding as of December 31, 2015 for each of the Aptevo named executive officers.

 

 

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2015 OPTION EXERCISES AND STOCK AWARDS VESTED

The following table sets forth information regarding the exercise of stock options and the vesting of restricted stock unit awards during the fiscal year ended December 31, 2015 for each of the Aptevo named executive officers on an aggregated basis.

 

 

PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

The Emergent Senior Management Severance Plan is for the benefit of employees with the title of executive chair, chief executive officer, president, executive vice president, senior vice president or vice president who have been designated to participate in the Senior Management Severance Plan by Emergent’s board of directors or, with the authorization of its board of directors, by Emergent’s chief executive officer. Emergent’s chief executive officer is authorized to designate the greater of 7% of the total number of its employees or 35 employees to be participants in the Senior Management Severance Plan at any particular time, on the basis of name, title, function or compensation level.

For-cause terminations. If during the term of the Senior Management Severance Plan, Emergent terminates a participant’s employment with cause, as defined in the Senior Management Severance Plan, then the participant will not be entitled to receive any compensation, benefits or rights under the Senior Management Severance Plan, and any stock options or other equity participation benefits vested on or prior to the date of the termination, but not yet exercised, will immediately terminate.

Without-cause terminations. If during the term of the Senior Management Severance Plan, Emergent terminates a participant’s employment without cause, the participant will be entitled to:

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The following table sets forth the percentage of base salary and the stated period over which certain payments are made and the participant in entitled to continued employee benefits if Emergent terminates the participant’s employment without cause for each of Aptevo’s named executive officers who participates in the plan.

 

The following table sets forth the amount of potential payments and value of benefits to which each of Aptevo’s named executive officers that participates in the plan would have received if Emergent had terminated their employment without cause on December 31, 2015.

 

 

Change-of-control terminations. If during the term of the Senior Management Severance Plan, Emergent terminates a participant’s employment without cause or a participant resigns for good reason, as defined in the Senior Management Severance Plan, in each case within 18 months following a change of control, as defined in the Senior Management Severance Plan, then the participant will be entitled to the payments and benefits described below. If, however, Emergent terminates a participant’s employment prior to a change of control at the request of a party involved in such change of control or otherwise in connection with or in anticipation of a change of control, the participant becomes entitled to the same payments and benefits described below but they are paid or distributed in the same manner as if the termination had been a without cause termination.

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The following table sets forth the percentage of base salary and bonus and the stated period for continued employee benefits to which each participant is entitled under the circumstances described above in connection with a change of control.

 

The following table sets forth the amount of potential payments and value of benefits that each participant would have received if Emergent had terminated their employment prior to or in connection with a change of control on December 31, 2015.

 

 

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2015, and the per share exercise price of the applicable accelerated stock option. The amounts reflecting the value of accelerated vesting of restricted stock units are calculated by multiplying the number of shares subject to accelerated vesting under restricted stock unit grants by $40.01, which was the closing market price per share of Emergent common stock on December 31, 2015.

General provisions. All payments under the Senior Management Severance Plan will be reduced by any applicable taxes required by applicable law to be paid or withheld by Emergent. If at the time a participant’s employment is terminated, the participant is a specified employee within the meaning of Section 409A of the Internal Revenue Code, or Section 409A, then any payments to the participant that constitute non-qualified deferred compensation within the meaning of Section 409A will be delayed by a period of six months. All such payments that would have been made to the participant during the six-month period will be made in a lump sum on the date that is six months and one day following the date of termination, and all remaining payments will commence in the seventh month following the date of termination. Emergent’s board of directors or any committee thereof designated by the Emergent board of directors is authorized to administer the Senior Management Severance Plan and has authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the Senior Management Severance Plan as it deems advisable.

As a condition to payment of any amounts payable upon a termination without cause under the Senior Management Severance Plan, the participant is required:

•For a period of 12 months (or six months for vice presidents who participate in the Senior Management Severance Plan) not to:

Director Compensation Following the Separation

Aptevo’s non-employee directors have not received, and will not receive, any compensation for their service on Aptevo’s board of directors prior to the completion of the distribution.

In anticipation of the separation, the Emergent compensation committee engaged Willis Towers Watson to review market practice and recommend a potential compensation structure for Aptevo’s non-employee directors. Upon this review, the Emergent board of directors approved the Aptevo Directors Compensation Program, which we expect to be effective upon the completion of the separation and distribution, subject to any adjustments by Aptevo’s compensation committee and board of directors following the distribution. Under the Aptevo Directors Compensation Program, we expect that Aptevo’s non-employee directors will receive the compensation set forth in

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the table below. We also expect to reimburse Aptevo’s non-employee directors for out-of-pocket expenses incurred in connection with attending our board and committee meetings.

 

As indicated in the table above, we expect that the Aptevo Director Compensation Program will provide for the award of stock options upon commencement of service on Aptevo’s board of directors and for the annual award of stock options. The initial grant of stock options are expected to vest in three equal instalments on the first, second and third annual anniversaries of the date of grant. Thereafter, annual equity grants are expected to vest in four equal instalments each quarter of the year.

Director Transition Grants

It is currently anticipated that Emergent directors who will join Aptevo as directors and those Emergent directors who will serve on both boards of directors following the separation will receive additional equity grants in connection with their formal Aptevo appointments. As previously noted, Mr. White is expected to receive a transition grant of options to purchase 400,950 shares of Aptevo common stock in connection with his appointment as Aptevo’s chief executive officer. Final decisions regarding equity grants to other Emergent directors who will join the Aptevo board will be made in the future.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Agreements with Emergent

Following the separation and distribution, Aptevo and Emergent will operate separately, each as an independent public company. Aptevo will enter into a separation and distribution agreement with Emergent, which is referred to in this information statement as the “separation agreement,” to effect the separation. In connection with the separation, Aptevo will also enter into various other agreements to provide a framework for its relationship with Emergent after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, a manufacturing services agreement, a Canadian distributor agreement, a trademark license agreement and a product license agreement. These agreements will provide for the allocation between Aptevo and Emergent of Emergent’s assets, liabilities and obligations (including investments, property and employee benefits, and tax-related assets and liabilities) attributable to periods prior to, at and after Aptevo’s separation from Emergent and will govern certain relationships between Aptevo and Emergent after the separation.

The material agreements described below will be filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries of each of these agreements set forth the terms of the agreements that we believe are material. These summaries are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement. When used in this section, “distribution date” refers to the date on which Emergent distributes Aptevo common stock to the holders of Emergent common stock.

Separation Agreement

Transfer of Assets and Assumption of Liabilities

The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of Aptevo and Emergent as part of the separation of Emergent into two companies, and will provide for when and how these transfers, assumptions and assignments will occur. Certain of the necessary transfers, assumptions and assignments will be accomplished through the internal reorganization. In particular, the separation agreement will provide that, among other things, subject to the terms and conditions contained therein:

Except as expressly set forth in the separation agreement or any ancillary agreement, neither Aptevo nor Emergent will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either Aptevo or Emergent, or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the separation. All assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests, that any necessary consents or governmental approvals are not obtained, or that any requirements of law, agreements, security interests, or judgments are not complied with.

Information in this information statement with respect to the assets and liabilities of the parties following the distribution is presented based on the allocation of such assets and liabilities pursuant to the separation agreement,

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unless the context otherwise requires. The separation agreement will provide that, in the event that the transfer or assignment of certain assets and liabilities to Aptevo or Emergent, as applicable, does not occur prior to the separation, then until such assets or liabilities are able to be transferred or assigned, Aptevo or Emergent, as applicable, will hold such assets in trust for the other party.

The Distribution

The separation agreement will also govern the rights and obligations of the parties regarding the distribution following the completion of the separation. On the distribution date, Emergent will distribute to its stockholders that hold Emergent common stock as of the record date for the distribution all of the issued and outstanding shares of Aptevo common stock on a pro rata basis. Stockholders will receive cash in lieu of any fractional shares, if applicable.

Conditions to the Distribution

The separation agreement will provide that the distribution is subject to satisfaction (or waiver by Emergent) of certain conditions. These conditions are described under “The Separation and Distribution—Conditions to the Distribution.” Emergent will have the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the distribution and, to the extent that it determines to so proceed, to determine the record date for the distribution and the distribution date.

Claims

In general, each party to the separation agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.

Releases

The separation agreement will provide that Aptevo and its affiliates will release and discharge Emergent and its affiliates from all liabilities assumed by Aptevo as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to Aptevo’s business, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement. Emergent and its affiliates will release and discharge Aptevo and its affiliates from all liabilities retained by Emergent and its affiliates as part of the separation and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement.

These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation, which agreements include, but are not limited to, a transition services agreement, a tax matters agreement, an employee matters agreement, a manufacturing services agreement, a Canadian distributor agreement, a trademark license agreement and a product license agreement.

Indemnification

In the separation agreement, Aptevo will agree to indemnify, defend and hold harmless Emergent, each of Emergent’s affiliates and each of Emergent and its affiliates’ respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:

 

 

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Emergent will agree to indemnify, defend and hold harmless Aptevo, each of Aptevo’s affiliates and each of Aptevo’s and Aptevo’s affiliates’ respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:

The separation agreement will also establish procedures with respect to claims subject to indemnification and related matters.

Insurance

The separation agreement provides for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the distribution and sets forth procedures for the administration of insured claims.

Non-competition and Non-solicitation Provisions

The separation agreement prohibits Emergent from making, manufacturing, using, selling, offering for sale, importing or otherwise exploiting protein therapeutics intended to treat oncolytic diseases during the period commencing upon completion of the distribution and ending on the earlier of the third anniversary of the completion of the distribution or a change of control of Emergent, subject to certain exceptions.

The separation agreement also prohibits, for a period of 12 months following the completion of the distribution, each of Emergent and Aptevo from soliciting the employees of the other party to leave his or her employment with the other party, or to hire such party, subject to certain exceptions.

Further Assurances

In addition to the actions specifically provided for in the separation agreement, except as otherwise set forth therein or in any ancillary agreement, both Aptevo and Emergent agree in the separation agreement to use

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reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation agreement and the ancillary agreements.

Dispute Resolution

The separation agreement will contain provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between Aptevo and Emergent related to the separation or distribution. These provisions will contemplate that efforts will be made to resolve disputes, controversies and claims by negotiation by applicable local or functional representatives of Aptevo and Emergent and, if necessary, escalation of the matter to a transition committee composed of representatives of Aptevo and Emergent. If such efforts are not successful, either Aptevo or Emergent may submit the dispute, controversy or claim to binding arbitration, subject to the provisions of the separation agreement.

Expenses

Except as expressly set forth in the separation agreement or in any ancillary agreement, Emergent will be responsible for all costs and expenses incurred in connection with the separation prior to the distribution date, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation. Except as expressly set forth in the separation agreement or in any ancillary agreement, or as otherwise agreed in writing by Emergent and Aptevo, all costs and expenses incurred in connection with the separation after the distribution will be paid by the party incurring such cost and expense.

Other Matters

Other matters governed by the separation agreement will include access to financial and other information, confidentiality, access to and provision of records and treatment of outstanding guarantees and similar credit support.

Termination

The separation agreement will provide that it may be terminated, and the separation and distribution may be modified or abandoned, at any time prior to the distribution date in the sole discretion of Emergent without the approval of any person, including Aptevo or Emergent stockholders. In the event of a termination of the separation agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other party or any other person. After the distribution date, the separation agreement may not be terminated except by an agreement in writing signed by both Emergent and Aptevo.

Transition Services Agreement

Aptevo and Emergent will enter into a transition services agreement in connection with the separation pursuant to which Emergent and its affiliates will provide to Aptevo and its affiliates, on an interim, transitional basis, various services, including, but not limited to, accounts payable administration, information technology services, regulatory and clinical support, general administrative services and other support services. The agreed- upon charges for such services are generally intended to allow Emergent to recover all direct and indirect costs. Aptevo will be provided with reasonable information that supports the charges for such transition service by Emergent.

The services will commence on the distribution date and terminate up to two years following the distribution date. Aptevo may terminate certain specified services by giving prior written notice to Emergent and paying any applicable wind-down charges.

Subject to certain exceptions, the liabilities of Emergent under the transition services agreement will generally be limited to the aggregate charges (excluding any third-party costs and expenses included in such charges) actually

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paid to Emergent by Aptevo pursuant to the transition services agreement. The transition services agreement also will provide that Emergent will not be liable to Aptevo for any special, indirect, incidental, punitive or consequential damages.

Tax Matters Agreement

In connection with the separation, Aptevo and Emergent will enter into a tax matters agreement that will govern the parties’ respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and assistance and cooperation in respect of tax matters.

With respect to taxes arising in the ordinary course of business, Aptevo will generally be liable for all taxes relating to the biosciences business that are attributable to the period after the distribution, and Emergent will indemnify Aptevo for all taxes relating to the biosciences business that are attributable to the period prior to the distribution.

