As filed with the U.S. Securities and Exchange Commission on April 18, 2016.

Registration No. 333-        

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

PhaseRx, Inc.

(Exact name of registrant as specified in its charter)



 

   
Delaware   2834   20-4690620
(State of other jurisdiction of incorporation or
organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer Identification Number)


 

410 W. Harrison Street, Suite 300
Seattle, WA 98119
(206) 805-6300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)



 

Robert W. Overell, Ph.D.
President and Chief Executive Officer
PhaseRx, Inc.
410 W. Harrison Street, Suite 300
Seattle, WA 98119
(206) 805-6300

(Name, address, including zip code, and telephone number, including area code, of agent for service)



 

With copies to:

 
Rick A. Werner, Esq.
Haynes and Boone, LLP
30 Rockefeller Plaza, 26 th Floor
New York, New York 10112
Tel. (212) 659-7300
Fax (212) 884-8234
  Richard A. Friedman, Esq.
Stephen A. Cohen, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32 nd Floor
New York, New York 10006
Tel. (212) 930-9700
Fax: (212) 930-9725


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company x

CALCULATION OF REGISTRATION FEE

   
Title of Each Class of Securities to Be Registered   Proposed Maximum
Aggregate
Offering Price (1) (2)
  Amount of Registration Fee
Common Stock, $0.0001 par value per share (3)   $ 25,300,000     $ 2,547.71  
Common Stock, $0.0001 par value per share issuance upon automatic conversion of certain bridge loans (4)   $ 5,114,384     $ 515.02  
Total   $ 30,414,384     $ 3,062.73  

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the offering price of the shares of common stock that may be sold if the option to purchase additional shares is exercised by the underwriter in full.
(3) Represents shares of the Registrant’s common stock being offered pursuant to the Registrant’s initial public offering.
(4) Represents shares of the Registrant’s common stock being registered for resale that are issuable upon the conversion of certain bridge loans issued to the selling stockholders named in this registration statement, as estimated solely for the purpose of calculating the registration fee, assuming that the conversion occurs on June 5, 2016.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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EXPLANATORY NOTE

This registration statement contains two forms of prospectus, as set forth below.

Public Offering Prospectus .  A prospectus to be used for the initial public offering by the registrant of $     of shares of common stock (and an additional $     of shares of common stock which may be sold upon exercise of the underwriter’s over-allotment option) through the underwriter named on the cover page of the Public Offering Prospectus.
Selling Stockholder Prospectus .  A prospectus to be used in connection with the potential resale by certain selling stockholders of up to an aggregate of      shares of the registrant’s common stock issuable upon mandatory conversion of certain of the registrant’s outstanding loans upon the effectiveness of the registration statement of which this prospectus forms a part.

The Public Offering Prospectus and the Selling Stockholder Prospectus will be identical in all respects except for the following principal points:

they contain different front covers;
they contain different Use of Proceeds sections;
a Shares Registered for Resale section is included in the Selling Stockholder Prospectus;
a Selling Stockholders section is included in the Selling Stockholder Prospectus;
the Underwriting section from the Public Offering Prospectus is deleted from the Selling Stockholder Prospectus and a Plan of Distribution section is inserted in its place;
the Legal Matters section in the Selling Stockholder Prospectus deletes the reference to counsel for the underwriter; and
they contain different back covers.

The registrant has included in this registration statement, after the financial statements, a set of alternate pages to reflect the foregoing differences between the Selling Stockholder Prospectus and the Public Offering Prospectus.


 
 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED APRIL 18, 2016

       SHARES

[GRAPHIC MISSING]

Common Stock



 

This is our initial public offering of common stock. We are offering      shares of our common stock, par value $0.0001 per share. We currently estimate that the initial public offering price will be between $     and $     per share. Prior to this offering, no public market has existed for the shares of our common stock. We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PZRX”.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.

   
  Per Share   Total
Initial public offering price   $          $       
Underwriting discounts and commissions for shares sold to current stockholders and their affiliates (1)   $     $  
Underwriting discounts and commissions for shares sold to all other investors (1)   $     $  
Proceeds to us, before expenses   $     $  

(1) The underwriter will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” beginning on page 131 .

The underwriter may also exercise their option to purchase up to      additional shares from us at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover over-allotments.

Four existing investors and two additional funds affiliated with such existing investors who constitute our principal stockholders have indicated an interest in purchasing an aggregate of up to approximately $9.4 million in shares of our common stock in this offering at the offering price. However, because indications of interest are not binding agreements or commitments to purchase, these investors may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase any shares in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriter expects to deliver the shares of common stock on or about            , 2016.



 

Laidlaw & Company (UK) Ltd.



 

The date of this prospectus is            , 2016.


 
 

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TABLE OF CONTENTS

 
PROSPECTUS SUMMARY     1  
THE OFFERING     9  
SUMMARY FINANCIAL DATA     11  
RISK FACTORS     12  
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS     43  
EXPLANATORY NOTE REGARDING REVERSE STOCK SPLIT     44  
USE OF PROCEEDS     45  
DIVIDEND POLICY     46  
CAPITALIZATION     47  
DILUTION     49  
SELECTED HISTORICAL FINANCIAL DATA     52  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     53  
BUSINESS     66  
MANAGEMENT     97  
EXECUTIVE COMPENSATION     103  
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS     111  
PRINCIPAL STOCKHOLDERS     114  
DESCRIPTION OF CAPITAL STOCK     119  
SHARES ELIGIBLE FOR FUTURE SALE     125  
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS     128  
UNDERWRITING     131  
LEGAL MATTERS     139  
EXPERTS     139  
WHERE YOU CAN FIND MORE INFORMATION     139  
INDEX TO FINANCIAL STATEMENTS     F-1  

Neither we nor the underwriter has authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. When you make a decision about whether to invest in our common stock, you should not rely upon any information other than the information in this prospectus or in any free writing prospectus that we may authorize to be delivered or made available to you. Neither the delivery of this prospectus nor the sale of our common stock means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy the shares of common stock in any circumstances under which the offer or solicitation is unlawful.

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party

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information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”

This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the “Risk Factors” section of this prospectus and the financial statements and related notes appearing at the end of this prospectus before making an investment decision.

Unless the context provides otherwise, all references in this prospectus to “PhaseRx,” “we,” “us,” “our,” the “Company,” or similar terms, refer to PhaseRx, Inc. and its directly and indirectly owned subsidiaries on a consolidated basis.

Overview

We are a preclinical biopharmaceutical company developing a portfolio of products for the treatment of inherited enzyme deficiencies in the liver using intracellular enzyme replacement therapy, or i-ERT, and expect to generate clinical safety and efficacy data in 2018. We are not aware of any other enzyme replacement therapies for intracellular enzyme deficiencies currently being marketed for inherited enzyme deficiencies in the liver, and believe that the commercial potential for i-ERT is completely untapped and similar to the large and growing $4 billion worldwide market for conventional enzyme replacement therapy, or ERT, which includes drugs such as Cerezyme®. Our i-ERT approach is enabled by our proprietary Hybrid messenger RNA, or mRNA, Technology TM platform, which allows synthesis of the missing enzyme inside the cell. Our initial product portfolio targets the three urea cycle disorders ornithine transcarbamylase deficiency, or OTCD, argininosuccinate lyase deficiency, or ASL deficiency, and argininosuccinate synthetase deficiency, or ASS1 deficiency. We have preclinical proof of concept in a mouse model of a urea cycle disorder showing significant reductions in the level of blood ammonia, which is the approvable endpoint by the Food and Drug Administration, or the FDA, for the demonstration of efficacy in human clinical trials of the urea cycle disorders. To our knowledge, there are no ERT products on the market to treat these diseases, because the urea cycle reaction occurs inside the cell and is inaccessible to the administered enzyme. In contrast, we expect delivery of the missing enzyme using i-ERT with our Hybrid mRNA Technology to be a promising approach to treat these patients. Beyond the urea cycle disorders, we believe there are a significant number of inherited disorders of metabolism in the liver that are candidates for our therapeutic approach and that proof of concept for the treatment of one inherited liver disorder with our Hybrid mRNA Technology can be adapted to develop mRNA therapeutics for the treatment of other inherited liver disorders using our platform.

Our i-ERT approach is accomplished by delivering normal copies of the mRNA that make the missing enzyme inside the liver cell, thereby reinstating the normal physiology and correcting the disease. A key challenge with mRNA therapeutics historically has been their satisfactory delivery into the patients’ cells. We believe that our Hybrid mRNA Technology addresses these difficulties and also directs synthesis of the desired protein to the hepatocyte, which is the chief functional cell type in the liver harboring the metabolic cycles that need to be corrected in metabolic liver diseases. We believe our technology is superior to alternative technologies because, based upon peer-reviewed journal articles and presentations of our competitors and our internal preclinical studies, it results in high-level synthesis of the desired protein in the hepatocyte, has better tolerability and can be repeat-dosed without loss of effectiveness, thus enabling treatment of chronic conditions.

We are focused on inherited, single-gene disorders of metabolism in the liver that result in deficiency of an intracellular enzyme and thus have been unable to be treated with conventional ERT. Some inherited orphan liver diseases, such as the lysosomal storage disorders, can be successfully treated with conventional ERT. However, this approach does not work for many of the inherited orphan liver diseases, including the urea cycle disorders, because the missing enzyme is inside the cell, and the administered enzyme is unable to get inside the target cell where it is needed to be therapeutically active. Our approach is to deliver mRNA encoding the missing enzyme into the cell using our Hybrid mRNA Technology, such that the mRNA makes the missing enzyme inside the cell, restores the intracellular enzyme function and corrects the disease.

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As noted above, our initial focus is on urea cycle disorders, which are a group of rare genetic diseases generally characterized by the body’s inability to remove ammonia from the blood. The urea cycle consists of several enzymes, including ornithine transcarbamylase, or OTC, argininosuccinate lyase, or ASL, and argininosuccinate synthetase, or ASS1. Since the urea cycle reactions occur inside the cell, conventional ERT does not work as a treatment for these disorders. Urea cycle disorders are caused by a genetic mutation that results in a deficiency of one of the enzymes of the urea cycle that is responsible for removing ammonia from the bloodstream, causing elevated levels of ammonia in the blood. The elevated ammonia then reaches the brain through the circulation, where it causes cumulative and irreversible neurological damage, and can result in coma and death. While currently marketed ammonia scavengers such as Ravicti® (glycerol phenylbutyrate) and Buphenyl® (sodium phenylbutyrate) provide palliative care of the symptoms, liver transplant is the only currently available cure for urea cycle disorders. Our goal is to treat the urea cycle disorders by intravenous delivery of mRNA that makes the relevant missing urea cycle enzyme inside the cell, thus reinstating normal control of blood ammonia. We believe that anticipated improvements in newborn screening and the availability of corrective therapy will lead to improved diagnosis and survival rates among patients with urea cycle disorders.

We have three therapeutic urea cycle disorder programs under development: PRX-OTC to treat OTCD, PRX-ASL to treat ASL deficiency and PRX-ASS1 to treat ASS1 deficiency. Preclinical efficacy has been established for PRX-OTC with two biological measures, including normalization of the level of ammonia in the blood. Lowering the level of ammonia in the blood is an approvable endpoint by the FDA for the treatment of urea cycle disorders, since it was the basis for the approval of Ravicti by the FDA in 2013. We expect to achieve preclinical proof of concept for the treatment of a second urea cycle disorder and select a urea cycle disorder product candidate for further development and eventual commercialization in the first half of 2016. We also plan to scale up the manufacturing of this product candidate and conduct further preclinical studies in the second half of 2016. In addition, we plan to test the safety and efficacy of the Hybrid mRNA Technology in large animals by the end of 2016. We intend to initiate Investigational New Drug-enabling, or IND-enabling, studies in the first half of 2017 and plan to start manufacturing clinical supplies of the lead urea cycle disorder product candidate consistent with current good manufacturing practices, or cGMP, in the third quarter of 2017. We expect to file an IND application with the FDA in the fourth quarter of 2017 for this candidate and to conduct Phase 2a/2b single- and repeat-dose clinical proof of concept studies in urea cycle disorder patients that are expected to generate Phase 2a safety and efficacy data in the first half of 2018 and Phase 2b safety and efficacy data in the second half of 2018, including measurement of reduction in blood ammonia.

We are engaged in discussions with a number of prospective biopharmaceutical companies regarding partnership opportunities focused on our product pipeline, the use of our Hybrid mRNA Technology for the delivery of potential partners’ mRNAs and the use of Hybrid mRNA Technology for in vivo gene editing. In vivo gene editing is a type of in vivo genetic engineering in which DNA is inserted, deleted or replaced in the genome of an organism using proteins called nucleases. Gene editing requires the delivery of mRNA and/or DNA into cells, which can be accomplished by several methods, the two most common of which are using engineered viruses as gene delivery vehicles, or viral vectors, and those that use naked DNA/RNA or DNA/RNA complexes, or non-viral methods. Gene editing companies are interested in our Hybrid mRNA Technology for its potential to express nucleases-encoding mRNAs in the hepatocyte, providing a non-viral delivery platform for in vivo gene editing, ultimately correcting the genetic defects in the liver of patients. We believe that our approach offers advantages over viral vectors for in vivo gene editing, which can persist in the patient over the long term, and thus may cause continued modification of the genome after the intended change to the desired gene has been made. If successful, we believe that our technology would enable genes to be added, repaired or deleted in a patient’s hepatocytes for therapeutic benefit. To date, we have not entered into any partnerships or collaborations for our current product candidates.

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Our pipeline includes our most advanced mRNA therapeutic program for the treatment of OTCD, for which we have shown preclinical proof of concept, and programs for ASL deficiency and ASS1 deficiency which are under development as summarized in the table below:

[GRAPHIC MISSING]

Our Strategy

Our strategy is to use our proprietary Hybrid mRNA Technology to develop mRNA therapeutics for the treatment of orphan liver diseases. We believe that our focus on urea cycle disorders maximizes the leverage of our know-how and proprietary technology and allows us to build value through our programs by moving them forward into development in a cost-efficient manner with the goal of promptly delivering safe and effective therapies to urea cycle disorder patients in need of effective treatment.

Our business strategy includes the following:

Rapidly develop a portfolio of mRNA therapeutics to treat orphan liver diseases that are intractable to ERT, with initial focus on the urea cycle disorders .  We have achieved preclinical proof of concept for our OTCD program, with additional data in ASL and/or ASS1 programs expected to follow in the first half of 2016. We intend to initiate IND-enabling studies in the first half of 2017, file an IND in the fourth quarter of 2017 and expect to generate clinical proof of concept in urea cycle disorder patients in the first half of 2018.
Leverage our Hybrid mRNA Technology across a broad range of additional orphan liver diseases .  There are many other orphan liver diseases beyond the urea cycle disorders that we believe would be good candidates for mRNA replacement therapy. Given that the delivery system will be the same across the programs, once the Hybrid mRNA Technology is successful with one mRNA and orphan liver disease, we anticipate that the costs and risks associated with developing new mRNA therapeutics for other orphan liver diseases will be relatively low.
Pursue and form strategic collaborations that leverage our Hybrid mRNA Technology .  We are engaged in discussions with potential partners for developing mRNA programs in various disease indications. We intend to pursue partnerships in order to accelerate the development and maximize the market potential of our Hybrid mRNA Technology platform. In particular, we intend to partner with larger biopharmaceutical companies that possess market know-how and marketing capabilities to complete the development and commercialization of mRNA therapeutics. Our Hybrid mRNA Technology also enables us to deliver nuclease-encoding mRNAs to the liver. The combination of our Hybrid mRNA Technology and gene editing technology has the potential to enable in vivo gene editing, to either add or delete gene function in humans, which, if successful, could have a variety of important potential medical applications. For example, deleting gene function could be used for lowering cholesterol, and adding gene function could be used to correct certain types of hemophilia.