In addition, to preserve the tax-free treatment to Emergent and its stockholders of the distribution, under the tax matters agreement, Emergent and Aptevo will be restricted from taking, or failing to take, any action that could reasonably be expected to prevent the distribution, together with certain related transactions, from qualifying as a transaction described in Sections 355 and 368(a)(1)(D) of the Code. In particular, for a period of two years following the separation, Aptevo will be restricted from taking certain actions (including restrictions on share issuances, business combinations, sales of assets, amendments to organizational documents and similar transactions) that could cause the distribution, together with certain related transactions, to fail to so qualify. Aptevo may take such a restricted action if (i) it provides Emergent with an opinion from a U.S. tax counsel or accountant of recognized national standing, reasonably acceptable to Emergent, in form and substance satisfactory to Emergent, that the transaction will not affect the tax-free status of the distribution and certain related transactions, (ii) Emergent obtains, at Aptevo’s request, a supplemental ruling from the IRS, in form and substance reasonably satisfactory to Emergent, that the action will not affect the tax-free status of the distribution and certain related transactions, or (iii) Emergent waives in writing the requirement to obtain such opinion or ruling.

The tax matters agreement will provide special rules that allocate tax liabilities and related expenses (including damages related to claims of Emergent stockholders) resulting from the failure of the distribution, together with certain related transactions, to qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code. In general, under the tax matters agreement, each party is expected to be responsible for any taxes imposed on Aptevo or Emergent that arise from the failure of the distribution, together with certain related transactions, to qualify as a transaction described under Sections 355 and 368(a)(1)(D), to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement or the IRS private letter ruling or in the representation letters provided to WilmerHale LLP in connection with its providing an opinion regarding the tax consequences of the distribution and certain related transactions. This indemnification will apply with respect to an acquisition of a party’s stock even if such party has not facilitated such acquisition. This indemnification will also apply even if Emergent has permitted Aptevo to take an action that would otherwise have been prohibited under the tax-related covenants described above.

Employee Matters Agreement

Aptevo and Emergent will enter into an employee matters agreement prior to the distribution to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters.

Generally, the employee matters agreement will provide for the transfer or assignment of employees from Emergent to Aptevo, provide for the establishment of Aptevo compensation and benefit plans and programs, which are expected to be generally comparable to those currently in place at Emergent, and allocate liabilities and responsibilities relating to their respective employees’ and former employees’ compensation and benefit plans and

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programs between Emergent and Aptevo. Among other things, the employee matters agreement will provide that, following the distribution, Aptevo’s active employees generally will no longer participate in benefit plans sponsored or maintained by Emergent and will commence participation in Aptevo’s benefit plans. The employee matters agreement will also provide for the treatment of outstanding Emergent equity awards (as described in the section entitled “The Separation and Distribution—Treatment of Equity Based Compensation”) and certain other outstanding incentive awards. In addition, the employee matters agreement will set forth the general principles relating to employee matters, including the assumption and/or retention of liabilities and related benefit plan assets, the treatment of expense reimbursements, workers’ compensation, employee leaves of absence, the provision of employee service credit, the sharing of employee information and the non-duplication or acceleration of benefits.

Intellectual Property Agreements

Product License Agreement. Aptevo will enter into a product license agreement with Emergent pursuant to which Emergent will grant to Aptevo a perpetual, exclusive royalty-free, nontransferable worldwide license, under certain licensed intellectual property rights, to research, develop, make, have made, use, sell, offer to sell and import WinRho SDF, HepaGam B and VARIZIG in their respective indications. Aptevo will only be permitted to exercise rights under the license with respect to Emergent’s human hyperimmune platform manufacturing know-how through a third-party contract manufacturer, and then only if the manufacturer is bound to maintain the confidentiality of the manufacturing know-how and is either approved by Emergent, in its sole discretion, or there has been a manufacturing failure under the manufacturing services agreement. In addition, Aptevo will grant Emergent a non-exclusive, royalty-free, worldwide, perpetual, irrevocable, fully paid-up, fully sublicensable, fully transferable license to reproduce, copy, make derivative works of, use and otherwise exploit the clinical and pre-clinical data, including the related safety data, that exists on the distribution date and is related to WinRho SDF, HepaGam B and VARIZIG.

Aptevo may terminate its rights under the agreement at any time by providing written notice to Emergent. Emergent may terminate the agreement if Aptevo breaches the agreement and the breach is not cured within a specified period of time or is uncurable. Each party may terminate the agreement if the other party experiences certain bankruptcy events.

Trademark License Agreement. Aptevo will enter into a license agreement with Emergent pursuant to which Emergent will grant Aptevo a non-exclusive, royalty-free, worldwide, non-sublicenseable license under certain trademarks of Emergent to distribute the physical inventory of packaging and marketing materials assigned to Aptevo as part of the distribution, solely to sell, offer to sell and otherwise commercialize the commercial products until such inventory of packaging and marketing materials is depleted but in no event after the third anniversary of the distribution. The license will also permit Aptevo to include Emergent’s trademarks on additional packaging and marketing materials created after the distribution date for WinRho SDF, HepaGam B, and VARIZIG intended for sale outside the United States, to the extent necessary to comply with regulatory requirements for so long as Emergent is providing distribution services for those products or manufacturing services for such products, or both. In addition, Emergent will covenant not to sue Aptevo for trade dress infringement pertaining to applicable packaging materials while Emergent is performing services for Aptevo under the manufacturing services agreement and for a specified period of time thereafter. Aptevo will grant Emergent a non-exclusive, worldwide, irrevocable, royalty-free license to use, have used, display and have displayed trademarks of Aptevo in furtherance of Emergent’s performance under the agreements between Emergent and Aptevo and for incidental uses (the latter limited to two years from the distribution date).

Aptevo may terminate its rights under the agreement at any time by providing written notice to Emergent. Emergent may terminate the agreement if Aptevo breaches the agreement and the breach is not cured within a specified period of time or is uncurable.

Commercial Agreements

The terms of these agreements are still being finalized and the descriptions included herein will be updated in a subsequent amendment.

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Manufacturing Services Agreement. Aptevo will enter a manufacturing services agreement with Emergent prior to the distribution pursuant. The expiration date of the manufacturing services agreement is ten years following the date of its execution, which is expected to occur on the separation date.

Under the manufacturing services agreement, Emergent will manufacture, fill and finish, label, package and ship the hyperimmune products for Aptevo and will provide these services, other than manufacturing, fill and finish and certain other services, for the IXINITY product as well. Management believes these payments approximate those that would be made in an arm’s length transaction.

Canadian Distributor Agreement. Aptevo will enter into a Canadian distributor agreement with Emergent pursuant to which Emergent will make product intended for sale in Canada available to Aptevo’s Canadian customers.

Funding Arrangement

At or prior to the separation, Emergent will issue a non-negotiable promissory note in the amount of $20 million to Aptevo. This note will be unsecured, will bear no interest, will be non-transferrable and will be payable by Emergent six to 12 months after the distribution date on demand by Aptevo. For additional information, see the section entitled “Risk Factors—Risks Related to Aptevo’s Business.”

Consulting Arrangements Entered into in Connection with the Separation

John E. Niederhuber, M.D. On May 18, 2016, John E. Niederhuber, M.D. entered into a consulting agreement with Emergent, pursuant to which Dr. Niederhuber provides consulting services consisting of evaluative services, expert advice and guidance, general strategy recommendations, and other similar assistance regarding industry products, technology platforms, and research and development programs to the Emergent board of directors. In accordance with the terms of the consulting agreement, Dr. Niederhuber receives a consulting fee from Emergent of $2,000 per calendar quarter and is reimbursed for his reasonable out-of-pocket expenses. In addition, Dr. Niederhuber was granted 2,000 Emergent restricted stock units on the effective date of his consulting agreement and will receive an additional 2,000 Emergent restricted stock units on the one-year anniversary of the effective date of the agreement. Both restricted stock unit grants will vest on the first anniversary of the date of grant. The consulting agreement has a term that expires on June 30, 2018, unless it is otherwise terminated earlier by Dr. Niederhuber, for any reason, or by Emergent for “cause” as defined in the agreement.

Marvin L. White. For a discussion of the consulting agreement entered into by and between Emergent and Mr. White in anticipation of the separation, see the section entitled “Compensation Discussion and Analysis— Marvin White Compensation.”

Procedures for Approval of Related Party Transactions

Aptevo’s board of directors will adopt a written policy regarding the review and approval or ratification of transactions involving Aptevo and its directors, nominees for directors, executive officers, immediate family members of these individuals, and stockholders owning 5% or more of our outstanding common stock, each of whom is referred to as a “related party.” The policy will cover any related party transaction, arrangement or relationship where a related party has a direct or indirect material interest and the amount involved exceeds $120,000 in any calendar year. Under the policy, the Audit Committee of Aptevo’s Board of Directors will be responsible for reviewing and approving, or ratifying, the material terms of any related party transactions. The committee will be charged with determining whether the terms of the transaction are any less favorable than those generally available from unaffiliated third parties, and determining the extent of the related party’s interest in the transaction.

Related party transactions that will require review by the Audit Committee pursuant to this policy will be identified in:

 

•questionnaires annually distributed to Aptevo’s directors and officers;

 

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•certifications submitted annually by our officers related to their compliance with Aptevo’s Code of 

Conduct; or

 

In determining whether to approve or ratify a related party transaction, the Audit Committee will consider the following items, among others:

 

•the related party relationship with Aptevo and interest in any transaction with Aptevo;

 

•the material terms of a transaction with Aptevo, including the type and amount;

 

•the purpose of, and the potential benefits to Aptevo of, any proposed or actual transaction;

 

•whether a transaction was undertaken in the ordinary course of our business; and

 

This process will be included in the written policy.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Before the distribution, all of the outstanding shares of Aptevo’s common stock will be owned beneficially and of record by Emergent. The following table sets forth information with respect to the expected beneficial ownership of Aptevo’s common stock, upon the distribution, by (1) each person who Aptevo believes will be a beneficial owner of 5% or more of Aptevo’s outstanding common stock, (2) each expected director and named executive officer of Aptevo and (3) all of Aptevo’s expected directors and named executive officers as a group. Aptevo based the share amounts on each person’s beneficial ownership of Emergent’s common stock and stock options or other equity awards as of June 30, 2016 unless Aptevo indicates some other basis for the share amounts, and assume a distribution ratio of one share of Aptevo’s common stock for every two shares of Emergent’s common stock. The address of each director and executive officer shown in the table below is c/o Aptevo, 2401 4th Avenue, Suite 1050, Seattle, WA 98121.

 

 

*Represents beneficial ownership of less than 1% of common stock

(1)   Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to shares of our common stock. The information set forth in the table above is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any shares deemed beneficially owned in this table does not constitute an admission of beneficial ownership of those shares. Except as otherwise noted, to our knowledge, the persons and entities named in the table above have sole voting and investment power with respect to all of the shares of common stock beneficially owned by them, subject to community property laws, where applicable.

(2)   Consists of shares of common stock subject to stock options exercisable as of, or within 60 days of June 30,

2016, and shares of common stock issuable under restricted stock unit awards that vest within 60 days of June 30. Shares of common stock subject to stock options that are exercisable as of or within 60 days of June 30, 2016 and shares of common stock issuable under restricted stock unit awards that vest within 60

days of June 30, 2016 are deemed to be outstanding and beneficially owned by the person holding the option or restricted stock unit for the purpose of calculating the percentage ownership of that person, but are not deemed outstanding for the purpose of calculating the percentage ownership of any other person.

(3)   Mr. El-Hibri has a beneficial ownership interest in 2,761,778 shares of our common stock through his direct holdings in certain entities and shares held by trusts indirectly controlled by Mr. El-Hibri, which represent approximately 14% of our outstanding common stock. In accordance with the rules and regulations of the

SEC, Mr. El-Hibri’s beneficial ownership is deemed to consist of the following shares of our common stock:

•1,175,165 shares held by Intervac, L.L.C.;

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•762,077 shares held by BioVac, L.L.C.; and 

•824,536 shares held directly by Mr. El-Hibri.

(4)   Includes 1,000 shares held by Mr. Abdun-Nabi’s children, as to which Mr. Abdun-Nabi disclaims beneficial ownership.

(5)   Based on information provided in a Schedule 13G/A that was filed with the SEC on February 11, 2016 by The Vanguard Group, Inc. The Vanguard Group, Inc. reported sole voting power with respect to 2,888,089 shares, sole dispositive power with respect to 2,827,209 shares and shared dispositive power with respect to

60,880 shares of Emergent’s common stock as of December 31, 2015. Based on the distribution ratio of one share of Aptevo common stock for every two shares of Emergent stock, the total beneficially owned Aptevo common shares equals 1,444,044. Aggregate beneficial ownership reported by The Vanguard Group, Inc. is on a consolidated basis and includes shares beneficially owned by the following wholly-owned subsidiaries of The Vanguard Group, Inc., none of which beneficially owns 5% or greater of the outstanding shares of Emergent’s common stock: Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(6)   Based on information provided in a Schedule 13G/A that was filed with the SEC on February 10, 2016 by BlackRock, Inc. BlackRock, Inc. is the beneficial owner of 2,992,302 shares and has sole voting power with respect to 2,903,068 shares and sole dispositive power with respect to 89,234 shares of Emergent’s common stock as of December 31, 2015. Based on the distribution ratio of one share of Aptevo common stock for every two shares of Emergent common stock, the total beneficially owned Aptevo common shares equals

1,496,151. Aggregate beneficial ownership reported by BlackRock, Inc. is on a consolidated basis and includes shares beneficially owned by the following subsidiaries of BlackRock, Inc., none of which beneficially owns 5% or greater of the outstanding shares of Emergent’s common stock: BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Asset Management Ireland Limited; BlackRock Asset Management Schweiz AG; BlackRock Financial Management, Inc; BlackRock Fund Advisors; BlackRock Institutional Trust Company, N.A.

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THE SEPARATION AND DISTRIBUTION

Overview

On August 6, 2015, Emergent announced its intention to separate its biosciences business. The separation will occur by means of a pro rata distribution to Emergent stockholders of 100% of the shares of common stock of Aptevo, which was formed to hold certain assets of Emergent’s biosciences business. In connection with this distribution, we expect that Emergent will complete an internal reorganization, which we refer to as the “internal reorganization,” as a result of which Aptevo will become the parent company of those Emergent operations comprising, and the entities that will conduct, the biosciences business.

On July 10, 2016, the Emergent board of directors approved the distribution of all of Aptevo’s issued and outstanding shares of common stock on the basis of one share of Aptevo common stock for every two shares of Emergent common stock held as of the close of business on July 22, 2016, the record date for the distribution.

On August 1, 2016, the distribution date, each Emergent stockholder will receive one share of Aptevo common stock for every two shares of Emergent common stock held at the close of business on the record date for the distribution, as described below. Emergent stockholders will receive cash in lieu of any fractional shares of Aptevo common stock that they would have received after application of this ratio. You will not be required to make any payment, surrender or exchange your Emergent common stock or take any other action to receive your shares of Aptevo common stock in the distribution. The distribution of Aptevo common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Conditions to the Distribution.”

Reasons for the Separation

The Emergent board of directors believes that separating the biosciences business from the biodefense business of Emergent is in the best interests of Emergent and its stockholders for a number of reasons, including the following:

 

 

 

 

 

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The Emergent board of directors also considered a number of potentially negative factors in evaluating the separation, including the following:

 

 

 

 

 

 

 

 

 

In determining to pursue the separation, the Emergent board of directors concluded that the potential benefits of the separation outweighed the potential negative factors.

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Formation of Aptevo

Aptevo was formed in Delaware in February 2016 for the purpose of holding certain assets and liabilities of Emergent’s biosciences business. As part of the plan to separate the biosciences business from the remainder of its businesses, in connection with the internal reorganization, Emergent plans to transfer the equity interests of certain entities that are expected to operate the biosciences business and the assets and liabilities of the biosciences business to Aptevo prior to the distribution.

When and How You Will Receive the Distribution

With the assistance of Broadridge Financial Solutions, Inc., the distribution agent for the distribution, which we refer to as the “distribution agent,” Emergent expects to distribute Aptevo common stock on August 1, 2016, the distribution date, to all holders of outstanding Emergent common stock as of the close of business on July 22, 2016, the record date for the distribution. The distribution agent will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Aptevo common stock.

If you own Emergent common stock as of the close of business on the record date for the distribution, Aptevo common stock that you are entitled to receive in the distribution will be issued as of the distribution date, to you in direct registration form or in certificated form or to your bank or brokerage firm on your behalf. If you are a registered holder, the distribution agent will then mail you a direct registration account statement that reflects your shares of Aptevo common stock. If you hold your Emergent shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Aptevo shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders. If you sell Emergent common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Aptevo common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your Emergent common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Aptevo common stock that have been registered in your name.

Most Emergent stockholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Emergent common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Aptevo common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Transferability of Shares You Receive

Shares of Aptevo common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act of 1933, as amended, or the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers, directors or principal stockholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Number of Shares of Aptevo Common Stock You Will Receive

For every two shares of Emergent common stock that you own at the close of business on July 22, 2016, the record date for the distribution, you will receive one share of Aptevo common stock on the distribution date. Emergent will not distribute any fractional shares of Aptevo common stock to its stockholders. Instead, if you are a registered holder, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in

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the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by Emergent or Aptevo, will determine when, how, and through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either Emergent or Aptevo and the distribution agent is not an affiliate of either Emergent or Aptevo. Neither Aptevo nor Emergent will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

The receipt by a holder of a pro rata share of the aggregate net cash proceeds of these sales of fractional shares will be taxable to such holder for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” for additional information regarding the material U.S. federal income tax consequences of the distribution, including the receipt of cash in lieu of fractional shares. If you hold physical certificates for shares of Emergent common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your shares of Emergent common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

Treatment of Equity Based Compensation

Generally, pursuant to the employee matters agreement, each award of Emergent restricted stock units that is held by an Emergent employee or service provider (an “Emergent Holder”) as of the effective time of the distribution will be adjusted (the “Adjusted Emergent RSUs”), and each award of Emergent restricted stock units held by an Aptevo employee or service provider (an “Aptevo Holder”) as of the effective time of the distribution will be converted to a restricted stock unit award entitling the Aptevo Holder to Aptevo common stock (the “Aptevo RSUs”). The adjustment and conversion, respectively, will be structured to reflect the effect of the distribution. The Adjusted Emergent RSUs and the Aptevo RSUs will otherwise be subject to the same terms and conditions that applied to the original Emergent restricted stock units immediately before the distribution.

Similarly, the employee matters agreement generally provides that each Emergent stock option that is held by an Emergent Holder will remain an option to purchase Emergent common stock but will be adjusted (an “Adjusted Emergent Option”), and each Emergent stock option that is held by an Aptevo Holder will be converted into an option to purchase Aptevo common stock (an “Aptevo Option”). The exercise price and the number of shares covered by each Adjusted Emergent Option and Aptevo Option will reflect the effect of the distribution. Each Adjusted Emergent Option and Aptevo Option will otherwise be subject to the same terms and conditions that applied to the original Emergent stock options immediately before the distribution.

For purposes of the equity awards, the distribution will not result in a termination of employment or service for any holder of equity awards. Rather, the date of termination of employment or service with the applicable plan sponsor following the distribution shall be the holder’s termination date for purposes of outstanding equity awards. Following the distribution each Aptevo Holder will be considered to have been employed by or have provided services to, as the case may be, Aptevo before and after the distribution for purposes of vesting of such holder’s Aptevo RSUs and/or Aptevo Options.

Notwithstanding the foregoing and his anticipated election to the Aptevo board of directors, the employee matters agreement provides that any outstanding Emergent equity awards held by Dr. Niederhuber at the effective time of the distribution, including those recently awarded under the section entitled “Certain Relationships and Related Party Transactions—Consulting Arrangements Entered into in Connection with the Separation,” will not be converted into awards to acquire shares of Aptevo common stock. Rather, he will be treated as an Emergent Holder and receive Adjusted Emergent RSUs and Adjusted Emergent Options. The employee matters agreement further provides that his Adjusted Emergent RSUs and Adjusted Emergent Options will continue to vest in accordance with their terms while he provides consulting services to Emergent.

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No award shall be adjusted or converted as described above unless such adjustment or conversion is consistent with all applicable laws, including U.S. securities laws. The adjustment or conversion of Emergent stock options and Emergent restricted stock units will be effectuated in a manner that is intended to avoid the imposition of any penalty or other taxes on the holders of such awards pursuant to Section 409A of the Code. Following the distribution, Emergent will be responsible for all liabilities associated with the Adjusted Emergent RSUs and Adjusted Emergent Options, and Aptevo will be responsible for all liabilities associated with Aptevo RSUs and Aptevo Options.

For a further discussion of the employee matters agreement, see the section entitled “Certain Relationships and Related Party Transactions—Employee Matters Agreement.”

Internal Reorganization

As part of the separation, and prior to the distribution, Emergent and its subsidiaries expect to complete an internal reorganization in order to transfer to Aptevo the biosciences business that Aptevo will hold following the separation. Among other things and subject to limited exceptions, the internal reorganization is expected to result in Aptevo owning, directly or indirectly, the operations comprising and the entities that conduct the biosciences business.

The internal reorganization is expected to include various restructuring transactions pursuant to which (1) the operations, assets and liabilities of Emergent and its subsidiaries used to conduct the biosciences business will be separated from the operations, assets and liabilities of Emergent and its subsidiaries used to conduct the biodefense business and (2) such biosciences operations, assets and liabilities will be contributed, transferred or otherwise allocated to Aptevo or one of its direct or indirect subsidiaries. Such restructuring transactions may take the form of asset transfers, mergers, demergers, dividends, contributions and similar transactions, and may involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate the biosciences business or the biodefense business in such jurisdictions.

In the final step of the internal reorganization, Emergent will contribute to Aptevo certain assets, including all of the equity interests in the entities that are expected to conduct the biosciences business.

Following the completion of the internal reorganization and immediately prior to the distribution, Aptevo will be the parent company of the entities that are expected to conduct the biosciences business and Emergent (through subsidiaries other than Aptevo and its subsidiaries) will remain the parent company of the entities that are expected to conduct the biodefense business.

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As more fully explained below, the diagram immediately below shows the simplified structure of the pre- internal reorganization businesses and entities of Emergent that are being contributed to Aptevo Therapeutics, Inc.:

 

The Biosciences Business of Emergent BioSolutions Inc., as defined in Note 1 to the Audited Combined Financial Statements contained in this information statement, include the certain businesses and entities that will be contributed to Aptevo Therapeutics Inc. in the internal reorganization in anticipation of the separation, which are owned through multiple different entities. The diagram above has been simplified for illustrative purposes and does not set forth all affiliated entities, including intermediate subsidiaries. The material businesses and primary entities that will be contributed directly to Aptevo Therapeutics Inc. by Emergent, which are included in the chart above, are discussed below.

Emergent will directly contribute to Aptevo Therapeutics Inc. the Emergent Product Development Seattle LLC, or EPDS LLC, entity, which is primarily a research and development company focused on the generation and clinical testing of recombinant protein therapeutics, based on the ADAPTIR platform, for the treatment of cancer and autoimmune disease. The other primary entity being directly contributed by Emergent is Cangene Europe Limited, which focuses on hematology (blood disease) therapeutics.

The businesses being contributed in the internal reorganization come from multiple Emergent entities. Such entities include Cangene BioPharma Inc. (its hyperimmune commercial business assets are being contributed, but not its contract manufacturing business) and Canadian entities Cangene Corporation and CNJ Holdings Inc. (each of which will have their hyperimmune commercial business assets contributed to Aptevo Therapeutics Inc., but not their biodefense hyperimmune businesses).

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The diagram below shows what we expect will be the simplified structure of each of Aptevo and Emergent after completion of the internal reorganization, the separation and the distribution:

 

 

This diagram has been simplified for illustrative purposes and does not set forth all affiliated entities, including intermediate subsidiaries.

Results of the Distribution

After the distribution, Aptevo will be an independent, publicly-traded company. The actual number of shares to be distributed will be determined at the close of business on July 22, 2016, the record date for the distribution, and will reflect any exercise of Emergent options between the date the Emergent board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of Emergent common stock or any rights of Emergent stockholders. Emergent will not distribute any fractional shares of Aptevo common stock.

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We will enter into a separation agreement and other related agreements with Emergent before the distribution to effect the separation and provide a framework for our relationship with Emergent after the separation. These agreements will provide for the allocation between Emergent and Aptevo of Emergent’s assets, liabilities and obligations (including employee benefits, intellectual property, and tax-related assets and liabilities) attributable to periods prior to Aptevo’s separation from Emergent and will govern the relationship between Emergent and Aptevo after the separation. For a more detailed description of these agreements, see “Certain Relationships and Related Party Transactions.”

Market for Aptevo Common Stock

There is currently no public trading market for Aptevo common stock. Aptevo has received approval to have its shares of common stock listed on The NASDAQ Global Select Market under the symbol “APVO,” subject to official notice of distribution. Aptevo has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

We cannot predict the price at which Aptevo common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the shares of Aptevo common stock that each Emergent stockholder will receive in the distribution and the Emergent common stock held at the record date for the distribution may not equal the “regular-way” trading price of the Emergent common stock immediately prior to the distribution. The price at which Aptevo common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Aptevo common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Aptevo’s Common Stock.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, Emergent expects that there will be two markets in Emergent common stock: a “regular-way” market and an “ex-distribution” market. Emergent common stock that trades on the “regular-way” market will trade with an entitlement to Aptevo common stock distributed in the distribution. Emergent common stock that trades on the “ex-distribution” market will trade without an entitlement to Aptevo common stock distributed in the distribution. Therefore, if you sell shares of Emergent common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of Aptevo common stock in the distribution. If you own Emergent common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of Aptevo common stock that you are entitled to receive pursuant to your ownership of shares of Emergent common stock as of the record date.

Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, Aptevo expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for Aptevo common stock that will be distributed to holders of Emergent common stock on the distribution date. If you owned Emergent common stock at the close of business on the record date for the distribution, you would be entitled to Aptevo common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Aptevo common stock, without trading the Emergent common stock you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to Aptevo common stock will end, and “regular-way” trading will begin.