Our Competitive Strengths

With our proprietary Hybrid mRNA Technology, intellectual property portfolio and experienced management team, we believe we are well positioned to advance our development candidates and partner our

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technology platform to expand future development and commercial opportunities. Although our technology is at a preclinical stage of development and will require substantial resources and clinical and regulatory validation of efficacy, we believe that our delivery technology will provide opportunities to create value with therapeutic mRNAs for the treatment of orphan liver diseases in a cost-effective way.

We believe that our competitive strengths include:

Specific production of desired proteins in hepatocytes .  Based on the internal preclinical studies we have conducted, the Hybrid mRNA Technology enables protein production specifically in hepatocytes in the liver with minimal impact in other major organs and tissues. This outcome is accomplished by attaching the hepatocyte-specific targeting ligand molecule N-acetyl galactosamine, or GalNAc, to the polymer used in our Hybrid mRNA Technology, which results in hepatocyte-specific expression of the desired protein. GalNAc targeting of mRNA expression is a notable aspect of our technology and we are not aware of any competitor that is using GalNAc to target expression of mRNA therapeutics. This specificity limits off-target effects that may occur by producing proteins in tissues outside the liver.
Ability to repeat dose .  Our preclinical data shows that the Hybrid mRNA Technology enables repeat dosing at therapeutically efficacious doses without loss of protein production. This ability enables treatment of chronic indications that require multi-dose treatment regimens.
Better tolerability relative to other nucleic acid delivery systems .  In our preclinical studies, the Hybrid mRNA Technology has demonstrated better tolerability relative to other nucleic acid delivery systems, as demonstrated by the lack of an immune system response evidenced by the low levels of a number of cytokines observed in mice. Moreover, at doses well above those needed for a therapeutic effect, liver enzyme levels, a measure of liver damage, remained within normal ranges in mice. This ability to dose at high mRNA levels in combination with the ability to multi-dose without loss of expression upon subsequent dosing represents one of the significant strengths of the Hybrid mRNA Technology.
Potential for rapid development of follow-on products with unusually low cost and risk .  There are many single-gene inherited metabolic disorders of the liver which may be candidates for our mRNA therapeutic approach. Once proof of concept has been established for one orphan liver disease with the Hybrid mRNA Technology, we believe that the same delivery platform may be used to deliver many different mRNAs. Because our delivery technology platform is largely complete and the sequence of all mRNAs is widely known and in public domain, once we successfully develop an mRNA therapeutic for one of the single-gene inherited metabolic disorders of the liver, we believe that development of an mRNA therapeutic targeting other single-gene inherited metabolic disorders of the liver can be made in a significantly shorter amount of time and at less cost relative to a conventional drug discovery process, which generally takes several years to discover new drugs. In addition, we believe that the precise specificity of mRNA for its target minimizes off-target risks associated with conventional drug development, which we believe will contribute to lower cost and risks. For these reasons, while not mitigating potential future regulatory or clinical risks, and not shortening regulatory or clinical timelines for drug approval, we believe our approach can lead to the generation of new drugs more rapidly and with lower risk compared to conventional drug development.
Ability to develop high-barrier to entry products .  Due to our propriety know-how in nucleic acid therapeutics and their delivery, we expect to develop high barrier to entry therapeutics which we believe will result in our products being subject to relatively less competition in the market.
Experienced team .  Our management team has an extensive track record and experience in the research, development and delivery of RNA therapeutics. Our management team has over 50 years of combined experience in RNA delivery technologies and RNA therapeutics, and our team is well placed to further develop the Hybrid mRNA Technology for orphan liver disease therapeutics and for gene editing applications.

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Patent protection for our Hybrid mRNA Technology .  In order to protect our innovations, we have aggressively built upon our extensive and enabling intellectual property estate worldwide. Our portfolio of patents and patent applications includes multiple families and is primarily focused on synthetic polymers and related compositions, the use of polymer and polymer-lipid nanoparticle, or LNP, compositions for delivery of mRNA and other therapeutic agents, including the use of polymer-LNP compositions in our core platform technology, and methods for treating protein deficiency diseases such as orphan diseases characterized by single-gene metabolic defects in the liver, including OTCD. As of March 31, 2016, we own or have in-licensed 11 issued U.S. patents, 20 issued foreign patents, and over 35 pending U.S. and foreign patent applications.

While future manufacturing, regulatory and clinical challenges have not yet been addressed by us, our Hybrid mRNA Technology has proven highly effective in internal preclinical testing. However, to date, none of the above described studies involved human subjects. As such, there can be no assurance that we will achieve the same results upon the commencement of human clinical trials. Should we fail to achieve similar results in human clinical trials, it could result in a material adverse effect on our business and operations. Establishing the efficacy of our technology in human subjects will require substantial funds and could take multiple years. In addition, our successful development is subject to many risks, both known and unknown that may impede our ability to ever bring this technology to market or to generate revenue. See “Risk Factors” beginning on page 12 .

The main competitive technologies to provide treatment for our target diseases are adeno-associated virus, or AAV, vectors, and mRNA delivery using conventional LNPs. AAV vectors offer the potential of longer-term correction of the liver disease by gene therapy. These vectors are in clinical development to treat orphan liver diseases such as hemophilia. However, triggering of multiple types of immune response to the virus represents a major challenge facing development of these viral vectors and can make repeat dosing ineffective. So if the therapy wanes over time, or if the cells targeted by a first AAV treatment turnover or die, then a repeat administration may be ineffective. mRNAs may also be delivered by conventional LNPs. We believe at least one mRNA/LNP formulation has been reviewed by the FDA to enter clinical trials for an orphan liver disease indication. While LNPs are effective in delivering mRNA cargo into the liver, and hence, if successfully developed, could become a significant competitive technology for us, LNPs generally contain fusogenic lipids that can activate the innate immune system and result in dose-limiting toxicities.

Risk Factors

Investing in our common stock involves risks. You should carefully consider the risks described in “Risk Factors” beginning on page 12 before making a decision to invest in our common stock. The following is a summary of some of the principal risks we face:

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
As of December 31, 2015, we had an accumulated deficit of $49.3 million. In addition, because of our recurring operating losses and negative cash flows from operations, there is substantial doubt regarding our ability to continue as a going concern.
We are dependent on technologies we have licensed and we may need to license in the future, and if we fail to obtain licenses we need, or fail to comply with our payment obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop our product candidates.
Following this initial public offering, we will require substantial additional funding to bring our planned products through clinical trials, regulatory approval, manufacturing and marketing and to become profitable. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.
The Hybrid mRNA Technology has not previously been tested in beyond our preclinical studies, and mRNA-based drug development is unproven and may never lead to marketable products.

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As all of our programs are in preclinical studies or early stage research, we cannot predict how these results will translate into the results in humans, nor can we be certain that any of our product candidates will receive regulatory approval or be commercialized. If we are unable to receive regulatory approval or commercialize our product candidates, our business will be adversely affected.
The development of our product candidates including clinical trials utilizing our technologies will be expensive and time-consuming, and if the development of our product candidates does not produce favorable results or commencement or completion of clinical trials are delayed, we and our potential collaborators may be unable to commercialize these products.
We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.
We believe that one of our opportunities is to partner with gene editing companies, but gene editing technology is relatively new, and if we are unable to use our technology in gene editing applications, our revenue opportunities from such partnerships will be limited.
We are dependent on technologies we license, and if we lose the right to license such technologies or we fail to license new technologies in the future, our ability to develop new products would be harmed.
We may become dependent on our collaborative arrangements with third parties for a substantial portion of our revenue, and our development and commercialization activities may be delayed or reduced if we fail to initiate, negotiate or maintain successful collaborative arrangements.
If we are unable to adequately protect our proprietary technology from legal challenges, infringement or alternative technologies, our competitive position may be hurt and our operating results may be negatively impacted.
We license patent rights from third-party owners or licensees. If such owners or licensees do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected.
Even if we are successful in developing and commercializing a product candidate, it is possible that the commercial opportunity for mRNA-based therapeutics will be limited.
The biotechnology and pharmaceutical industries are intensely competitive. If we are unable to compete effectively with existing drugs, new treatment methods and new technologies, we may be unable to commercialize successfully any drugs that we develop.

Common Stock Issuances Upon the Consummation of this Offering

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. Interest accrues on the term loans at the rate of 5% per annum. The maturity date of the term loans is December 21, 2016, unless earlier converted into equity or otherwise repaid. The repayment of the term loans is subject to acceleration upon the occurrence of certain customary events of default contained in the loan and security agreement. As of March 31, 2016, the aggregate outstanding principal amount of the term loans, plus all accrued and unpaid interest thereon, was approximately $4.1 million.

The entire outstanding principal amount of the term loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Among other things, a qualified offering under the loan and security agreement requires a firm commitment underwritten initial public offering of our common stock not later than June 5, 2016 at a pre-offering valuation

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of at least $24 million (exclusive of the term loans and their subsequent conversion) and which results in gross proceeds to us of at least $16.9 million. We expect this offering to constitute a qualified offering under the terms of the loan and security agreement, and therefore, upon the closing of this offering, we will issue an aggregate of      shares of common stock to the investors under the loan and security agreement, based on an assumed initial public offering price of $    , which is the midpoint of the price range set forth on the cover page of this prospectus. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Loan and Security Agreement”. The shares issuable upon conversion of the term loans are not subject to any lock-up periods.

In addition, immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, we will issue:

an aggregate of      shares of common stock upon the conversion of $12.6 million of convertible notes and related accrued interest into Series A preferred stock and then into our common stock in accordance with the terms of such notes and, with respect to Series A preferred stock, our third amended and restated certificate of incorporation, as amended;
an aggregate of      shares of common stock upon the conversion of $3.6 million of convertible notes and related accrued interest into our common stock in accordance with the terms of such notes;
an aggregate of      shares of common stock upon the conversion of 25,716,583 outstanding shares of preferred stock under the terms of our third amended and restated certificate of incorporation, as amended; and
an aggregate of      shares of common stock issuable upon the exercise of outstanding warrants to purchase 2,452,242 shares of preferred stock at an exercise price of $0.01 per share and the conversion of the preferred stock issuable upon exercise of such warrants into common stock under the terms of our third amended and restated certificate of incorporation, as amended.

An aggregate of      shares of common stock are subject to lock-up agreements of at least 180 days. See “Shares Eligible for Future Sale — Lock-up Agreements” and in section titled “Underwriting — Lock-up Agreements”. Each of we, Laidlaw & Company (UK) Ltd. or Titan Multi-Strategy Fund I, LTD., as applicable, may, in our or their sole discretion, and at any time without notice, release all or any portion of the shares subject to the corresponding lock-up agreements.

Sale of our Common Stock by Our Stockholders

In December 2015, we engaged Palladium Capital Advisors, LLC to serve as a non-exclusive agent in connection with a bridge loan financing and as a non-exclusive advisor in connection with our initial public offering and for the provision of general capital markets advice. Prior to consummation of the bridge loan financing, we determined, following discussions with Palladium Capital Advisors, LLC, to request certain of our stockholders to transfer an aggregate of 1,393,880 post-reverse stock split shares of our common stock to Titan Multi-Strategy Fund I, LTD. and certain of its designees at a nominal purchase price in order to induce Titan Multi-Strategy Fund I, LTD. to serve as the initial committed investor in the bridge financing and also in expectation of receiving other support from Titan Multi-Strategy Fund I, LTD., Palladium Capital Advisors, LLC and their respective contacts in connection with our proposed initial public offering, including introductions to certain prospective underwriters.

As a result of this request, certain of our existing investors that collectively beneficially own the majority of our common stock entered into stock purchase agreements with Titan Multi-Strategy Fund I, LTD. and certain of its designees, pursuant to which, concurrently with the closing of the initial public offering, our existing investors agreed to transfer an aggregate of 1,393,880 shares (after giving effect to the reverse stock split discussed below) of our common stock to Titan Multi-Strategy Fund I, LTD. and certain of its designees at a nominal purchase price. Such shares transferred to Titan Multi-Strategy Fund I, LTD. and certain of its designees are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the investor’s shares of common stock for a period of 180 days following this offering without our prior written consent; provided, that, we may unilaterally waive any term of the lock-up agreement.

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Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;
not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an “emerging growth company” before the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than the information you might receive from other public reporting companies in which you hold equity interests.

To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, after we cease to qualify as an “emerging growth company,” certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (2) scaled executive compensation disclosures; and (3) the ability to provide only two years of audited financial statements, instead of three years.

Reverse Stock Split

Our board of directors, subject to the approval of the holders of outstanding shares of our capital stock entitled to vote thereon, has approved a reverse stock split of our issued and outstanding shares of common stock. We expect to effect the reverse stock split of our shares of common stock at a ratio of 1-for-     prior to or upon the effective date of the registration statement of which this prospectus forms a part. No fractional shares of common stock will be issued in connection with the reverse stock split, and all such fractional interests will be rounded up to the nearest whole number. Issued and outstanding stock options and warrants will be split on the same basis and exercise prices will be adjusted accordingly. Unless noted otherwise, all information presented in this prospectus assumes that the 1-for-     reverse stock split of our outstanding shares of common stock, stock options and warrants has not occurred.

Company Information

We were incorporated on March 9, 2006 as a Delaware corporation. Our principal executive office is located at 410 W. Harrison Street, Suite 300, Seattle, Washington 98119. Our telephone number is 206-805-6300. Our website address is www.phaserx.com . Information contained in, or accessible through, our website does not constitute a part of this prospectus or any prospectus supplement.

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THE OFFERING

The following summary of the offering contains basic information about the offering and the common stock and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the common stock, please refer to the section of this prospectus entitled “Description of Capital Stock.”

Common stock offered by us    
         shares of our common stock.
Over-allotment option    
    We have granted the underwriter a 30-day option to purchase up to        additional shares of our common stock from us at the public offering price less underwriting discounts and commissions.
Common stock outstanding after this offering    
         shares.
Use of proceeds    
    We estimate that the net proceeds from our sale of shares of our common stock in this offering will be approximately $     million, or approximately $     million if the underwriter exercises its over-allotment option in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
    We currently expect to use approximately $     of the net proceeds from this offering as follows:
   

•  

approximately $     to achieve preclinical proof of concept for the treatment of a second urea cycle disorder;

   

•  

approximately $     to select a urea cycle disorder product candidate for further development;

   

•  

approximately $     to scale up the manufacturing of the lead urea cycle disorder product candidate;

   

•  

approximately $     to conduct preclinical activities including toxicology studies; and

   

•  

the remaining $     (or approximately $     if the underwriter exercises its over-allotment option in full) will be used for general corporate purposes including working capital requirements.

    For additional information please refer to the section entitled “Use of Proceeds” on page 45 of this prospectus.
Dividend policy    
    We do not anticipate paying any cash dividends on our common stock. In addition, we may incur indebtedness in the future that may restrict our ability to pay dividends. See “Dividend Policy” on page 46 .
Risk Factors    
    See the section entitled “Risk Factors” beginning on page 12 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.
NASDAQ Capital Market symbol    
    PZRX

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The number of shares of our common stock to be outstanding after this offering is based on 5,699,377 shares of our common stock outstanding as of March 31, 2016. However, it does not include, as of March 31, 2016, the following:

7,334,551 shares of our common stock issuable upon the exercise of stock options as of March 31, 2016, with a weighted average exercise price of $0.12 per share;
an estimated 1,162,519 shares of our common stock issuable upon exercise of the outstanding preferred stock warrants and conversion of the preferred stock issuable upon exercise of such warrants as of March 31, 2016, at an estimated weighted average exercise price of $1.00 per share;
any shares of our common stock issuable upon exercise of the underwriter’s over-allotment option;
the issuance of      shares of our common stock to Palladium Capital Advisors, LLC; and
other shares of our common stock reserved for future issuance under the PhaseRx, Inc. 2016 Long-Term Incentive Plan, or the 2016 Plan.