Conditions to the Distribution

The distribution will be effective on August 1, 2016, which is the distribution date, provided that the conditions set forth in the separation agreement have been satisfied (or waived by Emergent in its sole and absolute discretion), including, among others

 

•the continued validity of a private letter ruling received by Emergent from the IRS regarding certain

U.S. federal income tax matters relating to the distribution and certain related transactions;

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•Emergent’s board of directors approving the assets and liabilities included in the Aptevo balance sheet;

and

 

Emergent will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution and the distribution date, and the distribution ratio. Emergent will also have sole and absolute discretion to waive any of the conditions to the distribution. Emergent does not intend to notify its stockholders of any modifications to the terms of the separation or distribution that, in the judgment of its board of directors, are not material. For example, the Emergent board of directors might consider material such matters as significant changes to the distribution ratio and the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the Emergent board of directors determines that any modifications by Emergent materially change the material terms of the distribution, Emergent will notify Emergent stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K, or circulating a supplement to this information statement.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of the material U.S. federal income tax consequences of the distribution to Emergent and Emergent stockholders. This discussion is based on the Code, laws, regulations, rulings and decisions in effect on the date hereof, all of which are subject to change, possibly with retroactive effect, and to varying interpretations, which could result in U.S. federal income tax consequences different from those described below.

This discussion addresses only the U.S. federal income tax consequences to Emergent stockholders who are U.S. holders (as defined below) who hold their shares of Emergent stock as capital assets and does not address all of the U.S. federal income tax consequences that may be relevant to a particular stockholder in light of the holder’s individual circumstances. This discussion does not address the tax consequences to holders who are subject to special rules, including, without limitation, financial institutions, tax-exempt organizations, insurance companies, dealers in securities or foreign currencies, persons who hold their shares as part of a straddle, hedge, conversion, constructive sale, synthetic security, integrated investment or other risk-reduction transaction for U.S. federal income tax purposes, holders who acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation, or holders who did not hold their shares continuously from the record date for the distribution to the time of the distribution. In addition, this discussion does not address the tax consequences under any state, local or foreign tax laws or the alternative minimum tax or net investment income tax provisions of the Code.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Emergent common stock who is, for U.S. federal income tax purposes:

 

•an individual who is a citizen or resident of the United States;

 

 

 

If a partnership (or any other entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds Emergent common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. Partnerships (or other entities or arrangements that are treated as partnerships for U.S. federal income tax purposes) that hold Emergent common stock and partners of such partnerships should consult their tax advisors regarding the tax consequences of the distribution to them.

YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE DISTRIBUTION, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX RULES AND THE EFFECT OF POSSIBLE CHANGES IN LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED IN THIS INFORMATION STATEMENT.

Emergent has received a favorable private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the distribution and certain related transactions. It is a condition to the distribution that (i) the private letter ruling from the IRS continue to be valid and in full force and effect and (ii) Emergent receive an opinion from WilmerHale LLP, in form and substance satisfactory to Emergent, substantially to the effect that, for U.S. federal income tax purposes, the distribution and certain related transactions, taken together, will qualify as a transaction described under Sections 355(a) and 368(a)(1)(D) of the Code. The IRS private letter ruling is based upon certain facts and representations submitted by Emergent to the IRS. In addition, the opinion from WilmerHale LLP will be based upon and rely on, among other things, the IRS private letter ruling and certain facts and

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assumptions, as well as certain representations and covenants of Emergent and Aptevo contained in the tax matters agreement and certain representations contained in representation letters provided by Emergent, Aptevo and certain stockholders to WilmerHale LLP, including representations and covenants relating to the past and future conduct of Emergent, Aptevo and such stockholders. If any of these facts, assumptions, representations, or covenants is, or becomes, inaccurate or incomplete, the IRS private letter ruling and/or the opinion of WilmerHale LLP may be invalid and the conclusions reached therein could be jeopardized. In addition, the IRS private letter ruling only addresses certain limited matters relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction described under Sections 355(a) and 368(a)(1)(D) of the Code, and the opinion of WilmerHale LLP will represent the judgment of such counsel which is not binding on the IRS or any court. Accordingly, notwithstanding the IRS private letter ruling and the opinion of WilmerHale LLP, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions should be treated as a taxable transaction for U.S. federal income tax purposes or that a court would not sustain such a challenge. If the IRS were successful in any such challenge, Emergent, Aptevo, and our stockholders would be subject to the tax consequences described below under “Material U.S. Federal Income Tax Consequences if the Distribution is Taxable.”

Material U.S. Federal Income Tax Consequences if the Distribution, Together with Certain Related Transactions, Qualifies Under Sections 355 and 368(a)(1)(D) of the Code

Assuming that the distribution, together with certain related transactions, qualifies as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, the U.S. federal income tax consequences of the distribution will generally be as follows:

 

 

 

 

A stockholder of Emergent who receives cash in lieu of a fractional share of Aptevo common stock in the distribution will be treated as having sold such fractional share for cash and will recognize capital gain or loss on the sale of the fractional share equal to the difference between the cash received and the stockholder’s tax basis in the fractional share (as determined above). Such gain or loss will be long-term capital gain or loss if the stockholder’s holding period for its Emergent common stock exceeds one year at the time of the distribution.

If a stockholder of Emergent holds different blocks of Emergent common stock (generally, shares of Emergent common stock acquired on different dates or at different prices), such holder should consult its tax advisor regarding the determination of the tax basis and holding period of shares of Aptevo common stock received in the distribution in respect of particular blocks of Emergent common stock.

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Material U.S. Federal Income Tax Consequences if the Distribution is Taxable

If the distribution, together with certain related transactions, does not qualify as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, for U.S. federal income tax purposes, Emergent generally would recognize taxable gain on the distribution equal to the amount by which the fair market value of the Aptevo common stock distributed to Emergent stockholders exceeds Emergent’s tax basis in its shares of Aptevo common stock. In addition, each stockholder who receives shares of Aptevo common stock in the distribution would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of the shares of Aptevo common stock received (including any fractional share of Aptevo common stock to which the holder is entitled), which would be taxable as a dividend to the extent of the holder’s pro rata share of Emergent’s current and accumulated earnings and profits (as increased to reflect any gain recognized by Emergent on the taxable distribution). The balance of the distribution would be treated as a nontaxable return of capital to the extent of the holder’s tax basis in its shares of Emergent common stock, with any remaining amount being taxed as capital gain.

Even if the distribution otherwise qualifies as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, it may be taxable to Emergent (but not to Emergent stockholders) under Section 355(e) of the Code, if the distribution is later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest (by vote or value) in Emergent or Aptevo. For this purpose, any acquisitions (including issuances) of Emergent common stock or of Aptevo common stock within the period beginning two years before the distribution, and ending two years after the distribution, are presumed to be part of such a plan, although Emergent or Aptevo may be able to rebut that presumption. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual, and subject to an analysis of the facts and circumstances of a particular case. If acquisitions (including issuances) of Emergent stock or Aptevo stock cause Section 355(e) of the Code to apply, Emergent would recognize taxable gain as described above, but the distribution would be tax-free to each of Emergent’s stockholders (except, as described above, for cash received in respect of a fractional share of Aptevo common stock).

Depending on the circumstances, under the tax matters agreement, Aptevo may be required to indemnify Emergent for any taxes and related expenses arising from the failure of the distribution, together with certain related transactions, to qualify as tax-free under Sections 355 and 368(a)(1)(D) of the Code (including as a result of the application of Section 355(e) of the Code). In general, Aptevo is required to indemnify Emergent for such taxes and related expenses to the extent that the failure to so qualify is attributable to actions, events or transactions relating to Aptevo’s stock, assets or business, or a breach of the relevant representations or covenants made by Aptevo in the tax matters agreement or the IRS private letter ruling or in the representation letters provided to WilmerHale LLP. See “Certain Relationships and Related Party Transactions—Tax Matters Agreement” for a more detailed discussion of the tax matters agreement between Emergent and Aptevo.

Information Reporting and Backup Withholding

Payments to Emergent stockholders of cash in lieu of fractional shares of Aptevo common stock may be subject to information reporting and to backup withholding, unless such holder delivers a properly completed

IRS Form W-9 certifying such holder’s correct U.S. taxpayer identification number and certain other information or otherwise establishes a basis for exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against such holder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

Additional Information to Help Calculate Tax Basis

After completion of the distribution, additional information will be provided to our stockholders concerning the allocation of each stockholder’s basis in Emergent common stock prior to the distribution between the shares of Emergent common stock and Aptevo common stock following the distribution, including fractional shares. We intend to provide this information by making it publicly available on the investor websites of Emergent and Aptevo.

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Tax Return Statement

U.S. Treasury regulations require each Emergent stockholder who receives shares of Aptevo common stock in the distribution and who, immediately before the distribution, owned at least 5% (by vote or value) of Emergent’s total outstanding stock to attach to the holder’s U.S. federal income tax return for the year in which the distribution occurs a statement setting forth the information required by Treasury Regulation section 1.355-5(b).

THE FOREGOING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR INFORMATION ONLY. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

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DESCRIPTION OF APTEVO’S CAPITAL STOCK

The following description of our capital stock is intended as a summary only and therefore is not a complete description of our capital stock. This description is based upon, and is qualified by reference to, our certificate of incorporation and by-laws, which will be restated prior to the separation, and applicable provisions of Delaware corporate law. You should read our certificate of incorporation and by-laws, to be in effect at the time of the distribution, which are filed as exhibits to Aptevo’s registration statement on Form 10, of which this information statement forms a part, for the provisions that are important to you.

Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share, and 15,000,000 shares of preferred stock, $0.001 par value per share. Immediately following the distribution, Aptevo expects that approximately 20,215,000 shares of common stock will be issued and outstanding and no shares of preferred stock will be issued and outstanding.

Common Stock

Stockholder Meetings. Annual meetings of our stockholders will be held on the date designated in accordance with our by-laws. Written notice must be mailed to each stockholder entitled to vote not less than ten nor more than 60 days before the date of the meeting. The presence in person or by proxy of the holders of record of a majority of our issued and outstanding shares entitled to vote at such meeting constitutes a quorum for the transaction of business at meetings of the stockholders. Special meetings of the stockholders may be called for any purpose by our Board of Directors, our Chairman of the Board of Directors or our Chief Executive Officer, but such special meetings may not be called by any other person or persons. Except as may be otherwise provided by applicable law, our restated certificate of incorporation or our by-laws, all elections shall be decided by a plurality, and all other questions shall be decided by a majority, of the votes cast by stockholders entitled to vote thereon at a duly held meeting of stockholders at which a quorum is present.

Voting Rights. The holders of our common stock will be entitled to one vote per share with respect to each matter presented to our stockholders on which the holders of our common stock are entitled to vote and do not have cumulative voting rights. An election of directors by our stockholders is determined by a plurality of the votes cast by the stockholders entitled to vote on the election.

Dividends . Holders of our common stock will be entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

Liquidation and Dissolution. In the event of our liquidation or dissolution, the holders of our common stock will be entitled to receive ratably all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.

Other Rights. Holders of our common stock will have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock will be subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

We will be authorized to issue “blank check” preferred stock, which may be issued in one or more series upon authorization of our board of directors. Our board of directors will be authorized to fix the designation of the series, the number of authorized shares of the series, dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, powers, preferences and limitations applicable to each series of preferred stock. The authorized shares of our preferred stock will be available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange on which our securities may be listed. If the approval of our stockholders is not required for the issuance of shares of our preferred stock, our board may determine not to seek stockholder approval.

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A series of our preferred stock could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt. Our board of directors will make any determination to issue preferred shares based upon its judgment as to the best interests of our stockholders. Our directors, in so acting, could issue preferred stock having terms that could discourage an acquisition attempt through which an acquirer may be able to change the composition of our board of directors, including a tender offer or other transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then-current market price of the stock.

Provisions of Our Certificate of Incorporation and By-laws and Delaware Law That May Have Anti- Takeover Effects

Our certificate of incorporation and by-laws and Delaware law will contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors.

We expect that Fuad El-Hibri, our chairman, will be the beneficial owner of approximately 14% of our outstanding common stock upon completion of the separation and distribution, based on the number of shares of Emergent common stock beneficially owned by Mr. El-Hibri as of June 30, 2016. As a result, Mr. El-Hibri will have significant influence over the election of the members of our board of directors. This control could discourage others from initiating a potential merger, takeover or other change of control transaction that other stockholders may view as beneficial.

Number of Directors. Subject to the rights of holders of any series of preferred stock to elect directors, our board of directors will establish the number of directors.

Staggered Board; Removal of Directors. Our certificate of incorporation and our by-laws will divide our directors into three classes with staggered three-year terms. Each class will consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire board of directors. Our directors may be removed from office only for cause and only by the affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote.

Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by the vote of a majority of our directors then in office, although less than a quorum. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.

Stockholder Action by Written Consent; Special Meetings. Our certificate of incorporation and our by-laws will provide that, after such time as Emergent and its subsidiaries, collectively, cease to own a majority of the voting power of all outstanding stock entitled to vote, any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Our certificate of incorporation and our by-laws also will provide that, except as otherwise required by law, special meetings of our stockholders can only be called by our board of directors, our chairman of the board or our Chief Executive Officer.

Advance Notice Requirements. Our by-laws will establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered timely written notice in proper form to our secretary of the stockholder’s intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.

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Delaware Business Combination Statute. Section 203 of the DGCL is applicable to us. Section 203 of the DGCL restricts some types of transactions and business combinations between a corporation and a 15% stockholder. A 15% stockholder is generally considered by Section 203 to be a person owning 15% or more of the corporation’s outstanding voting stock. Section 203 refers to a 15% stockholder as an “interested stockholder.” Section 203 restricts these transactions for a period of three years from the date the stockholder acquires 15% or more of our outstanding voting stock. With some exceptions, unless the transaction is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation, Section 203 prohibits significant business transactions such as:

 

 

The shares held by the interested stockholder are not counted as outstanding when calculating the two-thirds of the outstanding voting stock needed for approval.

 

The prohibition against these transactions does not apply if:

 

 

Super-Majority Voting. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or by-laws, unless a corporation’s certificate of incorporation or by-laws, as the case may be, requires a greater percentage. The affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote will be required to amend or repeal the provisions of our certificate of incorporation described in this section entitled “Provisions of Our Certificate of Incorporation and By-laws and Delaware Law That May Have Anti-Takeover Effects.” The affirmative vote of either a majority of the directors present at a meeting of our board of directors or holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote will be required to amend or repeal our by-laws.

Limitation of Liability and Indemnification of Officers and Directors

Our certificate of incorporation will contain provisions permitted under the DGCL relating to the liability of directors. The provisions eliminate a director’s liability for monetary damages for a breach of fiduciary duty, except in circumstances involving wrongful acts, such as the breach of a director’s duty of loyalty or acts or omissions that involve intentional misconduct or a knowing violation of law. Further, our certificate of incorporation will contain provisions to indemnify our directors and officers to the fullest extent permitted by the DGCL. We will enter into agreements to indemnify our directors and executive officers. These agreements, among other things, will provide that we will indemnify the director or executive officer to the fullest extent permitted by law for claims arising in his or her capacity as a director, officer, manager, employee, agent or representative of us. The indemnification agreements will also establish the procedures that will apply in the event a director or officer makes a claim for indemnification.

Exclusive Forum

Aptevo’s amended and restated by-laws will provide that unless Aptevo consents in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Aptevo, (ii) any action asserting a claim of breach of a fiduciary duty

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owed by any director, officer, other employee or stockholder of Aptevo to Aptevo or Aptevo’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim arising pursuant to any provision of Aptevo’s amended and restated certificate of incorporation or by-laws or governed by the internal affairs doctrine.

Registration Rights

Holders of an aggregate of approximately 3 million shares of our common stock immediately following the distribution will have the right to require us to register these shares of common stock under the Securities Act under specified circumstances, including any additional shares issued or distributed by way of a dividend, stock split or other distribution in respect of these shares.

Demand Registration Rights. Subject to specified limitations, holders of these registrations rights may require that Aptevo register all or part of Aptevo common stock subject to the registration rights for sale under the Securities Act. These holders may demand registration of Aptevo common stock so long as the offering price to the public of the shares requested to be registered is at least $10,000,000. Aptevo is required to effect only one demand registration, subject to specified exceptions.

Incidental Registration Rights. If Aptevo proposes to file a registration statement under the Securities Act either for its own account or for the account of other stockholders (other than in connection with a registration statement on Form S-8 or Form S-4 or to cover securities proposed to be issued in exchange for securities or assets of another corporation), the holders of registrable shares will be entitled to notice of the registration and Aptevo will be required to use its commercially reasonable efforts to register all or a portion of any registrable shares then held by such holders that they request that Aptevo register. In the event that any registration in which the holders of registrable shares participate pursuant to the Aptevo stockholders agreement is an underwritten public offering, Aptevo agrees to enter into an underwriting agreement containing such terms as are customary.

Limitations and Expenses. With specified exceptions, the right to include shares in a registration is subject to the right of underwriters for the offering to limit the number of shares included in the offering. Aptevo is required to pay one-half of all fees, costs and expenses of any demand registration, other than underwriting discounts and commissions.

Listing

Aptevo has received approval to have its shares of common stock listed on TheThe NASDAQ Global Select Market under the symbol “APVO.”

Sale of Unregistered Securities

On February 22, 2016, Aptevo issued 1,000 shares of its common stock, par value $0.001 per share, to Emergent pursuant to Section 4(2) of the Securities Act. Aptevo did not register this issuance of the issued shares under the Securities Act because such issuance did not constitute a public offering.

Transfer Agent and Registrar

After the distribution, the transfer agent and registrar for Aptevo’s common stock will be Broadridge Financial Solutions, Inc.

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WHERE YOU CAN FIND MORE INFORMATION

Aptevo has filed a registration statement on Form 10 with the SEC with respect to the shares of Aptevo common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to Aptevo and its common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 as well as on the Internet website maintained by the SEC at www.sec.gov. Information contained on any website referenced in this information statement is not incorporated by reference in this information statement.

As a result of the distribution, Aptevo will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.

Aptevo intends to furnish holders of its common stock with annual reports containing consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.

You should rely only on the information contained in this information statement or to which this information statement has referred you. Aptevo has not authorized any person to provide you with different information or to make any representation not contained in this information statement.

 

 

 

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INDEX TO FINANCIAL STATEMENTS

 

F-1

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Report of Ernst & Young LLP, Independent

Registered Public Accounting Firm, on the

Audited Combined Financial Statements

The Board of Directors and Stockholders of Emergent BioSolutions Inc.

We have audited the accompanying combined balance sheets of the Biosciences Business of Emergent BioSolutions Inc. (as defined in Note 1, the “Company”) as of December 31, 2015 and 2014, and the related combined statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Biosciences Business of Emergent BioSolutions Inc. at December 31, 2015 and 2014, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

McLean, Virginia

April 15, 2016

F-2

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The Biosciences Business of Emergent BioSolutions Inc.

Combined Balance Sheets

(in thousands)

 

 

The accompanying notes are an integral part of the combined financial statements.

F-3

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The Biosciences Business of Emergent BioSolutions Inc.

Combined Statements of Operations

(in thousands)

 

 

The accompanying notes are an integral part of the combined financial statements.

F-4

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The Biosciences Business of Emergent BioSolutions Inc.

Combined Statements of Cash Flows

(in thousands)

 

 

The accompanying notes are an integral part of the combined financial statements.

 

F-5

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The Biosciences Business of Emergent BioSolutions Inc.

Combined Statement of Changes in Stockholders’ Equity

(in thousands)

 

 

 

The accompanying notes are an integral part of the combined financial statements

 

F-6

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The Biosciences Business of Emergent BioSolutions Inc.

Notes to the combined financial statements

1. Nature of Business and Basis of Presentation

On August 6, 2015, Emergent BioSolutions Inc. (“Emergent”) announced its plan to spin-off Emergent’s biosciences business focused on novel oncology and hematology therapeutics into a separate, stand-alone publicly-traded company. The core technology of the new biosciences company will be its ADAPTIR platform applied to immuno-oncology. Emergent will continue to operate as a global specialty life sciences company focused on providing specialty products for civilian and military populations that address intentional and naturally emerging public health threats. In accordance with the separation plan, Emergent will contribute to the new biosciences company, Aptevo Therapeutics Inc., certain biosciences operations, assets and liabilities, including all of the equity interests in the entities that are expected to conduct the new biosciences business, completing the transfer immediately prior to the separation. Aptevo Therapeutics Inc. is a wholly-owned subsidiary of Emergent within its biosciences business and was incorporated in February 2016. Upon formation, and to date, Aptevo Therapeutics Inc. has had no assets, liabilities or results of operations and was capitalized with $10. Upon formation, and to date, Aptevo Therapeutics Inc. has 1,000 shares of $0.001 par value common stock authorized, issued and outstanding. At the time of distribution, our authorized capital stock is expected to consist of 500,000,000 shares of common stock, $0.001 par value per share, and 15,000,000 shares of preferred stock, $0.001 par value per share. The Biosciences Business of Emergent BioSolutions Inc. is referred to throughout these combined financial statements as “the Company”.

To accomplish the separation, Emergent intends to make a pro rata distribution of all of Aptevo Therapeutics Inc. common stock to Emergent’s stockholders. At the time of distribution, Aptevo Therapeutics Inc. will become the parent company of and will hold the assets and liabilities associated with the Biosciences Business of Emergent BioSolutions Inc. The distribution is subject to a number of conditions and approval by Emergent’s board of directors.

The combined financial statements of the Biosciences Business of Emergent BioSolutions Inc. include the assets, liabilities and operations of certain businesses and complete legal entities that will be contributed to Aptevo Therapeutics Inc. The legal entities, and the assets, liabilities and operations of certain businesses that are included in the combined financial statements are as follows:

And, as of February 2016:

The accompanying combined financial statements include certain components of Emergent’s bioscience business as operated by Emergent during the periods presented. Certain historical operations that were included by Emergent in its bioscience segment have been reallocated to Emergent’s continuing operations, and as result these financial statements differ from Emergent’s historically reportable bioscience segment. Effective January 1, 2016, Emergent changed its segment presentation to reflect this new structure and recast its biosciences segment reporting for the newly named “Aptevo segment”.

The accompanying combined financial statements have been prepared on a standalone basis and are derived from Emergent’s consolidated financial statements and accounting records. The combined financial statements reflect the Company’s financial position, results of operations, and cash flows as if its business was separately operated as part of Emergent prior to the distribution, in conformity with accounting principles generally accepted in the United States (GAAP).

F-7

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The combined financial statements include the allocation of certain assets and liabilities that have historically been held at the Emergent corporate level but which are specifically identifiable or allocable to the Company. All of the Company’s intracompany transactions and accounts have been eliminated. All intercompany transactions between the Company and Emergent are considered to be effectively settled in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as a net investment from Emergent.

The Company’s combined financial statements include an allocation of expenses related to certain Emergent corporate functions, including senior management, legal, human resources, finance, information technology, and quality assurance. These expenses have been allocated to the Company based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, square footage, or other measures. The Company considers the expense allocation methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly-traded company for the periods presented.

The income tax amounts in these combined financial statements have been calculated based on a separate return methodology and presented as if the Company’s operations were a standalone taxpayer in each of its tax jurisdictions.

Emergent maintains stock-based compensation plans at a corporate level. The Company’s employees participate in those programs and a portion of the cost of those plans is included in the Company’s combined financial statements. However, the Company’s combined balance sheet does not include any equity awards related to stock-based compensation.

The Company’s stockholders equity balances in these combined financial statements represent the excess of total assets over total liabilities, including the net due to/from balances between the Company and Emergent (as net investment from Emergent) and accumulated deficit. The net investment from Emergent is primarily impacted by contributions from Emergent which are the result of net funding provided to the Company.

The Company has a history of operating losses and negative cash flows while operating as part of Emergent and, accordingly, was dependent upon Emergent for its capital funding and liquidity needs. In addition, development activities, clinical and pre-clinical testing and commercialization of the Company’s products, if approved, will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to further extend the cash burn. In accordance with the separation agreement, Emergent has committed to providing the Company with a total of $60 million in cash funding, $40 million upon the spin-off and $20 million within six to 12 months after the separation. Management believes this funding will support the Company’s operations for at least the next 12 months following the separation, based on current operating plans and financial forecasts. The accompanying combined financial statements are prepared on a going concern basis and the Company, post separation, is solely responsible for its financial performance and meeting its capital requirements.

2. Summary of significant accounting policies

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash equivalents

Cash equivalents are highly liquid investments with a maturity of 90 days or less at the date of purchase and include time deposits and investments in money market funds with commercial banks and financial institutions.

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Fair value of financial instruments

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying value of these instruments approximates their fair value due to their short term nature.

Significant customers and accounts receivable

When appropriate, the Company records an allowance for doubtful accounts based upon its assessment of collectability. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

Accounts receivable at December 31, 2015 and 2014 primarily represent amounts due to the Company from its commercial wholesalers. For the year ended December 31, 2014, the Company had one customer whose accounts receivable balance was approximately 47% of total accounts receivable. For the year ended December 31, 2015, no individual customer accounts receivable balance was a significant percentage of total accounts receivable.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions and may maintain cash balances in excess of insured limits. Management believes that the financial risks associated with its cash and cash equivalents are minimal.

Inventories

Inventories, including purchased inventories, are stated at the lower of cost or market with cost being determined using a standard cost method, which approximates weighted-average cost. Average cost consists primarily of material, labor and manufacturing overhead expenses (including allocation of fixed production- overhead costs) and includes the services and products of third-party suppliers. The Company analyzes its inventory levels quarterly and writes down, in the applicable period, inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected customer demand. the Company also writes off, in the applicable period, the costs related to expired inventory.

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:

 

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.

Income taxes

Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and research and development tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.

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The Company’s ability to realize deferred tax assets depends upon future taxable income as well as the limitations discussed below. For financial reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized prior to expiration. The Company considers future taxable income and ongoing tax planning strategies in assessing the need for valuation allowances. In general, if the Company determines that it is more likely than not to realize more than the recorded amounts of net deferred tax assets in the future, the Company will reverse all or a portion of the valuation allowance established against its deferred tax assets, resulting in a decrease to the provision for income taxes in the period in which the determination is made. Likewise, if the Company determines that it is not more likely than not to realize all or part of the net deferred tax asset in the future, the Company will establish a valuation allowance against deferred tax assets, with an offsetting increase to the provision for income taxes, in the period in which the determination is made.

Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes certain estimates and assumptions, in (1) calculating the Company’s income tax expense, deferred tax assets and deferred tax liabilities, (2) determining any valuation allowance recorded against deferred tax assets and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Company’s estimates and assumptions may differ significantly from tax benefits ultimately realized.