In addition, unless otherwise noted, the information in this prospectus assumes:

the conversion of $12.6 million of convertible notes and related accrued interest into Series A preferred stock and then into our common stock in accordance with the terms of such notes and, with respect to Series A preferred stock, our third amended and restated certificate of incorporation, as amended;
the conversion of $3.6 million of convertible notes and related accrued interest into our common stock in accordance with the terms of such notes;
the conversion of $4.0 million principal amount of term loans together with all accrued and unpaid interest thereon into common stock at a conversion price equal to 80% of the initial public offering price in this offering in accordance with the terms of such notes;
the conversion of 25,716,583 outstanding shares of preferred stock under the terms of our third amended and restated certificate of incorporation, as amended;
the exercise of warrants to purchase 2,452,242 shares of preferred stock at an exercise price of $0.01 per share and the conversion of the preferred stock issuable upon exercise of such warrants into common stock under the terms of our third amended and restated certificate of incorporation, as amended; and
the 1-for-      reverse stock split of our outstanding shares of common stock has not occurred.

Four existing investors and two additional funds affiliated with such existing investors who constitute our principal stockholders have indicated an interest in purchasing an aggregate of up to approximately $9.4 million in shares of our common stock in this offering at the offering price. However, because indications of interest are not binding agreements or commitments to purchase, these investors may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase any shares in this offering.

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SUMMARY FINANCIAL DATA

The following tables set forth a summary of our financial data for the years ended December 31, 2014 and 2015 and for our summary statements of financial position as of December 31, 2015. We have derived the statement of operations data for the years ended December 31, 2014 and 2015 and the balance sheet data as of December 31, 2015 from our audited financial statements appearing elsewhere in this prospectus. You should read this data together with our financial statements and related notes appearing elsewhere in this prospectus and the sections in this prospectus entitled “Capitalization,” “Selected Historical Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not necessarily indicative of our future results.

   
  Years Ended December 31,
     2014   2015
     (in thousands, except per share data)
Statement of Operations Data:
                 
Revenue   $ 1,200     $ 375  
Total operating expenses     6,791       6,182  
Loss from operations     (5,591 )       (5,807 )  
Total other income (expenses)     (1,258 )       (1,570 )  
Net Loss   $ (6,849 )     $ (7,377 )  
Basic and diluted net loss per share   $ (1.47 )     $ (1.33 )  
Shares used in computation of basic and diluted net loss per share     4,656       5,526  
Pro forma basic and diluted net loss per share                  
Shares used in computation of pro forma basic and diluted net loss per share                  

     
  December 31, 2015
     Actual   Pro Forma   Pro Forma
As Adjusted
          (in thousands)
Balance Sheet Data:
                          
Cash and cash equivalents   $ 3,290     $          $       
Total assets     3,914                    
Accrued interest of convertible debt     3,199                    
Convertible notes, net of debt discount     19,841                    
Preferred stock warrant liability     3,163                    
Redeemable convertible preferred stock     25,712                    
Accumulated deficit     (49,343 )                    
Total stockholders’ deficit     (48,889 )                    

The pro forma balance sheet data give effect to the conversion of all outstanding shares of our preferred stock, convertible notes and term loans and exercise of certain preferred stock warrants into an aggregate of      shares of our common stock upon the closing of this offering.

The pro forma as adjusted balance sheet data give further effect to our issuance and sale of      shares of our common stock in this offering at an assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, total assets and total stockholders’ deficit by approximately $     million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks actually occur, we may be unable to conduct our business as currently planned and our financial condition and results of operations could be seriously harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment.

Risks Relating to Our Financial Condition and Capital Requirements

We are a development-stage company and have a limited operating history on which to assess our business, have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a development-stage biotechnology company with a limited operating history. Our business does not generate the cash necessary to finance our operations. We incurred net losses of approximately $6.8 million in 2014 and $7.4 million in 2015. As of December 31, 2015, we had an accumulated deficit of $49.3 million.

We have devoted substantially all of our financial resources to identify, acquire, license and develop our technology and product candidates, including conducting early stage research and preclinical studies and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sale of debt and equity securities. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development, which includes research and development, preclinical studies and human clinical trials, is a time-consuming, expensive and highly speculative process that takes years to complete and involves a substantial degree of risk. Our product candidates are in the early stages of preclinical development. We have established a preclinical proof of concept for one of our product candidates, and it may be several years, if ever, before we have a product candidate approved for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval, and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We will require significant additional capital to:

continue our research and preclinical and clinical development of our product candidates;
expand the scope of our current preclinical studies for our product candidates;
advance our programs into more expensive clinical studies;
initiate additional preclinical, clinical or other studies for our product candidates;
obtain, change or add additional manufacturers or suppliers;
seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies;
establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
seek to identify, assess, acquire, license, and/or develop other product candidates;
make milestone or other payments under any license agreements;
seek to maintain, protect, and expand our intellectual property portfolio;
seek to attract and retain skilled personnel;
create additional infrastructure to support our operations as a public company and our product development and planned future commercialization efforts; and

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address any delays or issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges that require longer follow-up of existing studies, additional major studies or additional supportive studies in order to pursue marketing approval.

Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. If we fail to achieve or maintain profitability, it would adversely affect the value of our common stock.

We are dependent on technologies we have licensed and we may need to license in the future, and if we fail to obtain licenses we need, or fail to comply with our payment obligations in the agreements under which we in-license intellectual property and other rights from third parties, we could lose our ability to develop our product candidates.

We currently are dependent on licenses from third parties for certain of our key technologies relating to mRNA delivery, including the licenses from the University of Washington, or UW, and the Commonwealth Scientific and Industrial Research Organisation, or CSIRO. Under the license agreement with UW, we are required pay all ongoing patent expenses. In addition, we are required to pay UW an annual license maintenance fee, certain milestone payments, and, following regulatory approval from the FDA to market licensed therapeutic products, royalty payments. Under the license agreement with CSIRO, we are required to pay annual royalties and product based royalties. No assurance can be given that we will generate sufficient revenue or raise additional financing to meet our payment obligations in the license agreements with UW or CSIRO or other license agreements we enter into with third parties in the future. Any failure to make the payments required by the license agreements may permit the licensor to terminate the license. If we were to lose or otherwise be unable to maintain these licenses, it would halt our ability to develop our product candidates, which would have an immediate material adverse effect on our business.

We have never generated any revenue from product sales and may never be profitable.

We have experienced significant operating losses since inception. We have no products approved for commercialization and have never generated any revenue from product sales. We are currently developing products based on delivery of mRNAs to correct genetic metabolic defects in the liver. The process of developing such products requires significant research and development efforts, including basic research, preclinical and clinical development, and regulatory approval. These activities, together with our general and administrative expenses, have resulted in operating losses in the past, and there can be no assurance that we can achieve profitability in the future. Our ability to achieve profitability depends on our ability to develop product candidates, conduct preclinical development and clinical trials, obtain necessary regulatory approvals and manufacture, distribute, market and sell our therapeutics. We cannot assure you of the success of any of these activities or predict if or when we will ever become profitable.

Following this initial public offering, we will require substantial additional funding to bring our planned products through clinical trials, regulatory approval, manufacturing and marketing and to become profitable. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate our product development efforts or other operations.

We are currently advancing our mRNA therapeutic candidates through preclinical development. Developing our product candidates is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates through clinical studies.

As of December 31, 2015, we had cash and cash equivalents of $3.3 million. Based upon our current expectations, we believe that our currently available cash and cash equivalents, excluding the anticipated proceeds from the initial public offering described in this prospectus, will finance our planned operations through May 2016. We intend to supplement the anticipated proceeds from this offering with a combination of debt financing and strategic partnerships to further finance our operations. However, we cannot assure you that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate, and we expect that we will require substantial additional

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capital to continue the research and development and conduct significant preclinical and clinical activities for our lead mRNA product candidates and to support our other ongoing activities beyond the 12 months following the completion of this offering.

Our future funding requirements will depend on many factors, including but not limited to:

the scope, rate of progress, results and cost of our clinical studies, preclinical testing, and other related activities;
the cost of manufacturing clinical supplies, and establishing commercial supplies of our product candidates and any products that we may develop;
the number and characteristics of product candidates that we pursue;
competing technological developments;
our proprietary patent position, if any, in our products;
the regulatory approval process for our products;
the cost and timing of establishing sales, marketing, and distribution capabilities; and
the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results, and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay, or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition, and results of operations.

Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.

Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. Our financial statements included elsewhere in this prospectus include a note describing the conditions which raise this substantial doubt. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2015 referring to our recurring losses and expressing substantial doubt in our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

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Risks Related to the Development and Regulatory Approval of Our Product Candidates

The Hybrid mRNA Technology and mRNA-based drug development is unproven and may never lead to marketable products.

Our future success depends on the successful development, by us or together with our future partners, of mRNA-based products and technologies as therapeutic agents. The scientific discoveries that form the basis for our efforts to discover and develop the Hybrid mRNA Technology and mRNA-based therapeutics are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited.

Relatively few mRNA-based therapeutic product candidates have ever been tested in animals or humans, and we are not aware of any mRNA-based therapeutic product receiving marketing approval. We currently have only limited preclinical data suggesting that we can deliver mRNA molecules to hepatocytes in the liver using our Hybrid mRNA Technology, as our business plan contemplates, resulting in the intended expression of proteins to treat orphan liver diseases. In addition, mRNA-based compounds delivered using our Hybrid mRNA Technology may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems in unforeseen, ineffective or harmful ways. We may make significant expenditures developing mRNA-based therapeutics without success. In addition, our Hybrid mRNA Technology polymer-LNP-based delivery system has never been tested in humans and may not be effective. Our mRNA technology may result in unanticipated side effects that may prevent the further development of our products. As a result, we may never develop a marketable product utilizing our technologies. If we, independently or together with potential future partners, do not develop and commercialize drugs based upon our technologies, our operations will not become profitable, and we may cease operations.

As all of our programs are in preclinical studies or early stage research, we cannot be certain that any of our product candidates will receive regulatory approval or be commercialized. If we are unable to receive regulatory approval or commercialize our product candidates, our business will be adversely affected.

Our key strategy is to discover, develop and commercialize a portfolio of novel proprietary mRNA therapeutics for the treatment of inherited orphan liver diseases through internal efforts and through those of our future strategic partnerships. Our future results of operations depend, to a significant degree, upon our and our collaborators’ ability to successfully develop and commercialize our product candidates. To date, no pivotal clinical trials of mRNA therapeutics designed to provide clinically and statistically significant proof of efficacy, or to provide sufficient evidence of safety to justify approval, have been completed. All of our product candidates are in the early stages of development and will require additional preclinical and clinical development and studies to evaluate their toxicology, carcinogenicity and optimize their formulation, management of nonclinical, clinical, and manufacturing activities, regulatory approval, obtaining adequate manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenue from product sales. The development and commercialization process, particularly with respect to innovative products, is both time-consuming and costly and involves a high degree of business risk. Successful product development in the pharmaceutical industry is highly uncertain, and very few research and development projects result in a commercial product. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. Our development efforts may not lead to commercialization, or even if we ultimately receive regulatory approval for any of these product candidates, we or our potential future partners, if any, may be unable to commercialize them successfully for a variety of reasons, including the following:

a product candidate may, after additional studies, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective;
a product candidate may not receive necessary regulatory approvals in a timely manner, if at all;
competitors may develop alternatives that render our product candidates (or those of our future partners) obsolete;
a product candidate may not have a sustainable intellectual property position in major markets;
a product candidate may not be able to be successfully and profitably produced and marketed; or
a product candidate may not be accepted by patients, the medical community or third-party payors.

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If any of our product candidates fail to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.

To date, we have invested substantially all of our efforts and financial resources to identify, acquire, license, and develop our technology and lead compounds, including conducting preclinical studies and providing general and administrative support for these operations. We currently have one product candidate with a preclinical proof of concept and are currently evaluating programs for two other subtypes of urea cycle disorders for a second potential product candidate. None of our product candidates has been approved by the FDA or any foreign regulatory authority, and we do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA or comparable foreign authorities and begin commercialization for a number of years, if ever. There can be no assurance that any of our product candidates that have entered, or may enter, research or development will ever be successfully commercialized, and delays in any part of the process or the inability to obtain regulatory approval could adversely affect our operating results. If we fail to commercialize one or more of our current product candidates in a timely manner or at all, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition and stock price may decline.

Our data from the OTCD program is limited and may not be indicative of future results.

We have conducted a limited number of experiments in our OTCD program with the hyperammonemia model, and there is significant uncertainty as to whether the early results from our preclinical studies on mice will translate into a successful therapeutic product candidate. Our OTCD program may fail to reach clinical stage for a number of reasons, including the following:

We have performed a limited number of experiments in the hyperammonemia model.
While we observe detectable levels of human OTC protein in mice, we currently do not know how much human OTC protein is being made. We anticipate a minimum level of OTC protein will be needed to cure OTCD patients and it is unclear whether the protein levels produced in mice using our OTCD program will be sufficient for the human disease.
It is unclear whether the doses of mRNA required to normalize ammonia and orotic acid levels in mice will translate into larger animal species and ultimately humans. Dose levels will affect the cost of the ultimate therapeutic and high dosage levels may be cost prohibitive.
It is unknown if the dosing frequency used in mouse studies will translate into larger animal species and humans. The dosing frequency may be inconsistent with acceptable dosing frequency for a commercial product.
Although we have shown an extension of life in the mouse hyperammonemia model following treatment with the OTC mRNA, we have not yet been able to show a cure of the mice in this model, which is the goal we are seeking to achieve for human subjects.
While the OTC-encoded mRNA treatment appears to be well tolerated in mice, we will be required to test a lead candidate in larger animal species which may be more susceptible to side effects of the treatment and thus stall or prevent further preclinical development of the lead candidate. Furthermore, it is unclear whether tolerability studies in larger animals will fully translate into humans which may be more susceptible to the side effects of the drug.

The development of our product candidates including clinical trials utilizing our technologies will be expensive and time-consuming, and if the development of our product candidates does not produce favorable results or commencement or completion of clinical trials are delayed, we and our collaborators may be unable to commercialize these products.

Our research and development programs with respect to mRNA-based products are at an early stage. To receive regulatory approval for the commercialization of our current product candidates, or any other candidates that we may develop, extensive preclinical studies and adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA and

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comparable foreign authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase 3 clinical trials, which our current product candidates have not yet reached and may never reach. Preclinical and clinical testing is expensive, can take many years and has an uncertain outcome, and the historical failure rate for product candidates is high. The length of time generally varies substantially according to the type of drug, complexity of clinical trial design, regulatory compliance requirements, intended use of the product candidate and rate of patient enrollment for the clinical trials, and we do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. Delays in the commencement or completion of clinical trials could significantly impact our product development costs. In addition, our clinical trials may also be delayed by the limited number of patients who have the orphan diseases we are pursuing or by slower than expected enrollment.

A failure of one or more preclinical studies or clinical trials can occur at any stage of the development process. We or our future partners may experience numerous unforeseen events during, or as a result of, the preclinical testing and the clinical trial process that could delay or prevent the commencement and completion of clinical trials, and as a result, the receipt of regulatory approval or the commercialization of our product candidates, including:

preclinical tests or clinical trials may produce negative or inconclusive results, and we or a partner may decide, or a regulator may require us, to conduct additional preclinical testing or clinical trials, or we or a partner may abandon projects that were previously expected to be promising;
regulators may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
prospective third-party contract research organizations, or CROs, and clinical trial sites may not reach an agreement with us on acceptable terms, or at all;
enrollment in clinical trials may be slower than anticipated or participants may drop out of clinical trials at a higher rate than anticipated, resulting in significant delays;
CROs may fail to conduct the clinical trial in accordance with regulatory requirements or clinical protocols or meet their contractual obligations in a timely manner;
product candidates may have very different chemical and pharmacological properties in humans than in laboratory testing and may interact with human biological systems in unforeseen, ineffective or harmful ways;
collaborators who may be responsible for the development of our product candidates may not devote sufficient resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely manner;
clinical trials may be suspended or terminated if the participants are being exposed to unacceptable health risks;
regulators, including the FDA, may require that clinical research be held, suspended or terminated for various reasons, including noncompliance with regulatory requirements;
the cost of clinical trials may be greater than anticipated;
lack of adequate funding to continue the clinical trial;
the supply or quality of product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate; and
product candidates may not have the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics that delay or preclude regulatory approval or limit their commercial use or market acceptance, if approved.

Further, even if the results of preclinical studies or clinical trials are initially positive, it is possible that we will obtain different results in the later stages of drug development or that results seen in clinical trials will not continue with longer term treatment. Drugs in late stages of clinical development may fail to show the

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desired safety and efficacy traits despite having progressed through initial clinical testing. For example, positive results in early Phase 1 or Phase 2 clinical trials may not be repeated in larger Phase 2 or Phase 3 clinical trials. This product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical to early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives. Any of these changes could make the results of our planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.

It is expected that all of the product candidates that may be developed by us or in collaboration with future partners based on our technologies will be prone to the risks of failure inherent in drug development. The clinical trials of any or all of our product candidates could be unsuccessful, which would prevent the commercialization of these drugs. We currently do not have strategic collaborations in place for clinical development of any of our current product candidates. Therefore, in the future, we or any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising, such data may not be sufficient to support marketing approval by the FDA or comparable foreign authorities. Further, data generated during development can be interpreted in different ways. The FDA or comparable foreign authorities conducts its own independent analysis of some or all of the preclinical and clinical trial data submitted in a regulatory filing and often comes to different and potentially more negative conclusions than the analysis performed by the drug sponsor. Our failure to adequately demonstrate the safety and efficacy of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.

We in-license some of the intellectual property related to our product candidates from UW and CSIRO pursuant to the license agreements. Since our experience with our product candidates is limited, we will need to train our existing personnel and hire additional personnel in order to successfully administer and manage our clinical trials and other studies as planned, which may result in delays in completing such planned clinical trials and preclinical studies.

Since we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other candidates that we may develop, we may seek to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these assets as a component of our strategic plan. However, our discussions with potential collaborators may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.

If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

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We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.

We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product candidates in the event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near and long-term.

Because the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become profitable.

Gene editing technology is relatively new, and if we are unable to use our technology in gene editing applications, our revenue opportunities from such partnerships will be limited.

Delivering mRNA encoding gene editing nucleases to the liver involves the relatively new approach of gene editing, and the scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Gene editing technologies have been subject to only a limited number of animal studies and clinical trials, and we are not aware of any gene editing products that have obtained marketing approval from the FDA. Gene editing in humans may cause deaths, serious adverse events, undesirable side effects, or unexpected characteristics, and if such adverse events were to occur with in vivo gene editing in humans, it could lead to a temporary or permanent cessation of clinical studies and product development in the field of gene editing, which could lead to the termination of any gene editing partnership we enter into with our collaborators. Moreover the regulatory requirements that will govern gene editing product candidates are uncertain and are subject to change. In addition, gene editing products involve new and rapidly evolving technologies that may render our products or processes obsolete or less attractive. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. If we or our potential collaborators are unable to use our delivery technology to develop commercial gene editing products, our revenue opportunities will be limited and our operations may be adversely affected.

We are subject to extensive U.S. and foreign government regulations, including the requirement of approval before products may be marketed. The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

We and the drug product candidates developed by us or in collaboration with future partners are subject to extensive regulation by governmental authorities in the United States and other countries. Failure to comply with applicable requirements could result in, among other things, any of the following actions:

warning letters;
fines and other civil penalties;
unanticipated expenditures;
delays in approving or refusal to approve a product candidate;
product recall or seizure;
interruption of manufacturing or clinical trials;
operating restrictions; and
injunctions and criminal prosecution.

Our product candidates, developed independently or in collaboration with future partners, cannot be marketed in the United States without FDA approval or clearance, and they cannot be marketed in foreign countries without regulatory approval from comparable foreign authority. Neither the FDA nor any foreign regulatory authority has approved any of the product candidates being developed by us based on our

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technologies. These product candidates are in preclinical development and will have to be approved by the FDA or applicable foreign regulatory authorities before they can be marketed in the United States or abroad. Obtaining regulatory approval requires substantial time, effort, and financial resources, and may be subject to both unexpected and unforeseen delays, including, without limitation, citizen’s petitions or other filings with the FDA, and there can be no assurance that any approval will be granted on a timely basis, if at all, or that delays will be resolved favorably or in a timely manner. Specifically, neither our polymer-LNP technology nor, to our knowledge, any mRNA-based therapeutic has been approved as a human therapeutic. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. If our product candidates are not approved in a timely fashion, or are not approved at all, our business and financial condition may be adversely affected.

In addition, both before and after regulatory approval, we, our collaborators and our product candidates are subject to numerous requirements by the FDA and foreign regulatory authorities covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, distribution and export. These requirements may change and additional government regulations may be promulgated that could affect us, our collaborators or our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. There can be no assurance that neither we nor any of our future partners will be required to incur significant costs to comply with such laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon our business.

Failure to comply with foreign regulatory requirements governing human clinical trials and marketing approval for drugs could prevent the sale of product candidates based on our technologies in foreign markets, which may adversely affect our operating results and financial condition.

We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union, and in additional foreign countries. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement for marketing product candidates based on our technologies outside the United States vary greatly from country to country. We have, and our future partners may have, limited experience in obtaining foreign regulatory approvals. The time required to obtain approvals outside the United States may differ from that required to obtain FDA approval. Neither we nor our future partners may be able to obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. Failure to comply with these regulatory requirements or obtain required approvals could restrict the development of foreign markets for our product candidates and may have a material adverse effect on our financial condition or results of operations.

Even if regulatory approvals are obtained for our products, such products will be subject to ongoing regulatory review. If we or a partner fail to comply with continuing U.S. and foreign regulations, the approvals to market drugs could be lost and our business would be materially adversely affected.

Following any initial FDA or foreign regulatory approval of any drugs we or a partner may develop, such drugs will continue to be subject to regulatory review, including the review of adverse drug experiences and clinical results that are reported after such drugs are made available to patients. This would include results from any post-marketing studies or vigilance required as a condition of approval. The manufacturer and manufacturing facilities used to make any product candidates will also be subject to periodic review and inspection by regulatory authorities, including the FDA. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. Marketing, advertising and labeling also will be subject to regulatory requirements and continuing regulatory review. The failure to comply with applicable continuing regulatory requirements may result in fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.

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We have used, and may continue to use, hazardous chemicals and biological materials in our business. Any disputes relating to improper use, handling, storage or disposal of these materials could be time-consuming and costly.

Our research and development operations have involved, and if continued in the future will likely continue to involve, the use of hazardous and biological, potentially infectious, materials. Such use subjects us to the risk of accidental contamination or discharge or any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials and specific waste products. We could be subject to damages, fines or penalties in the event of an improper or unauthorized release of, or exposure of individuals to, these hazardous materials, and our liability could be substantial. The costs of complying with these current and future environmental laws and regulations may be significant, thereby impairing our business.

We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials. The limits of our workers’ compensation insurance are mandated by state law, and our workers’ compensation liability is capped at these state-mandated limits. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to 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:

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information;
the federal physician sunshine requirements under the Patient Protection and Affordable Care Act requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Patient Protection and Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Patient Protection and 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 Act.

If our operations 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 government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Risks Related to our Reliance on Third Parties

We are dependent on technologies we license, and if we lose the right to license such technologies or we fail to license new technologies in the future, our ability to develop new products would be harmed.

We currently are dependent on licenses from third parties for certain of our key technologies relating to mRNA delivery, including the licenses from UW and CSIRO. Our current licenses impose, and any future licenses we enter into are likely to impose, various development, funding, royalty, diligence, sublicensing, insurance and other obligations on us. For example, the Hybrid mRNA Technology we anticipate utilizing in developing our product candidates is based upon a multi-component nanoparticle delivery system that includes our SMARTT Polymer Technology®, which uses novel synthetic polymers we developed pursuant to an exclusive license from UW. UW may terminate the license upon delivery of a written notice of termination if we breach or fail to perform one or more of our duties under the license agreement or if we become insolvent. If our license with respect to any of these technologies is terminated for any reason, the development of the products contemplated by the licenses would be delayed, or suspended altogether, while we seek to license similar technology or develop new non-infringing technology. We may need to obtain rights to additional intellectual property, and the costs of obtaining new licenses may be high, or licenses may be unavailable. If our existing licenses are terminated, the development of the products contemplated by the licenses, including the product candidates for urea cycle disorders we are currently developing, would be delayed or terminated and we may not be able to negotiate additional licenses on acceptable terms, if at all, which would have a material adverse effect on our business.

We may become dependent on our collaborative arrangements with third parties for a substantial portion of our revenue, and our development and commercialization activities may be delayed or reduced if we fail to initiate, negotiate or maintain successful collaborative arrangements.

We plan to pursue and form partnerships to accelerate the development and maximize the market potential of our mRNA delivery technology. Such potential partners may provide the financial resources, preclinical and clinical development, regulatory compliance, sales, marketing and distribution capabilities required for the success of our business. If we fail to secure or maintain successful collaborative arrangements, our development and commercialization activities may be delayed, reduced or terminated, and our revenues could be materially and adversely impacted.

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Over the next several years, we may depend on these types of collaborations for a significant portion of our revenue. The potential future milestone and royalty payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our products. These collaborative agreements might be terminated either by us or by our partners upon the satisfaction of certain notice requirements. Our partners may not be precluded from independently pursuing competing products and drug delivery approaches or technologies. Even if our partners continue their contributions to our collaborative arrangements, of which there can be no assurance, they may nevertheless determine not to actively pursue the development or commercialization of any resulting products. Our partners may fail to perform their obligations under the collaborative arrangements or may be slow in performing their obligations. In addition, our partners may experience financial difficulties at any time that could prevent them from having available funds to contribute to these collaborations. If our collaborators fail to conduct their commercialization, regulatory compliance, sales and marketing or distribution activities successfully and in a timely manner, or if they terminate or materially modify their agreements with us, the development and commercialization of one or more product candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.

Although we currently do not have any such partnership agreements, in the future we may receive milestone and/or royalty payments as a result of each of such agreements. If our partner with respect to any agreement terminates the applicable agreement or fails to perform its obligations thereunder, we may not receive any revenues from the technology that we have licensed pursuant to the agreement, including any milestone or royalty payments.

The mRNAs and formulation components for our product candidates are currently acquired from a single or a limited number of suppliers. The loss of these suppliers, or their failure to supply us with the mRNAs and the formulation components, could materially and adversely affect our business.

We currently produce the LNPs and the polymers we need for discovery research programs and preclinical studies of our therapeutic candidates internally. We rely on a few suppliers of our formulation components, and for mRNAs, only a single supplier. We currently do not have long-term contracts in place with these suppliers. There can be no assurance that sufficient quantities of product candidates could be manufactured if our suppliers are unable or unwilling to supply such materials. It is possible that we may be required to switch suppliers in the foreseeable future. In such case, the process of switching suppliers may be costly and/or time-consuming for us, and that may include the temporary or permanent suspension of a preclinical or clinical study or commercial sales of our candidate products.

The mRNAs and formulation components we use are highly specialized, and we do not currently have a contractual relationship with other suppliers for the mRNAs and formulation components. Although we believe that there are alternate sources of supplies that could satisfy our clinical and commercial requirements with respect to the mRNAs and formulation components, we cannot guarantee that identifying alternate sources and establishing relationships with such sources would not result in significant delay in the development of our product candidates. Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in the development of our product candidates or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a material adverse impact on our business.

We anticipate that we will rely completely on third parties to manufacture certain preclinical and all clinical drug supplies. Our business could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in the conduct of our clinical studies, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. Our internal manufacturing capabilities are limited to small-scale production of non-cGMP material in quantities necessary to conduct preclinical studies of our product candidates. Our product candidates utilize specialized formulations with polymer and LNP components whose scale-up and manufacturing could be

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challenging and require specific technical expertise that we may not be able to access on acceptable terms, if at all. We also have very limited experience in such scale-up and manufacturing, requiring us to depend on a limited number of third parties, who might not be able to deliver in a timely manner, or at all. In order to develop products, apply for regulatory approvals and commercialize our products, we will need to develop, contract for, or otherwise arrange for access to the necessary manufacturing capabilities. We anticipate that we will rely on contract manufacturing organizations, or CMOs, and other third party contractors, some of whom may have limited cGMP experience, to manufacture formulations and produce larger scale amounts of drug substance and the drug product required for any clinical trials that we initiate.

The manufacturing process for any products based on our technologies that we or our partners may develop is subject to the FDA and foreign regulatory authority approval process, and we or our partners will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements on an ongoing basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third parties, including our commercial collaborators, to produce materials required for commercial supply. We may experience difficulty in obtaining adequate manufacturing capacity for our needs. If we are unable to obtain or maintain contract manufacturing for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our products.

To the extent that we enter into manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner and consistent with regulatory requirements, including those related to quality control and quality assurance. The failure of a third-party manufacturer to perform its obligations as expected could adversely affect our business in a number of ways, including:

we may not be able to initiate or continue preclinical and clinical trials of products that are under development;
we may need to repeat pivotal clinical trials;
we may be delayed in submitting regulatory applications, or receiving regulatory approvals, for our product candidates;
we may lose the cooperation of our collaborators;
our products could be the subject of inspections by regulatory authorities;
we may be required to cease distribution or recall some or all batches of our products; and
ultimately, we may not be able to meet commercial demands for our products.

If a third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills required to manufacture our product may be unique to the original manufacturer and we may have difficulty transferring such skills to a back-up or alternate manufacturer, or we may be unable to transfer such skills at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. We will also be required to demonstrate that the newly manufactured material is similar to the previously manufactured material, or we may need to repeat clinical trials with the newly manufactured material. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product candidate that such manufacturer owns independently, which would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our products.

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We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial condition and results of operations could be substantially harmed.

We plan to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our licensed ongoing preclinical and clinical programs. We have relied and expect to continue to rely on these parties for execution of our preclinical studies and clinical trials, and we control only certain aspects of their activities. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with cGMP, good clinical practices, or GCP, and GLP, which are a collection of laws and regulations enforced by the FDA or comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.

If any of our relationships with these third-party CROs, medical institutions, clinical investigators or contract laboratories terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

If any of our product candidates are approved for marketing and commercialization and we are unable to develop sales, marketing and distribution capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to commercialize successfully any such future products.

We currently have no sales, marketing or distribution capabilities or experience. If any of our product candidates is approved, we will need to develop internal sales, marketing and distribution capabilities to commercialize such products, which would be expensive and time-consuming, or enter into collaborations with third parties to perform these services. If we decide to market our products directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and supporting distribution, administration and compliance capabilities. If we rely on third parties with such capabilities to market our products or decide to co-promote products with collaborators, we will need to establish and maintain marketing and distribution arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms or at all. In entering into

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third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are not successful in commercializing any product approved in the future, either on our own or through third parties, our business, financial condition, results of operations and prospects could be materially adversely affected.

Risks Related to our Intellectual Property

If we are unable to adequately protect our proprietary technology from legal challenges, infringement or alternative technologies, our competitive position may be hurt and our operating results may be negatively impacted.

Our business is based upon the development of mRNA-based therapeutics, and we rely on the issuance of patents, both in the United States and internationally, for protection against competitive technologies. As of March 31, 2016, we own or have in-licensed 11 issued U.S. patents, 20 issued foreign patents, and over 35 pending U.S. and foreign patent applications. Although we believe we exercise the necessary due diligence in the patent filings we make in connection with the patents we own or in-license, our proprietary position is not established until the appropriate regulatory authorities actually issue a patent, which may take several years from initial filing or may never occur.

Moreover, even the established patent positions of pharmaceutical companies are generally uncertain and involve complex legal and factual issues. Although we believe our issued patents are valid, third parties may infringe our patents or may initiate proceedings challenging the validity or enforceability of our patents. The issuance of a patent is not conclusive as to its claim scope, validity or enforceability. Challenges raised in patent infringement litigation we initiate or in proceedings initiated by third parties may result in determinations that our patents have not been infringed or that they are invalid, unenforceable or otherwise subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed in our patents without paying us licensing fees or royalties, which could significantly diminish the value of these discoveries or technologies. Responding to challenges initiated by third parties, including in response to a suit we initiate regarding infringement or other intellectual property violations, may require significant expenditures and divert the attention of our management and key personnel from other business concerns.