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU No. 2015-17”). The amendments in ASU No. 2015-17 change the presentation requirements for deferred tax assets and liabilities, along with any related valuation allowance, to classify the balances solely as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The amendments in ASU No. 2015-17 are effective for years beginning after December 15, 2017, and early adoption is permitted. The Company has elected to adopt the accounting standard for the years ended December 31, 2015 and 2014. Prior periods in the Company’s combined financial statements were not retrospectively adjusted.

Revenue recognition

The Company recognizes revenues if four basic criteria have been met (1) there is persuasive evidence of an arrangement, (2) delivery has occurred or services have been rendered, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

The Company markets and sells its products through commercial wholesalers (direct customers) who purchase the products at a price referred to as the wholesale acquisition cost (“WAC”). Additionally, the Company may enter into separate agreements with indirect customers to acquire its products for a contracted price that is less than the product’s WAC. The indirect customers, such as group-purchasing organizations, physician practice-management groups and hospitals, continue to purchase the Company’s products from the wholesalers, but at their respective contractual prices. Per its wholesaler agreements, the Company guarantees to credit the wholesaler for the difference between the WAC and the indirect customers’ contracted price. This credit is referred to as a chargeback and revenues from product sales are recorded net of estimated chargebacks. Adjustments to the chargeback provisions are made periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results.

All revenues from product sales are also recorded net of applicable allowances for sales and government rebates, special promotional programs, and discounts. These allowances are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels, contract terms, and actual discounts offered. In arriving at these estimates, the Company further utilizes information received from third parties including market data, inventory reports from major wholesalers, historical information and analysis. These estimates are subject to the inherent limitations of estimates that rely on third-party data, as certain third- party information may itself rely on estimates and reflect other limitations.

The Company defers the recognition of revenue from the sales of new product introductions until the commercial wholesalers resell the product to the healthcare providers. This is due to the inherent uncertainties in estimating normal wholesaler inventory levels of new products in addition to extended payment terms and expanded

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return rights that allow the wholesalers to return the product. Once the Company gains enough historical experience to reasonably estimate allowances for chargebacks, rebates and other discounts, revenue from sales and the related allowances are recognized upon sale to the wholesaler. As of December 31, 2015, the Company had $3.3 million of deferred revenue for sales related to the IXINITY product introduction during 2015.

Revenue generating collaborative research and development agreements may contain one or more provisions including licensing, research services and milestone deliverables. The Company analyzes its multiple element revenue generating arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting. An item can generally be considered a separate unit of accounting if both of the following criteria are met: (1) the delivered item(s) has value to the customer on a standalone basis and (2) if the arrangement includes a general right of return and delivery, the performance of the undelivered item(s) is considered probable and substantially in the control of the Company. Items that cannot be divided into separate units are consolidated with other units of accounting, as appropriate. Consideration to be received is allocated among the separate units based on each unit’s relative selling price and is then recognized when the appropriate revenue recognition criteria are met. The Company deems services to be rendered if no continuing obligation exists on the part of the Company.

Revenue associated with non-refundable upfront license fees that can be treated as a single unit of accounting is recognized when all ongoing obligations have been delivered. Revenue associated with non- refundable upfront license fees under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting is deferred and recognized as revenue either on a straight-line basis over the Company’s continued involvement in the research and development process or based on the proportional performance of the Company’s expected future obligations under the contract.

Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved and the milestone payments are due and collectible. Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non- refundable, (2) achievement of the milestone was not reasonably assured at the inception of the arrangement, (3) substantive effort is involved to achieve the milestone and (4) the amount of the milestone payment appears reasonable in relation to the effort expended. If not deemed substantive, the Company recognizes such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process. Payments received in advance of revenue recognized are recorded as deferred revenue.

In May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40) (“ASU No. 2014-09”). ASU No. 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, as well as most industry-specific guidance, and enhances comparability of revenue recognition practices across entities and industries by providing a principles-based, comprehensive framework for addressing revenue recognition issues. In order for a provider of promised goods or services to recognize as revenue the consideration that it expects to receive in exchange for the promised goods or services, the provider should apply the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU No. 2014-09 also specifies the accounting for some costs to obtain or fulfill a contract with a customer and provides enhanced disclosure requirements. The FASB has deferred ASU No. 2014-09 for one year, and with that deferral, the standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is permitted to use either the retrospective or the modified retrospective method when adopting ASU No. 2014-09. The Company is assessing the potential impact that ASU No. 2014-09 will have on its combined financial statements and disclosures.

Mergers and Acquisitions

In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the merger or acquisition at their respective fair values with limited exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are

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recognized at fair value if fair value can reasonably be estimated. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, the Company may be required to value assets at fair value measures that do not reflect the Company’s intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s combined financial statements after the date of the merger or acquisition

The fair values of intangible assets are determined utilizing information available near the merger or acquisition date based on expectations and assumptions that are deemed reasonable by management. Given the considerable judgment involved in determining fair values, the Company typically obtains assistance from third- party valuation specialists for significant items. The judgments made in determining estimated fair values assigned to assets acquired and liabilities assumed in a business combination, as well as asset lives, can materially affect the Company’s results of operations.

The fair values of identifiable intangible assets related to currently marketed products and product rights are primarily determined by using an “income approach” through which fair value is estimated based on each asset’s discounted projected net cash flows. The Company’s estimates of net cash flows consider historical and projected pricing, margins and expense levels, the performance of competing products where applicable, relevant industry and therapeutic area growth drivers and factors, current and expected trends in technology and product life cycles, the time and investment that will be required to develop products and technologies, the ability to obtain marketing and regulatory approvals, the ability to manufacture and commercialize the products, the extent and timing of potential new product introductions by the Company’s competitors, and the life of each asset’s underlying patent, if any. The net cash flows are then probability-adjusted where appropriate to consider the uncertainties associated with the underlying assumptions, as well as the risk profile of the net cash flows utilized in the valuation. The probability-adjusted future net cash flows of each product are then discounted to present value utilizing an appropriate discount rate.

The fair values of identifiable intangible assets related to in-process research and development (“IPR&D”) are determined using an income approach, through which fair value is estimated based on each asset’s probability-adjusted future net cash flows, which reflect the different stages of development of each product and the associated probability of successful completion. The net cash flows are then discounted to present value using an appropriate discount rate. Amounts allocated to acquired IPR&D are capitalized and accounted for as indefinite-lived intangible assets. Upon successful completion of each project, the Company will make a separate determination as to the then useful life of the asset and begin amortization.

In process research and development and long-lived assets

The Company assesses IPR&D assets for impairment on an annual basis or more frequently if indicators of impairment are present. The Company’s annual assessment includes a comparison of the fair value of IPR&D assets to existing carrying value, and recognizes an impairment when the carrying value is greater than the determined fair value. The Company believes that the assumptions used in valuing the intangible and IPR&D assets are reasonable and are based upon its best estimate of likely outcomes of sales and clinical development. The underlying assumptions and estimates used to value these assets are subject to change in the future, and actual results may differ significantly from the assumptions and estimates. The Company has selected October 1 as its annual impairment test date for indefinite-lived intangible assets.

The Company assesses the recoverability of its long-lived assets or asset groups for which an indicator of impairment exists by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If the Company concludes that the carrying value will not be recovered, the Company measures the amount of such impairment by comparing the fair value to the carrying value of the assets or asset groups.

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Goodwill

The Company assesses the carrying value of goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company utilizes either: (1) a two-step impairment test, which is a quantitative analysis, or (2) a step zero test, which is a qualitative analysis.

If the Company is required to do a two-step test, it would compare the fair value of its reporting unit to the carrying value of the reporting unit, the first step. If the carrying value of the reporting unit exceeds its fair value, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recognized. The Company calculates the fair value of the reporting unit utilizing the income approach. The income approach utilizes a discounted cash flow model, using a discount rate based on the Company’s estimated weighted average cost of capital.

If the Company is not required to do a quantitative analysis, it will evaluate goodwill using the qualitative assessment method, which permits companies to qualitatively assess whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. The Company considers developments in its operations, the industry in which it operates and overall macroeconomic factors that could have affected the fair value of the reporting unit since the date of the most recent quantitative analysis of the reporting unit’s fair value.

The determination of the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. The estimates and assumptions used in calculating fair value include identifying future cash flows, which requires that the Company make a number of critical legal, economic, market and business assumptions that reflect best estimates as of the testing date. The Company’s assumptions and estimates may differ significantly from actual results, or circumstances could change that would cause the Company to conclude that an impairment now exists or that it previously understated the extent of impairment. The Company selected October 1 as its annual impairment test date for goodwill.

Contingent Consideration

The Company records contingent consideration associated with sales based royalties at fair value. The fair value model used to calculate this obligation is based on the income approach (a discounted cash flow model) that has been risk adjusted based on the probability of achievement of net sales and achievement of the milestones. The inputs the Company use for determining the fair value of the contingent consideration associated with sales based royalties are Level 3 fair value measurements. The Company re-evaluates the fair value on a quarterly basis. Changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of or achievement of net sales. Any future increase in the fair value of the contingent consideration associated with sales based royalties are based on an increased likelihood that the underlying net sales will be achieved.

The associated payment or payments which will therefore become due and payable for sales based royalties will result in a charge to cost of product sales in the period in which the increase is determined. Similarly, any future decrease in the fair value of contingent consideration associated with sales based royalties will result in a reduction in cost of product sales.

Research and development

Research and development costs are expensed as incurred. Research and development costs primarily consist of internal labor costs, fees paid to outside service providers and the costs of materials used in clinical trials and research and development. Other research and development expenses include facility, maintenance and related support expenses.

A substantial portion of the Company’s pre-clinical studies and all of its clinical studies have been performed by third-party contract research organizations (“CRO”). The Company reviews the activities performed by the CRO’s each period. For pre-clinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical study expenses, the significant

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factors used in estimating accruals include the number of patients enrolled and percentage of work completed to date. The Company’s estimates are highly dependent upon the timeliness and accuracy of the data provided by its CRO’s regarding the status of each program and total program spending and adjustments are made when deemed necessary.

Segment reporting

The Company has determined that it operates in a single segment: the discovery, development, commercialization and sale of novel oncology and hematology therapeutics.

3. Acquisitions

Cangene Corporation

On February 21, 2014, Emergent acquired 100% of the ownership interest of Cangene Corporation (“Cangene”) for a total cash purchase price of $221.5 million. This transaction was accounted for by Emergent under the acquisition method of accounting and the assets and liabilities of Cangene were recorded as of the acquisition date at their respective fair values. These combined financial statements only reflect those assets acquired and liabilities assumed associated with the Company’s business, representing $48.6 million of the total $221.5 million purchase price.

The table below summarizes the allocation of the Company’s portion of the purchase price based upon estimated fair values of the Company’s assets acquired and liabilities assumed:

 

 

The table below summarizes the fair value of intangible assets acquired and the estimated amortization periods:

 

 

The marketed products intangible asset consists of WinRho® SDF [Rho(D) Immune Globulin Intravenous (Human)] and VARIZIG® (Varicella Zoster Immune Globulin (Human)]. The licensed products intangible asset primarily consists of HepaGam B® (Hepatitis B Immune Globulin Intravenous (Human). In addition, as of the date of acquisition, the intangible asset associated with IPR&D acquired from Cangene was the IXINITY product candidate.

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4. Fair value measurements

The fair value hierarchy under the accounting standards for fair value measurements consists of the following three levels:

Level 1—Observable inputs for identical assets or liabilities such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, which are therefore developed by the Company’s management using estimates and assumptions that reflect those that a market participant would use.

The Company does not have any fair value measurements done on a recurring basis other than the contingent consideration acquired in the Cangene acquisition. The fair value of contingent consideration obligation associated with HepaGam B changes as a result of management’s assessment of discount rates and updates to the projected and actual sales achievement of HepaGam B, which are inputs that have no observable market (Level 3). For the years ended December 31, 2015 and 2014, the contingent purchase consideration obligation increased by $0.2 million and $0.3 million, respectively. These adjustments are primarily due to the differences between the actual and expected timing and volume of HepaGam B sales. The incremental impact is recorded in the accompanying combined statement of operations as cost of product sales.

The following table is a reconciliation of the beginning and ending balance of the liabilities (contingent consideration) measured at fair value using significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014.

 

5. MorphoSys collaboration agreement

In August 2014, the Company entered into a collaboration agreement (“MorphoSys Agreement”) with MorphoSys AG (“MorphoSys”) for the joint worldwide development and commercialization of MOR209/ES414, a targeted immunotherapeutic protein, which activates host T-cell immunity specifically against cancer cells expressing prostate specific membrane antigen, an antigen commonly overexpressed on prostate cancer cells. MOR209/ES414 was constructed using the Company’s proprietary ADAPTIR platform technology.