Furthermore, it is possible others will infringe or otherwise circumvent our issued patents and that we will be unable to fund the cost of litigation against them or that we would elect not to pursue litigation. In addition, enforcing our patents against third parties may require significant expenditures regardless of the outcome of such efforts. We also cannot assure you that others have not filed patent applications for technology covered by our pending applications or that we were the first to invent the technology. There may also exist third party patents or patent applications relevant to our potential products that may block or compete with the technologies covered by our patent applications and third parties may independently develop intellectual property similar to our patented intellectual property, which could result in, among other things, interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention.

In addition, we may not be able to protect our established and pending patent positions from competitive technologies, which may provide more effective therapeutic benefit to patients and which may therefore make our products, technology and proprietary position obsolete.

If we are unable to adequately protect our proprietary intellectual property from legal challenges, infringement or alternative technologies, we will not be able to compete effectively in the drug discovery and development business.

We license patent rights from third-party owners or licensees. If such owners or licensees do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected.

We do, and will continue to, rely on intellectual property rights licensed from third parties to protect our technology. We are a party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful for our business. See “Business-License Agreements.” We also intend to license additional third-party intellectual property in the future. Our success will depend in part on the ability of our

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licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications licensed to us. Even if patents issue or are granted, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue litigation less aggressively than we would. Further, we may not obtain exclusive rights, which would allow for third parties to develop competing products. Without protection for, or exclusive right to, the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.

In addition to filing patents, in an effort to maintain the confidentiality and ownership of our trade secrets, know-how, and other proprietary information, we have typically required parties to whom we disclose confidential information to execute confidentiality or non-disclosure agreements. These parties include our employees, consultants, advisors, and potential or actual collaborators. We also enter into agreements that purport to require the disclosure and assignment to us of the rights to the ideas, development, discoveries, and inventions of our employees, consultants, and advisors while we employ or engage them. However, it is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, there may not be an adequate corrective remedy available. In addition, others may independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or know-how. The disclosure to, or independent development by, a competitor of any trade secret, know-how, or other technology not protected by a patent could materially adversely affect any competitive advantage we may have over such a competitor. Furthermore, like many companies in our industry, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and non-disclosure agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we have typically required our employees and consultants to maintain the confidentiality of all confidential information of previous employers, we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If a dispute arises with respect to any proprietary right, enforcement of our rights can be costly and unpredictable and a court may determine that the right belongs to a third party. Our failure to protect our proprietary information and techniques may inhibit or limit our ability to exclude certain competitors from the market and to execute our business strategies.

Because intellectual property rights are of limited duration, expiration of intellectual property rights and licenses will negatively impact our operating results.

Intellectual property rights, such as patents and license agreements based on those patents, generally are of limited duration. Our operating results depend on our patents and intellectual property licenses. Therefore, the expiration or other loss of rights associated with intellectual property and intellectual property licenses can negatively impact our business. For example, due to the extensive time needed to develop, test, and obtain regulatory approval for our therapeutic candidates, any patents that may be issued that protect our therapeutic candidates may expire prior to or early during commercialization. This may reduce or eliminate any market advantages that such patents may give us. Following patent expiration, we may face increased competition through the entry of generic or biosimilar products into the market and a subsequent decline in market share and profits.

Our patent applications may be inadequate in terms of priority, scope or commercial value.

We apply for patents covering our discoveries and technologies as we deem appropriate and as our resources permit. However, we or our partners may fail to apply for patents on important discoveries or technologies in a timely fashion or at all. Also, our pending patent applications, and those that we may file in the future or those we may license from third parties, may not result in the issuance of any patents. These applications may not be sufficient to meet the statutory requirements for patentability, and therefore we may be unable to obtain enforceable patents covering the related discoveries or technologies we may want to

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commercialize. In addition, because patent applications are maintained in secrecy for approximately 18 months after filing, other parties may have filed patent applications relating to inventions before our applications covering the same or similar inventions. In addition, foreign patent applications are often published initially in local languages, and until an English language translation is available it can be impossible to determine the significance of a third party invention. Any patent applications filed by third parties may prevail over our patent applications or may result in patents that issue alongside patents issued to us, leading to uncertainty over the scope of the patents or the freedom to practice the claimed inventions.

Although we have acquired and in-licensed a number of issued patents, the discoveries or technologies covered by these patents may not have any therapeutic or commercial value. Also, issued patents may not provide commercially meaningful protection against competitors. Other parties may be able to design around our issued patents or independently develop products having effects similar or identical to our patented product candidates. In addition, the scope of our patents is subject to considerable uncertainty and competitors or other parties may obtain similar patents of uncertain scope.

Third-party claims of intellectual property infringement may require us to spend substantial time and money and could prevent us from developing or commercializing our therapeutic candidates.

The development, manufacture, use, offer for sale, sale or importation of our therapeutic candidates may infringe on the claims of third party patents or other intellectual property rights. Also, the nature of claims contained in unpublished patent filings around the world is unknown to us, and it is not possible to know in which countries patent holders may choose for the extension of their filings under the Patent Cooperation Treaty, or other mechanisms. The cost to us of any legal proceeding arising from a third party’s assertion of intellectual property rights, 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 because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation or defense of intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace and could result in an injunction prohibiting certain activities. Legal proceedings to resolve third party claims of intellectual property infringement may also absorb significant management time. Consequently, we are unable to guarantee that we will be able to manufacture, use, offer for sale, sell or import our therapeutic candidates in the event of an infringement action or other dispute regarding intellectual property rights.

In the event of patent infringement claims, or to avoid potential claims, we may choose or be required to seek a license from a third party and would most likely 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 potentially limit our competitive advantage. Ultimately, we could be prevented from commercializing a therapeutic candidate or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement or other claims, we are unable to enter into licenses on acceptable terms. This inability to enter into licenses could harm our business significantly or even prevent us from commercializing one or more therapeutic candidates.

We may be subject to other patent-related litigation or proceedings that could be costly to defend and uncertain in their outcome.

In addition to infringement claims against us, we may in the future become a party to other patent litigation or proceedings before regulatory agencies, including interference, derivation, or post-grant proceedings filed with the U.S. Patent and Trademark Office or opposition proceedings in other foreign patent offices regarding intellectual property rights with respect to our therapeutic candidates, as well as other disputes regarding intellectual property rights with our potential or actual corporate partners, or others with whom we have contractual or other business relationships. Post-issuance proceedings, including oppositions, are not uncommon and we will be required to defend these proceedings as a matter of course. These post-grant procedures may be costly, and there is a risk that we may not prevail.

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If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates and delivery technologies or we could lose certain rights to grant sublicenses.

Our current licenses with UW and CSIRO impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement, and other obligations on us. If we breach any of these obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on drug candidates throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our licensed patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our licensed and owned intellectual property both in the United States and abroad. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

Many countries, including European Union countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

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Risks Related to Our Business Operations

Even if we are successful in developing and commercializing a product candidate, it is possible that the commercial opportunity for mRNA-based therapeutics will be limited.

The product candidates based on our technologies that are being developed are based on new technologies and therapeutic approaches, none of which has been brought to market. Key participants in pharmaceutical marketplaces, such as physicians, third-party payors and consumers, may not accept a product intended to improve therapeutic results based on mRNA mechanisms of action. Accordingly, while we believe there will be a commercial market for mRNA-based therapeutics utilizing our technologies, there can be no assurance that this will be the case, in particular given the novelty of the field. Many factors may affect the market acceptance and commercial success of any potential products, including:

establishment and demonstration of the effectiveness and safety of the drugs;
timing of market entry as compared to competitive products and alternative treatments;
benefits of our drugs relative to their prices and the comparative price of competing products and treatments;
availability of adequate government and third-party payor reimbursement;
marketing and distribution support of our products;
safety, efficacy and ease of administration of our product candidates;
willingness of patients to accept, and the willingness of medical professionals to prescribe, relatively new therapies; and
any restrictions on labeled indications.

In addition, we focus our research and product development on treatments for orphan liver diseases. Given the small number of patients who have the diseases that we are targeting, it is critical to our ability to grow and become profitable that we continue to successfully identify patients with these diseases. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

If we fail to obtain or maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced. In addition, if a competitor obtains orphan drug designation and is first to market for a product we are developing, it could prevent or delay us from marketing our product.

We currently focus on the development of drugs that are eligible for the FDA and European Union orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the Committee for Orphan Medicinal Products, or COMP, of the European Medicines Agency, or EMA, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union community. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when,

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without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. If a competitor obtains orphan drug designation and is first to market for a product we are developing, it could prevent or delay us from marketing our product.

Because the extent and scope of patent protection for our products may in some cases be limited, orphan drug designation is especially important for our products for which orphan drug designation may be available. For eligible drugs, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug products and biologic products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.

Even though we may obtain orphan drug designation for our products in the United States, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even with orphan drug exclusivity, if a third party were to prepare or market a product which infringes upon our intellectual property, we may need to initiate litigation, which may be costly, to enforce our rights against such party. Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

If we are not able to retain our key management or attract and retain qualified scientific, technical and business personnel, our ability to implement our business plan may be adversely affected.

Our success largely depends on the skill, experience and effort of our senior management. The loss of the service of any of these persons, including Robert Overell, Ph.D., our president and chief executive officer, and Michael Houston, Ph.D., our chief scientific officer, would likely result in a significant loss in the knowledge and experience that we possess and could significantly delay or prevent successful product development and other business objectives. There is intense competition from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions, seeking to employ qualified individuals in the technical fields in which we operate, and we may not be able to attract and retain the qualified personnel necessary for the successful development and commercialization of our product candidates.

If our product candidates advance into clinical trials, we may experience difficulties in managing our growth and expanding our operations.

We have limited experience in product development and have not begun clinical trials for any of our product candidates. As our product candidates enter and advance through preclinical studies and any clinical trials, we will need to expand our development, regulatory and manufacturing capabilities or contract with other organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management

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controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.

We may be required to defend lawsuits or pay damages for product liability claims.

Our business exposes us to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. We may face substantial product liability exposure in human clinical trials that we may initiate and for products that we sell, or manufacture for others to sell, after regulatory approval. The risk exists even with respect to those drugs that are approved by regulatory agencies for commercial distribution and sale and are manufactured in facilities licensed and regulated by regulatory agencies. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing products, such claims could result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities or our marketing programs and potentially a recall of our products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. We currently do not have product liability insurance. We will need to obtain such insurance as we believe is appropriate for our stage of development and may need to obtain higher levels of such insurance if we were ever to market any of our product candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material adverse effect on our business.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Risks Related to our Industry

The biotechnology and pharmaceutical industries are intensely competitive. If we are unable to compete effectively with existing drugs, new treatment methods and new technologies, we may be unable to commercialize successfully any drugs that we develop.

The biotechnology and pharmaceutical industries are intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the development of novel drugs for the same diseases that we are targeting or expect to target. Many of our competitors have:

much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization of products;

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more extensive experience in preclinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing, marketing and selling pharmaceutical products;
product candidates that are based on previously tested or accepted technologies;
products that have been approved or are in late stages of development; and
collaborative arrangements in our target markets with leading companies and research institutions.

Products based on our technologies may face competition from drugs that have already been approved and accepted by the medical community for the treatment of the conditions for which we may develop drugs. We also expect to face competition from new drugs that enter the market. We believe a significant number of drugs and delivery technologies are currently under development, and may become commercially available in the future, for the treatment of conditions for which we and our partners may try to develop drugs. These drugs may be more effective, safer, less expensive, or marketed and sold more effectively, than any products we and our partners develop.

If we and our partners successfully develop product candidates based on our technologies, and obtain approval for them, we will face competition based on many different factors, including:

safety and effectiveness of such products;
ease with which such products can be administered and the extent to which patients accept relatively new routes of administration;
timing and scope of regulatory approvals for these products;
availability and cost of manufacturing, marketing and sales capabilities;
price;
reimbursement coverage; and
patent position.

Our competitors may develop or commercialize products with significant advantages over any products we develop based on any of the factors listed above or on other factors. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business. Competitive products may make any products we develop obsolete or noncompetitive before we can recover the expenses of developing and commercializing our product candidates. Such competitors could also recruit our future employees, which could negatively impact our level of expertise and the ability to execute on our business plan. Furthermore, we also face competition from existing and new treatment methods that reduce or eliminate the need for drugs, such as the use of advanced medical devices. The development of new medical devices or other treatment methods for the diseases we are targeting could make our product candidates noncompetitive, obsolete or uneconomical.

We may be unable to compete successfully against other companies that are working to develop novel drugs and technology platforms using technology similar to ours.

In addition to the competition we face from competing drugs in general, we also face competition from other biotechnology and pharmaceutical companies and medical institutions that are working to develop novel drugs using technology that competes more directly with our own. Among those companies that are or may be working in the field of RNA therapeutics to treat orphan liver disease and/or the urea cycle disorders are: Moderna LLC, Shire plc, Bio Blast Pharma Ltd., Alnylam Pharmaceuticals, Arcturus Therapeutics, Inc., Acuitas Therapeutics, Arbutus Biopharma Corporation, CureVac AG, Dicerna Pharmaceuticals, Inc., Horizon Pharma plc, Ocera Therapeutics, Inc., Cytonet GmbH & Co., Promethera Biosciences S.A., BioNTech AG, Synlogic, Inc. and Aeglea Biotherapeutics, Inc. Any of these, or other, companies may develop their technology more rapidly and more effectively than us.

In addition to competition with respect to our technology and with respect to specific products, we face substantial competition to discover and develop safe and effective means to deliver mRNAs to the hepatocytes. Substantial resources are being expended by third parties, both in academic laboratories and in

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the corporate sector, in an effort to discover and develop a safe and effective means of delivery into the hepatocytes. If safe and effective means of delivery to the hepatocytes are developed by our competitors, our ability to successfully commercialize a competitive product would be adversely affected.

Many of our competitors, either alone or together with their partners, have substantially greater research and development capabilities and financial, scientific, technical, manufacturing, sales, marketing, distribution, regulatory and other resources and experience than us. They may also have more established relationships with pharmaceutical companies. Even if we and/or our partners are successful in developing products based on our technologies, in order to compete successfully we may need to be first to obtain intellectual property protection for, or to commercialize, such products, or we may need to demonstrate that such products are superior to, or more cost effective than, products developed by our competitors (including therapies that are based on different technologies). If we are not first to protect or market our products, or if we are unable to differentiate our products from those offered by our competitors, any products for which we are able to obtain approval may not be successful.

Universities and public and private research institutions are also potential competitors. While these organizations primarily have educational objectives, they may develop proprietary technologies related to the drug delivery field or secure protection that we may need for development of our technologies and products. We may attempt to license one or more of these proprietary technologies, but these licenses may not be available to us on acceptable terms, if at all.

Any drugs based on our technologies that we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could have a material adverse effect on our business and financial results.

The success of the products based on our technologies will depend upon the extent to which third-party payors, such as Medicare, Medicaid and other domestic and international government programs, private insurance plans and managed care programs, provide reimbursement for the use of such products. Most third-party payors may deny reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication.

Third-party payors also may refuse to reimburse for experimental procedures and devices. Furthermore, because our programs are in the early stages of development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. Increasingly, the third-party payors, who reimburse patients, such as government and private insurance plans, are requiring that drug companies provide them with predetermined discounts from list prices, and are challenging the prices charged for medical products. If the price charged for any products based on our technologies that we or our partners develop is inadequate in light of our development and other costs, our profitability could be adversely affected.

We expect that drugs based on our technologies that we or a partner develop may need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if they:

are “incidental” to a physician’s services;
are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are administered according to accepted standards of medical practice;
are not excluded as immunizations; and
have been approved by the FDA.