In accordance with the initial terms of the MorphoSys Agreement, the Company received a nonrefundable $20.0 million upfront payment and could have received up to $163.0 million in additional contingent payments, comprised of up to $80.0 million and up to $83.0 million, respectively, due upon the achievement of specified development and regulatory milestones. MorphoSys and the Company jointly agreed to fund further development of MOR209/ES414, with the Company being responsible for 36% of the total development costs and MorphoSys responsible for the remainder, with the Company’s funding requirement capped at $186.0 million. The Company’s development effort includes the performance of non-clinical, clinical, manufacturing and regulatory activities. The Company retains commercialization rights in the U.S. and Canada, with a tiered royalty obligation to MorphoSys,

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ranging from mid-single digit up to 20% of sales. MorphoSys has worldwide commercialization rights excluding the U.S. and Canada, with a low single digit royalty obligation to the Company.

In December 2015, after a joint review of data from the ongoing Phase 1 dose escalation study of MOR209/ES414 in prostate cancer patients, the Company and MorphoSys decided to adjust the dosing regimen and administration of MOR209/ES414. The Company plans to continue the current clinical trial under an amended protocol with recruitment to start around mid-2016. As a result of the revised dosing regimen and administration and the resultant impact to overall development timeline and technical risk, the MorphoSys Agreement was restructured. In December 2015, the Company and MorphoSys amended the collaboration agreement to (1) decrease the additional contingent payments due the Company upon the achievement of specified development and regulatory milestones of up to $32.5 million and up to $41.5 million, respectively, (2) change the total funding requirement cap for the Company to up to approximately $250.0 million and (3) change the jointly funded development cost allocation to the following:

 

•2016: the Company is responsible for 75%; MorphoSys responsible for 25%

 

•2017-2018: the Company is responsible for 49%; MorphoSys responsible for 51%

 

•2019 and beyond: the Company is responsible for 36%; MorphoSys responsible for 64%

In addition, the termination provisions under the MorphoSys collaboration agreement were amended to give MorphoSys a one-time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial.

The Company evaluated the MorphoSys Agreement and determined that it was a revenue arrangement with multiple deliverables or performance obligations. The Company determined there were two units of accounting under the MorphoSys Agreement: (1) the delivered license to further develop and commercialize MOR209/ES414 and (2) undelivered items related to development services. The Company determined that the license had standalone value as the drug candidate has been (1) developed and is currently Phase 1 clinical trial ready, (2) MorphoSys possesses the knowledge, technology, skills, experience and infrastructure necessary to complete all further development of the drug through commercialization, and (3) MorphoSys has the right to further sublicense the product. The Company allocated the $20.0 million upfront payment to the two units of accounting using the relative selling price method. The Company determined the estimated selling price for the license using the income approach and an appropriate discount rate. The estimated selling price includes unobservable inputs (Level 3), such as estimates of revenues and operating margins; the time and resources needed to complete the development and approval of the product candidate; and the risk related to the viability of and potential for alternative treatments. The Company determined the estimated selling price of the development services unit of accounting based on the estimated number of full-time equivalent personnel at the contractual rate as defined in the MorphoSys Agreement, whose rates and terms approximate those of other Emergent or the Company service related contracts and those observed generally through other collaboration negotiations. The allocation resulted in $15.3 million of the $20.0 million upfront payment being allocated to the license and $4.7 million being allocated to the development services. The Company determined the license fee unit of accounting was delivered and completed on the date the MorphoSys Agreement was executed and thus recognized $15.3 million of license revenue in August 2014. Revenue related to the development services is recognized as the services are performed with $0.7 million and $0.2 million, respectively, recognized in the years ended December 31, 2015 and 2014. The current estimated service period for the undelivered development services under the MorphoSys Agreement is through 2023.

Further, the Company determined that contingent payments for the achievement of the development and regulatory milestones are substantive milestones and will be accounted for as revenue in the period in which the milestones are achieved. The Company received a $5.0 million milestone payment from MorphoSys reflecting the initiation of a Phase I clinical study to evaluate the safety, tolerability, and clinical activity of MOR209/ES414 in patients with metastatic castration-resistant prostate cancer. The Company recognized this substantive milestone achievement payment as research and development revenue during the year ended December 31, 2015.

The MorphoSys Agreement provides for the sharing of development and clinical costs related to MOR209/ES414. In the event the Company’s share of the total cost incurred for a given quarter exceeds its pro rata limit, the Company records a receivable from MorphoSys for the excess and reduces research and development

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expense by this amount. Accordingly, for the years ended December 31, 2015 and 2014, the Company has recorded a reduction to research and development expense of $4.3 million and $1.5 million, respectively.

As of December 31, 2015 and 2014, the MorphoSys Agreement related accounts receivable balance was $0.5 million and $1.0 million, respectively, and the related total deferred revenue balance was $3.9 million and $4.5 million, respectively.

6. Accounts receivable

For the year ended December 31, 2015, the Company recorded an allowance for uncollectible accounts of approximately $3.5 million in the Company’s combined statement of operations as selling, general and administrative expense. As of December 31, 2014, no allowance for doubtful accounts was recorded as the collection history from the Company’s customers indicated that collection was probable.

7. Inventories

Inventories consist of the following:

 

 

CMC ICOS Biologics, Inc., (“CMC”), is the exclusive manufacturer of bulk drug substance for the IXINITY product. During 2015, the Company ordered nine manufacturing lots of bulk drug substance from CMC. CMC has successfully manufactured and released only one of the nine lots of bulk drug substance ordered by the Company, and has not successfully manufactured or released any lots of bulk drug substance in 2016. If current efforts by CMC to manufacture and release bulk drug substance are not successful, the resulting lack of supply of bulk drug substance could lead to a projected supply shortage of IXINITY requiring notification to the FDA. The inability to supply IXINITY would negatively affect sales, market position and viability and as a result, the realizability of IXINITY related inventory. As of December 31, 2015, the Company had IXINITY related inventory of approximately $2 million that may be subject to impairment if the Company is no longer able to sell the IXINITY product.

8. Property, plant and equipment

Property, plant and equipment consist of the following:

 

 

Depreciation and amortization expense was $0.8 million, $0.7 million and $0.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.

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9. Intangible assets, in-process research and development and goodwill

As of December 31, 2015, the Company had $41.8 million of IPR&D assets related to the Company’s otlertuzumab product candidate. As of December 31, 2014, the Company had $50.1 million of IPR&D comprised of $41.8 million for the otlertuzumab product candidate and $8.3 million related to the IXINITY product candidate. On April 29, 2015, the Food and Drug Administration approved IXINITY for the treatment of Hemophilia B. As a result of the approval, the $8.3 million IXINITY IPR&D asset was reclassified to intangible assets in the Company’s combined balance sheets and is being amortized over 10 years from the approval date.

The Company completed its annual impairment assessments for its IPR&D assets and goodwill as of October 1, 2015 and 2014, respectively, and determined that the fair value of the IPR&D assets and its reporting unit was in excess of carrying value.

For the years ended December 31, 2015 and 2014, the Company recorded $2.1 million and $1.3 million, respectively, of intangible asset amortization expense. As of December 31, 2015, the weighted average amortization period remaining for intangible assets was 97 months.

Intangible assets consisted of the following:

 

 

Future amortization expense as of December 31, 2015 is as follows:

 

10. Income taxes

During the periods presented, the Company did not file separate tax returns as it was included in the tax returns of Emergent entities within the respective tax jurisdictions. The income tax provision included in these financial statements was calculated using a separate return basis, as if the Company was a separate taxpayer. Under this approach, the Company determines its current taxes, deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns in each tax jurisdiction.

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Significant components of the provisions for income taxes attributable to operations consist of the following:

 

 

The Company’s net deferred tax asset (liability) consists of the following:

 

 

Deferred assets and liabilities are a result of the separate return calculation presentation and may not represent deferred assets and liability balances after the distribution. Certain deferred items may not exist due to utilization by the Emergent group prior to the distribution, together with certain related transactions, or may hold no future value subsequent to the distribution due to the Company’s future jurisdictional income projections. Federal net operating losses, research and development credit carryforwards, and stock compensation are examples of deferred items that have been previously utilized or will have no future value to the Company as the distribution, together with certain related transactions, does not result in the transfer of loss carryforwards or tax credit carryforwards to the Company. The Company has determined a valuation allowance is required for financial reporting purposes due to accumulative historic losses on a separate tax return basis as well as the expiration of certain attributes.

As of December 31, 2015 and 2014, the Company has recorded net operating losses of approximately $90.1 million and $75.3 million, respectively, and research and development credits of $13 million and $11.9 million, respectively. In addition, the Company has recorded Canadian loss carryforwards of approximately $17.8 million and $11.8 million, respectively, and Canadian scientific research and experimental development credits in the amount of $3.5 million and $4.9 million, respectively. On a separate return basis, these losses and credits would begin to expire in 2023.

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The benefit from income taxes differs from the amount of taxes determined by applying the U.S. federal statutory rate to loss before benefit from income taxes as a result of the following:

 

11. Equity awards program

Emergent maintains various stock programs for the benefit of its officers, directors, and certain employees, including certain of the Company’s employees. As the Company receives services in consideration for the participation in these plans, a share-based compensation expense for the awards has been reflected in the accompanying combined statements of operations. The following disclosures represent the Company’s allocation of Emergent’s programs. The terms and conditions of the stock programs are administered by the Emergent board of directors and the underlying equity instruments are shares of Emergent’s common stock. Accordingly, the amounts presented are not necessarily indicative of future performance and do not necessarily reflect the results that the Company would have experienced as an independent, publicly-traded company for the periods presented.

Emergent has two stock-based employee compensation plans, the Third Amended and Restated Emergent BioSolutions Inc. 2006 Stock Incentive Plan (the “2006 Plan”) and the Emergent BioSolutions Employee Stock Option Plan (the “2004 Plan” and together with the 2006 Plan, the “Emergent Plans”). Emergent has granted option awards under the Emergent Plans as well as granted restricted stock units under the 2006 Plan. The Emergent Plans have both incentive and non-qualified stock option features. Emergent no longer grants equity awards under the 2004 Plan. The exercise price of each option must be not less than 100% of the fair market value of the underlying shares on the date of grant. Awards granted generally have a contractual life of no more than 10 years. The terms and conditions of equity awards (such as price, vesting schedule, term and number of shares) under the Emergent Plans are determined by the compensation committee of Emergent’s board of directors, which administers the Emergent Plans.

Emergent determines the fair value of restricted stock units using the closing market price of Emergent’s common stock on the day prior to the date of grant. Emergent utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted. Set forth below are the assumptions used in valuing the stock options granted and a discussion of Emergent’s methodology for developing each of the assumptions used:

 

 

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The following is a summary of option award activity, specific to the Company’s employees, under the 2006 Plan:

 

The following is a summary of restricted stock unit award activity, specific to the Company’s employees, under the 2006 Plan:

 

Stock-based compensation expense, specific to the Company’s employees, was recorded in the following financial statement line items:

 

 

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12. 401(k) savings plan

Emergent has established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The 401(k) Plan covers substantially all U.S. employees, including certain Company employees. Under the

401(k) Plan, employees may make elective salary deferrals. Emergent currently provides for matching of qualified deferrals up to 50% of the first 6% of the employee’s salary. During the years ended December 31, 2015, 2014, and 2013, the Company’s related share of matching contributions was approximately $0.3 million, $0.3 million and $0.2 million, respectively.

13. Leases and contingencies

The Company leases laboratory and office facilities, office equipment and vehicles under various operating lease agreements. For the years ended December 31, 2015, 2014 and 2013, total lease expense was $1.8 million, $1.8 million and $1.7 million, respectively.

Future mivnimum lease payments under operating lease obligations, including any escalation clauses, as of December 31, 2015 were as follows:

 

 

The Company has accrued liabilities when it is probable that a loss will be incurred and the amount of loss can be reasonably estimated.

14. Segment reporting

The Company has determined that it operates in a single segment: the discovery, development, commercialization and sale of novel oncology and hematology therapeutics. Therefore, results of operations are reported on a consolidated basis for segment reporting, consistent with internal management reporting. Enterprise-wide disclosures about revenues by product, geographic area and significant customers are presented below.

Our total revenues by major product and geographic area are as follows:

 

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Revenues from our significant customers or collaboration partners as a percentage of total revenues are as follows:

 

 

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The Biosciences Business of Emergent BioSolutions Inc.

Condensed Combined Balance Sheets (Unaudited)

(in thousands)

 

 

The accompanying notes are an integral part of the condensed combined financial statements.

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The Biosciences Business of Emergent BioSolutions Inc.

Condensed Combined Statements of Operations (Unaudited)

(in thousands)

 

 

The accompanying notes are an integral part of the condensed combined financial statements.

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The Biosciences Business of Emergent BioSolutions Inc.

Condensed Combined Statements of Cash Flows (Unaudited)

(in thousands)

 

 

The accompanying notes are an integral part of the condensed combined financial statements.

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The Biosciences Business of Emergent BioSolutions Inc.

Notes to the condensed combined financial statements

1. Nature of Business and Basis of Presentation

On August 6, 2015, Emergent BioSolutions Inc. (“Emergent”) announced its plan to spin-off Emergent’s biosciences business focused on novel oncology and hematology therapeutics into a separate, stand-alone publicly-traded company. The core technology of the new biosciences company will be its ADAPTIR platform applied to immuno-oncology. Emergent will continue to operate as a global specialty life sciences company focused on providing specialty products for civilian and military populations that address intentional and naturally emerging public health threats. In accordance with the separation plan, Emergent will contribute to the new biosciences company, Aptevo Therapeutics Inc., certain biosciences operations, assets and liabilities, including all of the equity interests in the entities that are expected to conduct the new biosciences business, completing the transfer immediately prior to the separation. Aptevo Therapeutics Inc. is a wholly-owned subsidiary of Emergent within its biosciences business and was incorporated in February 2016. Upon formation, and to date, Aptevo Therapeutics Inc. has had no assets, liabilities or results of operations and was capitalized with $10. Upon formation, and to date, Aptevo Therapeutics Inc. has 1,000 shares of $0.001 par value common stock issued and outstanding. At the time of distribution, our authorized capital stock is expected to consist of 500,000,000 shares of common stock, $0.001 par value per share, and 15,000,000 shares of preferred stock, $0.001 par value per share. The Biosciences Business of Emergent BioSolutions Inc. is referred to throughout these combined financial statements as “the Company”.

To accomplish the separation, Emergent intends to make a pro rata distribution of all of Aptevo Therapeutics Inc. common stock to Emergent’s stockholders. At the time of distribution, Aptevo Therapeutics Inc. will become the parent company of and will hold the assets and liabilities associated with the Biosciences Business of Emergent BioSolutions Inc. The distribution is subject to a number of conditions and approval by Emergent’s board of directors.

The condensed combined financial statements of the Biosciences Business of Emergent BioSolutions Inc. include the assets, liabilities and operations of certain businesses and complete legal entities that will be contributed to Aptevo Therapeutics Inc. The legal entities, and the assets, liabilities and operations of certain businesses that are included in the condensed combined financial statements are as follows:

 

And, as of February 2016:

The accompanying condensed combined financial statements include certain components of Emergent’s bioscience business as operated by Emergent during the periods presented. Certain historical operations that were included by Emergent in its bioscience segment have been reallocated to Emergent’s continuing operations, and as result these financial statements differ from Emergent’s historically reportable bioscience segment. Effective January 1, 2016, Emergent changed its segment presentation to reflect this new structure and recast its biosciences segment reporting for the newly named “Aptevo segment”.

The accompanying condensed combined financial statements have been prepared on a standalone basis and are derived from Emergent’s consolidated financial statements and accounting records. The condensed combined financial statements reflect the Company’s financial position, results of operations, and cash flows as if its business

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was separately operated as part of Emergent prior to the distribution, in conformity with accounting principles generally accepted in the United States (GAAP).

The condensed combined financial statements include the allocation of certain assets and liabilities that have historically been held at the Emergent corporate level but which are specifically identifiable or allocable to the Company. All of the Company’s intracompany transactions and accounts have been eliminated. All intercompany transactions between the Company and Emergent are considered to be effectively settled in the condensed combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the condensed combined statement of cash flows as a financing activity and in the condensed combined balance sheet as a net investment from Emergent.

The Company’s condensed combined financial statements include an allocation of expenses related to certain Emergent corporate functions, including senior management, legal, human resources, finance, information technology, and quality assurance. These expenses have been allocated to the Company based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, square footage, or other measures. The Company considers the expense allocation methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly-traded company for the periods presented.

The income tax amounts in these condensed combined financial statements have been calculated based on a separate return methodology and presented as if the Company’s operations were a standalone taxpayer in each of its tax jurisdictions.

Emergent maintains stock-based compensation plans at a corporate level. The Company’s employees participate in those programs and a portion of the cost of those plans is included in the Company’s condensed combined financial statements. However, the Company’s condensed combined balance sheet does not include any equity awards related to stock-based compensation.

The Company’s stockholders equity balances in these condensed combined financial statements represents the excess of total assets over total liabilities, including the net due to/from balances between the Company and Emergent (as net investment from Emergent) and accumulated deficit. The net investment from Emergent is primarily impacted by contributions from Emergent which are the result of net funding provided to the Company.

The Company has a history of operating losses and negative cash flows while operating as part of Emergent and, accordingly, was dependent upon Emergent for its capital funding and liquidity needs. In addition, development activities, clinical and pre-clinical testing and commercialization of the Company’s products, if approved, will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to further extend the cash burn. In accordance with the separation agreement, Emergent has committed to providing the Company with a total of $60 million in cash funding, $40 million upon the spin-off and $20 million within six to 12 months after the separation. Management believes this funding will support the Company’s operations for at least the next 12 months following the separation, based on current operating plans and financial forecasts. The accompanying condensed combined financial statements are prepared on a going concern basis and the Company, post separation, is solely responsible for its financial performance and meeting its capital requirements. In June 2016, Emergent has increased its committed cash contribution to the Company to $65 million from $60 million, with $45 million now to be contributed upon the spin-off and $20 million within six to 12 months after the separation.

In the opinion of the Company’s management, any adjustments contained in the accompanying condensed combined financial statements are of a normal recurring nature, and are necessary to present fairly the financial position of the Company as of March 31, 2016; the results of operations for the three months ended March 31, 2016 and 2015; and cash flows for the three months ended March 31, 2016 and 2015. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

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2. Fair value measurements

The fair value hierarchy under the accounting standards for fair value measurements consists of the following three levels:

Level 1—Observable inputs for identical assets or liabilities such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, which are therefore developed by Company’s management using estimates and assumptions that reflect those that a market participant would use.

The Company does not have any fair value measurements done on a recurring basis other than the contingent consideration acquired in the Cangene acquisition. The fair value of contingent consideration obligation associated with HepaGam B changes as a result of management’s assessment of discount rates and updates to the projected and actual sales achievement of HepaGam B, which are inputs that have no observable market (Level 3). These adjustments are primarily due to the differences between the actual and expected timing and volume of HepaGam B sales. The incremental impact is recorded in the accompanying condensed combined statement of operations as cost of product sales.

The following table is a reconciliation of the beginning and ending balance of the liabilities (contingent consideration) measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2016:

 

3. MorphoSys collaboration agreement

In August 2014, the Company entered into a collaboration agreement (“MorphoSys Agreement”) with MorphoSys AG (“MorphoSys”) for the joint worldwide development and commercialization of MOR209/ES414, a targeted immunotherapeutic protein, which activates host T-cell immunity specifically against cancer cells expressing prostate specific membrane antigen, an antigen commonly overexpressed on prostate cancer cells. MOR209/ES414 was constructed using the Company’s proprietary ADAPTIR platform technology.

Revenue related to MorphoSys development services is recognized as the services are performed with $0.1 million and $0.2 million, respectively, recognized in the three months ended March 31, 2016 and 2015. The current estimated service period for the undelivered development services under the MorphoSys Agreement is through 2023.

Further, the Company determined that contingent payments for the achievement of the development and regulatory milestones are substantive milestones and will be accounted for as revenue in the period in which the milestones are achieved. The Company received a $5.0 million milestone payment from MorphoSys reflecting the initiation of a Phase I clinical study to evaluate the safety, tolerability, and clinical activity of MOR209/ES414 in patients with metastatic castration-resistant prostate cancer. The Company recognized this substantive milestone achievement payment as research and development revenue during the three months ended March 31, 2015.

The MorphoSys Agreement provides for the sharing of development and clinical costs related to MOR209/ES414. In the event the Company’s share of the total cost incurred for a given quarter exceeds its pro rata limit, the Company records a receivable from MorphoSys for the excess and reduces research and development

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expense by this amount. Accordingly, for the three months ended March 31, 2016 and 2015, the Company has recorded a reduction to research and development expense of $0.1 million and $1.7 million, respectively.

As of March 31, 2016 and December 31, 2015, the MorphoSys Agreement related accounts receivable balance was $0.1 million and $0.5 million, respectively, and the related total deferred revenue balance was $3.8 million and $3.9 million, respectively.

4. Inventories

Inventories consist of the following:

 

 

CMC ICOS Biologics, Inc., (“CMC”), is the exclusive manufacturer of bulk drug substance for the IXINITY product. During 2015, the Company ordered nine manufacturing lots of bulk drug substance from CMC and only one of those lots was successfully manufactured and released in 2015. The Company continues to work with CMC to resolve the manufacturing delays, although to date in 2016 no lots of bulk drug substance have been successfully manufactured and released. Additionally, Patheon UK Limited (“Patheon”), through an affiliate, is currently the sole source fill-finish service manufacturer for the IXINITY product. The release of drug product by Patheon may be impacted by several factors, including Patheon requiring approval from its affiliate’s foreign regulatory authority of recent changes to its facility. If current efforts to proceed with the manufacturing and release of bulk drug substance and filled product are not successful, the resulting lack of supply of bulk drug substance or filled product could lead to a projected supply shortage of IXINITY requiring notification to the FDA. This inability to supply IXINITY would adversely affect its sales, market position and viability and as a result, the realizability of IXINITY related inventory. As of March 31, 2016, the Company had IXINITY related inventory of approximately $2.5 million that may be subject to impairment if the Company is no longer able to sell the IXINITY product.

5. Intangible assets, in-process research and development and goodwill

As of March 31, 2016 and December 31, 2015, the Company had $41.8 million of IPR&D assets related to the Company’s otlertuzumab product candidate.

On April 29, 2015, the U.S. Food and Drug Administration approved IXINITY for the treatment of Hemophilia B. As a result of the approval, the $8.3 million IXINITY IPR&D asset was reclassified to intangible assets in the Company’s combined balance sheets and is being amortized over 10 years from the approval date.

For the three months ended March 31, 2016 and 2015, the Company recorded $0.6 million and $0.4 million, respectively, of intangible asset amortization expense. As of March 31, 2016, the weighted average amortization period remaining for intangible assets was 94 months. Intangible assets consisted of the following:

 

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Exhibit 99.2

 

 

 

Aptevo Therapeutics Completes Separation from Emergent BioSolutions

 

SEATTLE, WA, August 1, 2016, — Aptevo Therapeutics Inc. (“Aptevo”) (Nasdaq: APVO), a biotechnology company focused on developing novel oncology and hematology therapeutics, announced today the completion of its separation from Emergent BioSolutions Inc. (“Emergent”) (NYSE: EBS) and its launch as an independent, publicly traded corporation. Aptevo common stock will begin "regular way" trading under the symbol “APVO” on the Nasdaq Global Select Market today, August 1, 2016.

 

“Today is the culmination of the hard work of our entire team at Aptevo, and marks a major milestone for our company,” said Marvin L. White, President and Chief Executive Officer of Aptevo. “As a standalone company, we believe we are very well-positioned to create value for shareholders and opportunities for our employees by delivering on our mission to extend and meaningfully improve patients’ lives. We are excited to continue our strong progress advancing immuno-oncology therapies with our innovative ADAPTIR platform technology and related pipeline, and to serve patients with our portfolio of immunology and hematology focused commercial products. Looking ahead, we also believe we can drive value by exploring new collaborations and partnership opportunities that leverage the potential of the ADAPTIR platform and expand our pipeline.”

 

Under the terms of the separation, Emergent stockholders of record as of the close of business on July 22, 2016, the record date for the distribution, received a dividend distribution of one share of Aptevo common stock for every two shares of Emergent common stock held as of the record date, plus cash in lieu of any fractional shares. No action or payment by Emergent stockholders was required to receive Aptevo shares. Approximately 20 million shares of Aptevo common stock were distributed in the separation.

 

About Aptevo Therapeutics

Aptevo Therapeutics Inc. is a biotechnology company focused on novel oncology and hematology therapeutics to meaningfully improve patients’ lives. Its core technology is the ADAPTIR™ (modular protein technology) platform. Aptevo has four revenue-generating products in the areas of hematology and infectious diseases, as well as various investigational stage product candidates in immuno-oncology.

 

Safe Harbor Statement

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements, other than statements of historical fact, including, without limitation, statements regarding the benefits of the separation transaction to Aptevo, Aptevo’s technology and related pipeline, collaboration and partnership opportunities and any other statements containing the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “forecasts,” “estimates,” “will” and similar expressions are forward-looking statements. These forward-looking statements are based on Aptevo’s current intentions, beliefs and expectations regarding future events. Aptevo cannot guarantee that any forward-looking statement will be accurate. Investors should realize that if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could differ materially from Aptevo’s expectations. Investors are, therefore, cautioned not to place undue reliance on any forward-looking statement. Any forward-looking statement speaks only as of the date of this press release, and, except as required by law, Aptevo does not undertake to update any forward-looking statement to reflect new information, events or circumstances.

 

There are a number of important factors that could cause Aptevo’s actual results to differ materially from those indicated by such forward-looking statements, including possible negative effects on Aptevo’s business

 

2401 4th Avenue, Suite 1050, Seattle, WA 98121  |  t 206.838.0500  |  f  206.838.0503  |  aptevotherapeutics.com

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operations, assets or financial results as a result of the separation; a deterioration in the business or prospects of Aptevo; adverse developments in Aptevo’s customer-base or markets; adverse developments in the U.S. or global capital markets, credit markets or economies generally; and changes in regulatory, social and political conditions. Additional risks and factors that may affect results are set forth in Aptevo’s filings with the Securities and Exchange Commission, including Aptevo’s Registration Statement on Form 10, as amended. The foregoing sets forth many, but not all, of the factors that could cause actual results to differ from Aptevo’s expectations in any forward-looking statement.

    

 

Contact:

Stacey Jurchison

Aptevo Therapeutics

Senior Director, Investor Relations and Corporate Communications

JurchisonS@apvo.com

(206) 859-6628

 

 

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