There may be significant delays in obtaining insurance coverage for newly-approved drugs, and insurance coverage may be more limited than the purpose for which the drug is approved by the FDA. Moreover, eligibility for insurance coverage does not imply that any drug will be reimbursed in all cases or at a rate that covers costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover costs and may not be made permanent. Reimbursement may be based on payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by mandatory discounts or rebates

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required by government health care programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates. The inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for new drugs based on our technologies that we or our partners develop could have a material adverse effect on our operating results, our ability to raise capital, and our overall financial condition.

We believe that the efforts of governments and third-party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory changes in the healthcare system in the United States and other major healthcare markets have occurred in recent years, and interpretation and application of such changes continue to evolve. These developments have included prescription drug benefit legislation that was enacted and took effect in January 2006, healthcare reform legislation recently enacted by certain states, and implementation of the Patient Protection and Affordable Care Act, or the Affordable Care Act, enacted in 2010 which resulted in significant changes to the health care industry. These developments could, directly or indirectly, affect our ability to sell our products, if approved, at a favorable price.

The Affordable Care Act includes significant provisions that encourage state and federal law enforcement agencies to increase activities related to preventing, detecting and prosecuting those who commit fraud, waste and abuse in federal healthcare programs, including Medicare, Medicaid and Tricare. The Affordable Care Act continues to be implemented through regulation and government activity but is subject to possible, amendment, additional implementing regulations and interpretive guidelines. The manner in which the Affordable Care Act continues to evolve could materially affect the extent to which and the amount at which pharmaceuticals are reimbursed by government programs such as Medicare, Medicaid and Tricare. We cannot predict all impacts the Affordable Care Act may have on our products, but it may result in our products being chosen less frequently or the pricing being substantially lowered. Or, the new legislation could have a positive impact on our future net sales due to increasing the number of persons with healthcare coverage in the United States.

We cannot predict what additional healthcare reform initiatives may be adopted in the future or how federal and state legislative and regulatory developments are likely to evolve, but we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates based on our technologies that are successfully developed and for which regulatory approval is obtained, and may affect our overall financial condition and ability to develop product candidates.

Risks Related to this Offering and Ownership of our Common Stock

You will experience immediate and substantial dilution in the net tangible book value per share of our common stock you purchase in this offering.

The initial public offering price will substantially exceed the net tangible book value per share of our common stock immediately after this offering based on the total value of our tangible assets less our total liabilities. Therefore, based on an assumed initial public offering price of $     per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, if you purchase shares of our common stock in this offering, you will suffer, as of            , 2016, immediate dilution of $     per share, or $     if the underwriter exercises its option to purchase additional shares of common stock, in net tangible book value per share after giving effect to the sale of      shares of common stock in this offering at an assumed initial public offering price of $     per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us. As a result of this dilution, as of            , 2016, investors purchasing shares of common stock from us in this offering will have contributed     % of the total amount of our total gross funding to date but will own only     % of our equity. In addition, if outstanding options to purchase shares of our common stock are exercised in the future, you will experience additional dilution. See “Dilution.”

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Our share price may be volatile, and you may lose all or part of your investment.

The initial public offering price for our common stock sold in this offering will be determined by negotiation between us and the underwriter. This price may not reflect the market price of shares of our common stock following this offering and the price of shares of our common stock may decline. In addition, the market price of shares of our common stock could be highly volatile and may fluctuate substantially as a result of many factors, including:

actual or anticipated fluctuations in our results of operations;
announcement or expectation of additional financing efforts;
the timing and results of preclinical studies for our urea cycle disorder programs and any product candidates that we may develop;
commencement or termination of collaborations for our product development and research programs;
failure or discontinuation of any of our product development and research programs;
variance in our financial performance from the expectations of market analysts;
announcements by us or our competitors of results of preclinical studies, clinical trials, or regulatory approvals of product candidates, significant business developments, changes in distributor relationships, acquisitions or expansion plans;
adverse regulatory decisions;
changes in the prices of our raw materials or the products we sell;
data concerning the safety and efficacy profile of our products;
sales of our common stock by us, our insiders, or other stockholders;
expiration of market stand-off or lock-up agreements;
our involvement in litigation;
our sale of common stock or other securities in the future;
market conditions in our industry;
changes in key personnel;
the trading volume of our common stock;
changes in the structure of healthcare payment systems;
changes in the estimation of the future size and growth rate of our markets;
the recruitment or departure of key personnel;
developments or disputes concerning patent applications, issued patents, or other proprietary rights;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry, and market conditions; and
the other factors described in the “Risk Factors” section of this prospectus.

In recent years, the stock markets in general have experienced extreme price and volume fluctuations, especially in the biotechnology sector. Broad market and industry factors may materially harm the market price of shares of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.

The market price of our common stock could be negatively affected by future sales of our common stock in the public market by our existing stockholders and lenders.

After this offering, there will be      shares of common stock outstanding. Sales by us or our stockholders of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales might occur, could cause the market price of our common stock to

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decline or could impair our ability to raise capital through a future sale of our equity securities. All of the shares of our common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended.

Upon the closing of this offering,

approximately      shares of our outstanding shares of common stock will be beneficially owned by certain existing stockholders who are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the stockholder’s shares of common stock for a period of 12 months after the closing of the initial public offering without the prior written consent of Titan Multi-Strategy Fund I, LTD., one of the lenders from the bridge loan financing we received in December 2015; provided that, after 180 days following this offering, the foregoing restrictions will automatically terminate if for 20 consecutive trading days on each such trading day (x) the closing price of our common stock is at least 150% of the initial public offering price for our common stock and (y) the trading volume of our common stock is not less than 100,000 shares; provided further that, Titan Multi-Strategy Fund I, LTD. may unilaterally waive any term of the lock-up agreement (“Category 1”);
approximately      shares of our outstanding shares of common stock will be beneficially owned by certain existing stockholders and option holders who are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the stockholder’s shares of common stock for a period of 12 months after the closing of the initial public offering without our prior written consent, which restriction will terminate in accordance with the same terms as Category 1; provided further that, we may unilaterally waive any term of the lock-up agreement (“Category 2”);
approximately      shares of our outstanding shares of common stock will be beneficially owned by certain investors, who will purchase shares of our common stock from certain insiders at a nominal purchase price and are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the investor’s shares of common stock for a period of 180 days following this offering without our prior written consent; provided that, we may unilaterally waive any term of the lock-up agreement; and
approximately       shares of our outstanding shares of common stock held by us and our directors and executive officers, of which approximately      shares are included in Category 1 and Category 2, will be restricted from resale for a period of 180 days following this offering pursuant to a lock-up agreement without the prior written consent of Laidlaw & Company (UK) Ltd.; provided that, Laidlaw & Company (UK) Ltd. may unilaterally waive any term of the lock-up agreement.

As noted above, each of we, Laidlaw & Company (UK) Ltd. or Titan Multi-Strategy Fund I, LTD., as applicable, may, in our or their sole discretion, and at any time without notice, release all or any portion of the shares subject to the corresponding lock-up agreements. After the expiration of the lock-up period, these shares can be resold into the public markets in accordance with the requirements of Rule 144, subject to certain volume limitations. Moreover, we are concurrently registering shares of our common stock into which the bridge loans we received in December 2015 would convert at the time of the initial public offering. In addition, we intend to file one or more registration statements on Form S-8 with the Securities and Exchange Commission covering all of the shares of common stock issuable under our 2016 Plan or any other incentive plan that we may adopt, and such shares will be freely transferable, except for any shares held by “affiliates,” as such term is defined in Rule 144 under the Securities Act of 1933, as amended. The market price of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse and these stockholders are able to sell our common stock into the market.

Upon the filing of the registration statements and following the expiration of the lock-up restrictions described above, the number of shares of our common stock that are potentially available for sale in the open market will increase materially, which could make it harder for the value of our common stock to appreciate unless there is a corresponding increase in demand for our common stock. This increase in available shares could cause the value of your investment in our common stock to decrease.

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In addition, a sale by us of additional shares of common stock or similar securities in order to raise capital might have a similar negative impact on the share price of our common stock. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities, and may cause you to lose part or all of your investment in our common stock.

No public market for our common stock currently exists, and an active public trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market for our common stock. Although we expect to apply to list our common stock on The NASDAQ Capital Market, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

The concentration of the capital stock ownership with our insiders after the initial public offering will likely limit the ability of the stockholders to influence corporate matters.

Following the offering described in this prospectus, the executive officers, directors, 5% or greater stockholders, and their respective affiliated entities will in the aggregate beneficially own approximately % of our outstanding common stock (assuming no exercise of the underwriter’s over-allotment option and no exercise of outstanding options). As a result, these stockholders, acting together, have control over matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a corporate transaction that other stockholders may view as beneficial.

We have broad discretion in the use of a portion of the net proceeds from our initial public offering and may not use them effectively.

We currently intend to use the net proceeds from this offering to progress our research and development programs and for general corporate purposes, including working capital and capital expenditures. For more information, see “Use of Proceeds.” However, our management will have broad discretion in the application of the net proceeds. Our stockholders may not agree with the manner in which we choose to allocate the net proceeds from this offering. Our failure to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

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We do not intend to pay dividends for the foreseeable future, which could reduce the attractiveness of our stock to some investors.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases. In addition, we may incur debt financing to further finance our operations, the governing documents of which may contain restrictions on our ability to pay dividends.

Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our company and, therefore, may depress the trading price of our stock.

Our certificate of incorporation and bylaws contain, or will contain upon completion of this offering, certain provisions that may discourage, delay or prevent a change of control that our stockholders may consider favorable. These provisions:

authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares to discourage a takeover attempt;
prohibit stockholder action to elect or remove directors by majority written consent;
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
prohibit our stockholders from calling a special meeting of stockholders; and
establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Our certificate of incorporation will also provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employee s.

Our certificate of incorporation upon the completion of this offering will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

In the event this offering does not constitute a qualified offering under our outstanding loan and security agreement, the term loans under our loan and security agreement, our existing convertible notes, our outstanding shares of preferred stock and certain of our warrants will remain outstanding.

If this offering does not constitute a qualified offering under our outstanding loan and security agreement pursuant to which certain investors made term loans to us in the aggregate principal amount of $4.0 million, the outstanding principal amount of the term loans and accrued and unpaid interest thereon will not automatically convert and will remain outstanding and subject to the terms of the loan and security agreement. As of March 31, 2016, the aggregate outstanding principal amount of the term loans, plus all accrued and unpaid interest thereon, was approximately $4.1 million. The term loans are secured by substantially all of our assets. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Among other things, a qualified offering under the loan and security agreement requires a firm commitment underwritten initial public offering of our common stock not later than June 5, 2016 at a pre-offering valuation of at least $24 million (exclusive of the term loans and their subsequent conversion) and which results in gross proceeds to us of at least $16.9 million. We expect this offering to constitute a qualified

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offering under the terms of the loan and security agreement, but if it is not a qualified offering under the terms of the loan and security agreement the term loans will remain outstanding and subject to the terms of the loan and security agreement. The maturity date of the term loans is December 21, 2016.

As of March 31, 2016, in addition to the aggregate outstanding principal amount of the term loans, plus all accrued and unpaid interest thereon, of approximately $4.1 million, we have an aggregate amount of convertible notes, plus accrued and unpaid interest thereon, of approximately $19.4 million. The convertible notes are payable upon demand of the holders of a majority of the applicable series of convertible notes, except that such demand may not be made with respect to the convertible notes issued in October 2015 until March 1, 2016. The convertible notes are also payable upon the occurrence of certain liquidation or financing events set forth in such convertible notes. The repayment of the convertible notes is subject to acceleration upon the occurrence of certain customary events of default contained in the convertible notes. We also issued to purchasers of our convertible notes seven-year warrants to purchase shares of the same class and series of capital stock into which the convertible notes convert. Immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, the convertible notes and unpaid accrued interest thereon will be converted into, and certain of the warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus. If this offering does not constitute a qualified offering, our convertible notes and warrants will remain outstanding subject to their terms.

Our ability to make payments on and to refinance our outstanding indebtedness will depend on our ability to generate cash from operations, financings, or asset sales. We have no revenue from product sales, and our ability to achieve profitability depends on our ability to develop product candidates, conduct preclinical development and clinical trials, obtain necessary regulatory approvals and manufacture, distribute, market and sell our therapeutics. We cannot assure you of the success of any of these activities or predict if or when we will ever become profitable. If we are not able to repay or refinance our debt as it becomes due, the lenders who hold our debt could accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt, and we could be forced into bankruptcy or liquidation. In addition, the term loans are secured by substantially all of our assets, and the lenders may exercise their rights with respect to such security interest in the event that we default. For a further discussion of our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

In addition, immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, all of our outstanding preferred stock will be converted into common stock as described elsewhere in this prospectus. If this offering does not constitute a qualified offering, our preferred stock will remain outstanding. The holders of our preferred stock will be entitled to receive dividends as and if declared by our board of directors in preference and priority to any dividend or distribution on our common stock; priority and preference over holders of our common stock in the event of our liquidation, dissolution or winding up; and redemption and other rights as set forth in our third amended and restated certificate of incorporation, as amended presently in effect.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company whose common stock is listed on The NASDAQ Capital Market, we will incur accounting, legal and other expenses that we did not incur as a private company, including costs associated with our reporting requirements under the Securities Exchange Act of 1934, as amended. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the Securities and Exchange Commission and The NASDAQ Capital Market. We expect that these rules and regulations will increase our legal and financial compliance costs, introduce new costs such as investor relations and stock exchange listing fees, and will make some activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to

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comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the Securities and Exchange Commission thereunder). When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

Pursuant to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, starting with the second annual report that we file with the Securities and Exchange Commission after the closing of this offering, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above and depending on our status as per Rule 12b-2 of the Securities Exchange Act of 1934, as amended, our independent registered public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We have not yet commenced the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or significant deficiencies in our existing internal controls. This process will require the investment of substantial time and resources, including by our senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, we cannot predict the outcome of this determination and whether we will need to implement remedial actions in order to implement effective controls over financial reporting. The determination and any remedial actions required could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. As a result, we may experience higher than anticipated operating expenses, as well as higher independent auditor fees during and after the implementation of these changes. If we are unable to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results of operations and could result in an adverse opinion on internal controls from our independent auditors.

Changes in the laws and regulations affecting public companies will result in increased costs to us as we respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount or timing of additional costs we may incur in order to comply with such requirements.

We may be subject to securities litigation, which is expensive and could divert management attention.

In the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

We are an “emerging growth company” and may elect to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company”, we may take advantage of exemptions from various reporting requirements that are applicable to other public reporting companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports. We could be an “emerging growth company” up until the December 31 st following the fifth anniversary after our first equity offering, although circumstances could cause us to lose that status earlier if our annual revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in any three-year period or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 th , in which

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case we would no longer be an “emerging growth company” as of the following December 31 st . We cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.

Even after we no longer qualify as an “emerging growth company”, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.

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EXPLANATORY NOTE REGARDING REVERSE STOCK SPLIT

Our board of directors, subject to the approval of the holders of outstanding shares of our capital stock entitled to vote thereon, has approved a reverse stock split of our issued and outstanding shares of common stock. We expect to effect the reverse stock split of our shares of common stock at a ratio of 1-for-     prior to or upon the effective date of the registration statement of which this prospectus forms a part. No fractional shares of common stock will be issued in connection with the reverse stock split, and all such fractional interests will be rounded up to the nearest whole number. Issued and outstanding stock options and warrants will be split on the same basis and exercise prices will be adjusted accordingly. Unless noted otherwise, all information presented in this prospectus assumes that the 1-for-     reverse stock split of our outstanding shares of common stock, stock options and warrants has not occurred.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $     million, or $     million if the underwriter exercises its over-allotment option in full, from the sale of the common stock offered by us, based upon the assumed initial public offering price of $     per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $     per share would increase (decrease) the net proceeds to us from this offering by $     million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Although it is difficult to predict our liquidity requirements, based upon our current operating plan, and assuming successful completion of this offering and our success in securing a combination of debt financing and/or strategic partnerships, we believe we will have sufficient cash to meet the following milestones, with respect to our current urea cycle disorder therapeutic programs:

achieve preclinical proof of concept for the treatment of a second urea cycle disorder;
select a urea cycle disorder product candidate for further development;
scale up the manufacturing of the lead urea cycle disorder product candidate;
complete GMP-manufacturing and GLP-compliant toxicology studies; and
file an IND application with the FDA for this product candidate.

In furtherance of the foregoing, we intend to use the net proceeds of this offering (excluding any proceeds from debt financing and/or strategic partnerships) as follows:

approximately $     to achieve preclinical proof of concept for the treatment of a second urea cycle disorder;
approximately $     to select a urea cycle disorder product candidate for further development;
approximately $     to scale up the manufacturing of the lead urea cycle disorder product candidate;
approximately $     to conduct preclinical activities including toxicology studies; and
the balance of net proceeds for general corporate purposes, including working capital requirements.

Therefore, even with the expected net proceeds from this offering, we do not expect to have sufficient cash to complete the clinical development of any of our product candidates or, if applicable, to prepare for commercializing any product candidate that is approved.

The expected use of net proceeds of this offering represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. We will have broad discretion in the application of the net proceeds in the category of “for general corporate purposes and to fund ongoing operations and expansion of our business,” and investors will be relying on our judgment regarding the application of the proceeds of this offering. For example, if we identify opportunities that we believe are in the best interests of our stockholders, we may use a portion of the net proceeds from this offering to acquire, invest in or license complementary products, technologies or businesses although we have no current commitments, understandings or agreements to do so. Depending on the outcome of our business activities and other unforeseen events, our plans and priorities may change and we may apply the net proceeds of this offering in different proportions than we currently anticipate.

Pending use of the proceeds from this offering as described above, we intend to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade securities or certificates of deposit.

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DIVIDEND POLICY

We have never paid dividends on our common stock, and currently do not intend to pay any cash dividends on our common stock in the foreseeable future. In addition, we may incur debt financing in the future, the terms of which will likely prohibit us from paying cash dividends or distributions on our common stock. Even if we are permitted to pay cash dividends in the future, we currently anticipate that we will retain all future earnings, if any, to fund the operation and expansion of our business and for general corporate purposes.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2015 on:

an actual basis;
a pro forma basis, to give effect to:
º the conversion of $12.6 million of convertible notes and related accrued interest into Series A preferred stock and then into our common stock in accordance with the terms of such notes and, with respect to Series A preferred stock, our third amended and restated certificate of incorporation, as amended;
º the conversion of $3.6 million of convertible notes and related accrued interest into our common stock in accordance with the terms of such notes;
º the conversion of $4.0 million principal amount of term loans together with all accrued and unpaid interest thereon into common stock at a conversion price equal to 80% of the initial public offering price in this offering in accordance with the terms of such notes;
º the conversion of 25,716,583 outstanding shares of preferred stock into common stock under the terms of our third amended and restated certificate of incorporation, as amended;
º the exercise of warrants to purchase 2,452,242 shares of preferred stock at an exercise price of $0.01 per share and the conversion of the preferred stock issuable upon exercise of such warrants into common stock under the terms of our third amended and restated certificate of incorporation, as amended; and
º following each of the foregoing, the 1-for-     reverse stock split of our outstanding shares of common stock.
a pro forma as adjusted basis, to give further effect to our sale of     shares of common stock in this offering, at an assumed initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

This table should be read in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes thereto appearing elsewhere in this prospectus.

     
  December 31, 2015
     Actual   Pro Forma   Pro Forma
As Adjusted
     (in thousands, except share and per share amounts)
Cash and cash equivalents   $ 3,290     $          $       
Accrued interest of convertible debt   $ 3,199     $     $  
Convertible notes, net of debt discount     19,841                    
Preferred stock warrant liabilities     3,163                    
Redeemable convertible preferred stock
                          
Series A, $0.0001 par value, 45,100,000 shares authorized at December 31, 2015; 20,216,583 shares issued and outstanding at December 31, 2015; no shares issued and outstanding pro forma and pro forma as adjusted as of December 31, 2015 (unaudited)     20,212                 

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  December 31, 2015
     Actual   Pro Forma   Pro Forma
As Adjusted
     (in thousands, except share and per share amounts)
Series A-1, $0.0001 par value, 10,500,000 shares authorized at December 31, 2015; 5,500,000 shares issued and outstanding at December 31, 2015; no shares issued and outstanding pro forma and pro forma as adjusted as of December 31, 2015 (unaudited)     5,500                    
Stockholders’ equity (deficit)
                          
Common stock; $0.0001 par value; 65,600,000 shares authorized at December 31, 2015; 5,678,408 shares issued and outstanding at December 31, 2015;      and      issued and outstanding pro forma and pro forma as adjusted; respectively, as of December 31, 2015 (unaudited)     2                    
Additional paid-in capital     452                    
Accumulated deficit     (49,343 )                    
Total stockholders’ equity (deficit)     (48,889 )                    
Total capitalization   $ 3,026     $          $       

The table set forth above is based on 5,678,408 shares of our common stock outstanding as of December 31, 2015.

Each $1.00 increase (decrease) in the assumed initial public offering price of $     per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $     million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of one million in the number of shares we are offering would increase (decrease) each of pro forma as adjusted additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $     million, assuming the assumed initial public offering price per share, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information in the table above excludes the following:

7,334,551 shares of our common stock issuable upon the exercise of stock options as of March 31, 2016, with a weighted average exercise price of $0.12 per share;
     shares of common stock reserved for issuance pursuant to future awards under the 2016 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately following the consummation of this offering;
an estimated 1,162,519 shares of our common stock issuable upon the exercise of outstanding preferred stock warrants and conversion of the preferred stock issuable upon exercise of such warrants as of            , 2016, at an estimated weighted average exercise price of $1.00 per share;
any shares of our common stock issuable upon exercise of the underwriter’s over-allotment option; and
the issuance of      shares of our common stock to Palladium Capital Advisors, LLC.

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering. The historical net tangible book value (deficit) of our common stock as of December 31, 2015 was $(48.9) million, or $(8.61) per share. Historical net tangible book value (deficit) per share represents our total tangible assets less our total liabilities and convertible preferred stock, divided by the number of shares of outstanding common stock at December 31, 2015.

Pro forma net tangible book value per share represents the amount of our tangible assets less our total liabilities, divided by the number of shares of common stock outstanding, after giving effect to (a) our 1-for-      reverse stock split, (b) the conversion of all our outstanding shares of preferred stock into      shares of common stock (following completion of the reverse stock split), (c) the conversion of $4.0 million in the aggregate principal amount of term loans, plus accrued interest, into      shares of common stock (following completion of the reverse stock split), (d) the conversion of $3.6 million convertible notes and related unpaid interest into      shares of common stock (following completion of the reverse stock split), (e) the conversion of $12.6 million of convertible notes and related accrued interest into      shares of preferred stock and their immediate conversion into      shares of common stock (following completion of the reverse stock split) and (f) the exercise of warrants to purchase      shares of preferred stock and their immediate conversion into      shares of common stock (following completion of the reverse stock split).

After giving effect to the receipt of the net proceeds from our sale of      shares of common stock in this offering at an assumed initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, pro forma as adjusted net tangible book value as of December 31, 2015 would have been $     million, or $     per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $per share to existing stockholders and an immediate dilution of $     per share to new investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors (unaudited):

 
Assumed public offering price per share   $       
Pro forma net tangible book value per share as of December 31, 2015   $  
Increase in pro forma net tangible book value per share after this offering   $  
Pro forma net tangible book value per share after this offering   $  
Dilution in pro forma net tangible book value per share to new investors   $  

A $1.00 increase (decrease) in the assumed initial public offering price of $     per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $     per share and the dilution to new investors by $     per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million in the number of shares of common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $     per share and the dilution to new investors by $     per share, assuming the assumed initial public offering price per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter exercises its over-allotment option in full, the pro forma net tangible book value per share of our common stock, as adjusted to give effect to this offering, would be $     per share, and the dilution in pro forma net tangible book value per share to      investors in this offering would be $     per share of common stock.

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The table below summarizes as of December 31, 2015, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by existing stockholders and (ii) to be paid by new investors purchasing our common stock in this offering at an assumed initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

         
  Shares Purchased   Total Consideration   Average
Price Per
Share
  Number   %   Amount   %
Existing stockholders                             $                         $         
New investors                                             
Total                     $              $  

A $1.00 increase or decrease in the assumed initial public offering price would increase or decrease total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $    , respectively, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of one million in the number of shares offered by us would increase or decrease total consideration paid by new investors and total consideration paid by all stockholders by     , respectively, assuming an initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of one million in the number of shares offered by us would increase or decrease the average price per share paid by all stockholders by $     and $     per share, respectively, assuming an initial public offering price of $    , the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriter exercises its option to purchase      additional shares of our common stock in this offering in full, the percentage of shares of common stock held by existing stockholders will be reduced to     % of the total number of shares of common stock to be outstanding after this offering, and the percentage of shares of common stock to be owned by parties who will receive shares of common stock outside of this offering concurrently with the closing of this offering will be reduced to     % of the total number of shares of common stock to be outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to     , or     % of the total number of shares of common stock to be outstanding after this offering.

To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our incentive plans as of December 31, 2015 were exercised, then our existing stockholders, including the holders of these options, would own     % of the total number of shares of common stock to be outstanding after this offering and investors participating in this offering would own     % of the total number of shares of our common stock outstanding upon the completion of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $     million, or     % of     , the total consideration paid by investors participating in this offering would be $     million, or     % of     , the average price per share paid by our existing stockholders would be $     and the average price per share paid by investors participating in this offering would be $     .

If the underwriter exercises its option to purchase      additional shares of our common stock in this offering in full, and if all outstanding options under our incentive plans as of December 31, 2015 were exercised, then our existing stockholders, including the holders of these options, would own     % of the total number of shares of common stock to be outstanding after this offering and investors participating in this offering would own     % of the total number of shares of our common stock outstanding upon the completion of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $     million, or     % of     , the total consideration

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paid by investors participating in this offering would be $     million, or     % of     , the average price per share paid by our existing stockholders would be $     and the average price per share paid by investors participating in this offering would be $     .

The outstanding share information in the tables above excludes the following:

7,334,551 shares of our common stock issuable upon the exercise of stock options outstanding as of March 31, 2016, with a weighted average exercise price of $0.12 per share;
shares of common stock reserved for issuance pursuant to future awards under the 2016 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately following the consummation of this offering;
an estimated 1,162,519 shares of our common stock issuable upon the exercise of outstanding preferred stock warrants and conversion of the preferred stock issuable upon exercise of such warrants as of March 31, 2016, at an estimated weighted average exercise price of $1.00 per share;
any shares of our common stock issuable upon exercise of the underwriter’s over-allotment option; and
the issuance of      shares of our common stock to Palladium Capital Advisors, LLC.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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SELECTED HISTORICAL FINANCIAL DATA

The following tables set forth certain selected historical financial and operating data for our business as of and for the years ended December 31, 2014 and 2015, which has been derived from and should be read together with, our audited financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any future periods. Our selected financial data should be read together with the sections in this prospectus entitled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and their related notes, which are included elsewhere in this prospectus.

   
  Years Ended December 31,
     2014   2015
     (in thousands, except per share data)
Statement of Operations Data:
                 
Revenue   $ 1,200     $ 375  
Total operating expenses     (6,791 )       (6,182 )  
Loss from operations     (5,591 )       (5,807 )  
Total other income (expense)     (1,258 )       (1,570 )  
Net Loss   $ (6,849 )     $ (7,377 )  
Basic and diluted net loss per share   $ (1.47 )     $ (1.33 )  
Shares used in computation of basic and diluted net loss per share     4,656       5,526  
Pro forma basic and diluted net loss per share               
Share used in computation of pro forma basic and diluted net loss per share (1)               

   
  December 31,
     2014   2015
     (in thousands)
Balance Sheet Data:
                 
Cash and cash equivalents   $ 2,031     $ 3,290  
Total assets     2,659       3,914  
Accrued interest     2,055       3,199  
Convertible notes, net of debt discount     12,540       19,841  
Preferred stock warrant liability     2,695       3,163  
Redeemable convertible stock     25,705       25,712  
Accumulated deficit     (41,966 )       (49,343 )  
Total stockholders’ deficit     (41,536 )       (48,889 )  

(1) See Note 9 of notes to financial statements for an explanation of the determination of the number of shares used in computing pro forma net loss per share.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results may differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled “Risk Factors.” See “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are a preclinical biopharmaceutical company developing a portfolio of products for the treatment of inherited enzyme deficiencies in the liver using intracellular enzyme replacement therapy, or i-ERT, and expect to generate clinical safety and efficacy data in 2018. We are not aware of any other enzyme replacement therapies for intracellular enzyme deficiencies currently being marketed for inherited enzyme deficiencies in the liver, and believe that the commercial potential for i-ERT is completely untapped and similar to the large and growing $4 billion worldwide market for conventional ERT, which includes drugs such as Cerezyme. Our i-ERT approach is enabled by our proprietary Hybrid mRNA Technology platform, which allows synthesis of the missing enzyme inside the cell. Our initial product portfolio targets the three urea cycle disorders OTCD, ASL deficiency and ASS1 deficiency. We have preclinical proof of concept in a mouse model of a urea cycle disorder showing significant reductions in the level of blood ammonia, which is the approvable endpoint by the FDA for the demonstration of efficacy in human clinical trials of the urea cycle disorders. To our knowledge, there are no ERT products on the market to treat these diseases, because the urea cycle reaction occurs inside the cell and is inaccessible to the administered enzyme. In contrast, we expect delivery of the missing enzyme using i-ERT with our Hybrid mRNA Technology to be a promising approach to treat these patients. Beyond the urea cycle disorders, we believe there are a significant number of inherited disorders of metabolism in the liver that are candidates for our therapeutic approach and that proof of concept for the treatment of one inherited liver disorder with our Hybrid mRNA Technology can be adapted to develop mRNA therapeutics for the treatment of other inherited liver disorders using our platform.

Our i-ERT approach is accomplished by delivering normal copies of the mRNA that make the missing enzyme inside the liver cell, thereby reinstating the normal physiology and correcting the disease. A key challenge with mRNA therapeutics historically has been their satisfactory delivery into the patients’ cells. We believe that our Hybrid mRNA Technology addresses these difficulties and also directs synthesis of the desired protein to the hepatocyte, which is the chief functional cell type in the liver harboring the metabolic cycles that need to be corrected in metabolic liver diseases. We believe our technology is superior to alternative technologies because, based upon peer-reviewed journal articles and presentations of our competitors and our internal preclinical studies, it results in high-level synthesis of the desired protein in the hepatocyte, has better tolerability and can be repeat-dosed without loss of effectiveness, thus enabling treatment of chronic conditions.

We are focused on inherited, single-gene disorders of metabolism in the liver that result in deficiency of an intracellular enzyme and thus have been unable to be treated with conventional ERT. Some inherited orphan liver diseases, such as the lysosomal storage disorders, can be successfully treated with conventional ERT. However, this approach does not work for many of the inherited orphan liver diseases, including the urea cycle disorders, because the missing enzyme is inside the cell, and the administered enzyme is unable to get inside the target cell where it is needed to be therapeutically active. Our approach is to deliver mRNA encoding the missing enzyme into the cell using our Hybrid mRNA Technology, such that the mRNA makes the missing enzyme inside the cell, restores the intracellular enzyme function and corrects the disease.

As noted above, our initial focus is on urea cycle disorders, which are a group of rare genetic diseases generally characterized by the body’s inability to remove ammonia from the blood. The urea cycle consists of several enzymes, including OTC, ASL and ASS1. Since the urea cycle reactions occur inside the cell, conventional ERT does not work as a treatment for these disorders. Urea cycle disorders are caused by a genetic mutation that results in a deficiency of one of the enzymes of the urea cycle that is responsible for removing ammonia from the bloodstream, causing elevated levels of ammonia in the blood. The elevated

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ammonia then reaches the brain through the circulation, where it causes cumulative and irreversible neurological damage, and can result in coma and death. While currently marketed ammonia scavengers such as Ravicti (glycerol phenylbutyrate) and Buphenyl (sodium phenylbutyrate) provide palliative care of the symptoms, liver transplant is the only currently available cure for urea cycle disorders. Our goal is to treat the urea cycle disorders by intravenous delivery of mRNA that makes the relevant missing urea cycle enzyme inside the cell, thus reinstating normal control of blood ammonia. We believe that anticipated improvements in newborn screening and the availability of corrective therapy will lead to improved diagnosis and survival rates among patients with urea cycle disorders.

We have three therapeutic urea cycle disorder programs under development: PRX-OTC to treat OTCD, PRX-ASL to treat ASL deficiency and PRX-ASS1 to treat ASS1 deficiency. Preclinical efficacy has been established for PRX-OTC with two biological measures, including normalization of the level of ammonia in the blood. Lowering the level of ammonia in the blood is an approvable endpoint by the FDA for the treatment of urea cycle disorders, since it was the basis for the approval of Ravicti by the FDA in 2013. We expect to achieve preclinical proof of concept for the treatment of a second urea cycle disorder and select a urea cycle disorder product candidate for further development and eventual commercialization in the first half of 2016. We also plan to scale up the manufacturing of this product candidate and conduct further preclinical studies in the second half of 2016. In addition, we plan to test the safety and efficacy of the Hybrid mRNA Technology in large animals by the end of 2016. We intend to initiate IND-enabling studies in the first half of 2017 and plan to start manufacturing clinical supplies of the lead urea cycle disorder product candidate consistent with cGMP in the third quarter of 2017. We expect to file an IND application with the FDA in the fourth quarter of 2017 for this candidate and to conduct Phase 2a/2b single- and repeat-dose clinical proof of concept studies in urea cycle disorder patients that are expected to generate Phase 2a safety and efficacy data in the first half of 2018 and Phase 2b safety and efficacy data in the second half of 2018, including measurement of reduction in blood ammonia.

Financial Overview

Our operations have been funded, to date, primarily through a series of private placements of convertible preferred stock and issuance of convertible notes and warrants. From our inception through December 31, 2015, we have raised an aggregate of approximately $47.4 million to fund our operations, of which approximately $25.7 million was from the issuance of preferred stock and approximately $20.2 million was from issuance of convertible notes and warrants. In addition we received a $1.5 million upfront fee from Synageva BioPharma Corp., or Synageva, in 2014 pursuant to a collaboration and development agreement with Synageva.

Operating Losses

Since our inception, we have incurred significant operating losses. Our net losses were $6.8 million and $7.4 million for the years ended December 31, 2014 and 2015, respectively. As of December 31, 2015, we had an accumulated deficit of $49.3 million. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and from year to year. We anticipate that our expenses will increase significantly as we plan to conduct our preclinical studies, scale up the manufacturing process, advance our research programs into clinical trials, continue to discover, validate and develop additional product candidates, expand and protect our intellectual property portfolio, and hire additional development and scientific personnel. In addition, upon the consummation of this offering, we expect to incur additional costs associated with operating as a public company.

Revenues

We currently do not have any products approved for sale in any jurisdiction and have not generated any revenue from product sales. In years ended December 31, 2014 and 2015, we have recognized revenues from Synageva.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include the following:

employee-related expenses, including salaries, benefits, travel and stock-based compensation;

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external research and development expenses incurred under arrangements with third parties, such as consulting fees, research testing and preclinical studies of our product candidates;
laboratory supplies, and acquiring, developing and manufacturing preclinical study materials;
license fees; and
costs of facilities, depreciation and other expenses.

Research and development costs are expensed as incurred. In certain circumstances, we will make nonrefundable advance payments to purchase goods and services for future use pursuant to contractual arrangements. In those instances, we defer and recognize an expense in the period that we receive or consume the goods or services.

At any point in time, we typically have various early stage research and drug discovery projects ongoing. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early stage research and drug discovery programs on a project-specific basis.

The nature and efforts required to complete a prospective research and development project are typically indeterminable at very early stages when research is primarily conceptual and may have multiple applications. Once a focus towards developing a specific product candidate has been developed, we obtain more visibility into the efforts that may be required to reach conclusion of the development phase. However, there are inherent risks and uncertainties in developing novel biologics in a rapidly-changing industry environment. To obtain approval of a product candidate from the FDA, we must, among other requirements, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and preclinical and clinical trials. The collection of this data, as well as the preparation of applications for review by the FDA, is costly in time and effort, and may require significant capital investment.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance and support functions and not otherwise included in research and development expenses. Other general and administrative expenses include allocated facility related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly-traded company. These increases will likely include legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations.

Interest Expense

Interest expense consists primarily of cash and non-cash interest related to our convertible notes.

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. Interest accrues on the term loans at the rate of 5% per annum. The maturity date of the term loans is December 21, 2016, unless earlier converted into equity or otherwise repaid. The repayment of the term loans is subject to acceleration upon the occurrence of certain customary events of default contained in the loan and security agreement. The entire outstanding principal amount of the term loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We expect this offering to constitute a qualified offering under the terms of the loan and security agreement.

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As of December 31, 2015, we have an aggregate amount of convertible notes, plus accrued and unpaid interest thereon, of approximately $19.4 million. The convertible notes carry interest at a rate of 8% per annum. The convertible notes are payable upon demand of the holders of a majority of the applicable series of convertible notes, except that such demand may not be made with respect to the convertible notes issued in October 2015 until March 1, 2016. The convertible notes are also payable upon the occurrence of certain liquidation or financing events set forth in such convertible notes. The repayment of the convertible notes is subject to acceleration upon the occurrence of certain customary events of default contained in the convertible notes. We also issued seven-year warrants to purchase shares of the same class and series of capital stock into which the convertible notes convert. Immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, the convertible notes and unpaid accrued interest thereon will be converted into, and certain of the warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus. The fair value of the warrants were recorded as debt discount and warrant liabilities upon issuance of the convertible notes on the balance sheets. The debt discount is amortized to interest expense over the term of the notes.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our audited financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our audited financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Non-refundable, up-front payments received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs include salaries and personnel related costs, consulting fees, fees paid for contract research services, the costs of laboratory supplies, equipment and facilities, license fees and other external costs. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

Fair Value of Financial Instruments

We establish the fair value of our assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We established a fair value hierarchy based on the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

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Level 3 Unobservable inputs in which little or no market data exists, therefore determined using estimates and assumptions developed by us, which reflect those that a market participant would use.

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to their relative short maturities. The carrying value of our 8% convertible notes payable approximates fair value because the interest rate is reflective of the rate we could obtain on debt with similar terms and conditions. The carrying value of the 5% term loans was approximately $3.7 million as of December 31, 2015. See Note 5 to our audited financial statements — Convertible Notes Payable and Other Credit Facility in the audited financial statements included elsewhere in this prospectus for further discussion. We estimate the fair value of the preferred stock warrant liability using Level 3 inputs.

We may apply the fair value option to any eligible financial assets or liabilities, which permits an instrument by instrument irrevocable election to account for selected financial assets and liabilities at fair value. To date, we have not applied this election.

Derivative Financial Instruments

We evaluate our financial instruments such as convertible preferred stock and convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. At each reporting date, we review our convertible securities to determine their classification is appropriate.

Deferred Financing Costs

We defer costs related to the issuance of debt which are included on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan and are included as a component of interest expense on the accompanying statements of operations.

Warrant Liabilities

Warrants to purchase our redeemable convertible preferred stock are classified as liabilities and are recorded at their estimated fair value. We use the Black-Scholes option pricing model to evaluate the fair value of the warrants. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to volatility, expected option term and fair value of our common stock. In each reporting period, any change in fair value of the warrants is recorded as expense in the case of an increase in fair value and income in the case of a decrease in fair value.

Redeemable Convertible Preferred Stock

We initially record redeemable convertible preferred stock that may be redeemed at the option of the holder or based upon the occurrence of events not under our control outside of stockholders’ deficit at the value of the proceeds received, net of issuance costs. The difference between the original carrying value and the redemption value is accreted at each reporting period on a straight line basis so that the carrying value equals the redemption value on the redemption date. In the absence of retained earnings, these accretion charges are recorded against additional paid-in capital, if any, and then to accumulated deficit.

Stock-Based Compensation

We expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. We use the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date. We recognize stock-based compensation, net of estimated forfeitures, on the accelerated method as expense over the requisite service period. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to volatility, expected option term and fair value of our common stock. Measurement of stock-based compensation for options granted to nonemployees is subject to periodic adjustment as the underlying equity instruments vest.

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We recorded stock-based compensation expenses in the statement of operations for 2014 and 2015 as follows:

   
  Years Ended December 31,
     2014   2015
     (In thousands)
Research and development   $ 23     $ 17  
General and administrative     7       4  
     $ 30     $ 21  

All stock options are granted at a price no less than the fair value per share of our common stock. Due to the absence of an active market for our common stock, the fair value of our common stock underlying options granted is determined by the board of directors relied in part upon independent third party valuation analyses and input from our management on each grant date. We use valuation techniques and methods that rely on recommendations by the American Institute of Certified Public Accountants, or AICPA, in its Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation , 2013, and conform to generally accepted valuation practices. A number of objective and subjective factors were considered including:

our capital structure and the price at which we issued our preferred stock and the rights, preferences and privileges of the preferred stock as compared to those of our common stock;
our results of operations, financial position and our future business plans;
the material risks related to our business, the state of the development of our target markets and the pace of adoption of our chosen technology platforms;
achievement of enterprise milestones, including research results and our entry into or termination of collaboration and license agreements;
the market performance of publicly traded companies in the life sciences and biotechnology sectors;
external market conditions affecting the life sciences and biotechnology industry sectors; and
the likelihood of achieving a liquidity event for the holders of our common stock, preferred stock and stock options, such as an initial public offering given prevailing market conditions.

The intrinsic value of all outstanding vested and unvested options as of            , 2016 is $     million based on a per share price of $     for our common stock, which is the midpoint of the price range set forth on the cover page of this prospectus, and based on shares of our common stock issuable upon the exercise of options outstanding as of            , 2016 with a weighted average exercise price of $     per share.

Valuation of Stock Option Grants in 2014 and 2015

Our board of directors granted a total of 2,936,185 and 230,000 stock options with weighted average exercise prices of $0.0315 and $0.01 per share in the years ended December 31, 2014 and 2015, respectively.

On each of the grant dates during 2014 and 2015, in addition to the objective and subjective factors discussed above, our board of directors also relied in part upon valuations prepared by independent valuation specialists which utilized Option Pricing Method, or OPM, to determine the value of our common stock. The OPM treats the rights of the holders of preferred and common stock as equivalent to call options on the enterprise’s value, with exercises prices based on the liquidation preferences at the time of a liquidity event. The common stock is modeled as a call option that gives its owner the right, but not the obligation, to buy the underlying equity value at a predetermined or exercise price. In the model, the exercise price is based on a comparison with the equity value rather than, as in the case of a “regular” call option, a comparison with a per-share stock price. Thus, common stock is considered to be a call option with a claim on the equity at an exercise price equal to the remaining value immediately after the preferred stock is liquidated. The OPM has commonly used the Black-Scholes model to price the call option. One of the critical inputs into the OPM is the total equity value for the enterprise, which was estimated using the discounted cash flow method under the income approach.

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The decrease in the fair value from 2014 to 2015 was mainly due to:

we ended our collaboration with Synageva in May 2015 when the contract expired and Synageva decided not to exercise their right to acquire us;
we issued and sold 5.5 million shares of Series A-1 preferred stock for an aggregate purchase price of $5.5 million in 2014, and obtained $7.7 million in proceeds from issuing convertible notes in the years ended December 31, 2015, which diluted the per share ownership of our common stock and stock option holders; and
when the options were granted in 2015, the possible financing available for us at the time were either (a) a substantial private equity financing round, the terms of which would likely have been at a valuation and terms that would have been very punitive to the common/stock option holders or (b) an acquisition of us by another entity, which would have resulted in a valuation of the common stock/options similar to that determined for the Synageva transaction; at that time, we had not received any written proposal for an initial public offering or any other financing or business proposal. Thus, at the time the options were granted in 2015, any financing options available to us would have further diluted the ownership interest of our common stockholders.

Valuation of Stock Option Grants in 2016

Our board of directors granted a total of 2,566,874 stock options on February 8, 2016 with an exercise price of $0.17 per share.

Other than the factors listed above, our board of directors also relied in part upon valuations prepared by the same independent valuation specialists which utilized Probability-Weighted Expected Return Method, or PWERM, to determine the value of our common stock. The PWERM analyzes the present value of the returns afforded to common stockholders under several future stockholder exit or liquidity event scenarios including:

an initial public offering with a high valuation on or before December 31, 2016;
an initial public offering with a low valuation on or before June 30, 2016;
a strategic merger or sale of our company on or before July 31, 2016; and
continued operations assuming the company will continue to obtain financing through issuing of preferred stock or convertible notes.

The valuations of the two initial public offering scenarios were estimated by our management based on discussions with investment bankers. Employing a simple market approach, these initial public offering valuations were compared to similar metrics for recent initial public offerings of biotechnology companies in order to gain comfort that the estimated initial public offering values were not unreasonable. The valuation in the merger or sale scenario was based on the estimates developed for the initial public offering scenarios and assumes that potential acquirers emerge during the initial public offering process with offers at the upper end of the range contemplated in the initial public offering scenarios. The valuation in the continued operations scenario was estimated using the cost approach based on aggregate invested capital. The PWERM used probability weightings of 55% for the initial public offering (high) scenario, 20% for the initial public offering (low) scenario, 5% for a strategic merger or sale of our company, and 20% for continued operations. The probability weighting assigned to the respective exit scenarios were based on management’s expected near-term and long-term funding requirements and an assessment of the current financing and biotechnology industry environment at the time of the valuation. The valuation also applied a discount for lack of marketability of 40% to reflect the fact that there is no market mechanism to sell our shares, and as such, the stockholders will need to wait for a liquidity event such as an initial public offering or a sale of the company to enable the sale of the common stock. Our board of directors concluded a fair value of $0.17 per share as of February 8, 2016.

Income Taxes

We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the

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differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

JOBS Act

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended for complying with new or revised accounting standards. Thus, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2015-03, Simplifying the Presentation of Debt Issuance Costs , guidance to simplify the presentation of debt issuance costs. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction for the debt liability as opposed to recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. This is similar to the presentation of debt discounts or premiums. This ASU requires retrospective application which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this guidance. The adoption of this guidance did not have material impact on our financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition . This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU is effective for public entities for annual periods beginning after December 15, 2017. In June 2015, the FASB deferred for one year the effective date of the new revenue standard, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. We are evaluating the impact this standard may have on our revenue recognition, but do not expect that the adoption will have a material impact on our financial statements.

In June 2014, the FASB issued ASU 2014 10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810 Consolidation . This update removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the update eliminates the requirements for development stage entities to (1) present inception to date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This standard is effective for annual reporting periods beginning after December 15, 2014. Early adoption prior to the effective date is permitted. We have early adopted this standard in the presentation of our 2014 financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to

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provide related footnote disclosures. For all entities, the ASU is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are evaluating the impact of this standard, but do not expect that the adoption will have a material impact on our financial statements.

Results of Operations for the Years Ended December 31, 2014 and 2015

The following table sets forth information concerning our operating results for the years ended December 31, 2014 and 2015:

       
  For the Years Ended
December 31,
  Dollar
Change
  %
Change
     2014   2015
Statement of operations data:
                                   
Revenue   $ 1,200     $ 375     $ (825 )       -68.8 %  
Operating expenses:
                                   
Research and development     4,860       4,883       23       0.5 %  
General and administrative     1,931       1,299       (632 )       -32.7 %  
Total operating expenses     6,791       6,182       (609 )       -9.0 %  
Loss from operations     (5,591 )       (5,807 )       (216 )       3.9 %  
Interest expense     (1,367 )       (1,649 )       (282 )       20.6 %  
Other income (loss), net     109       79       (30 )       -27.5 %  
Total other income (expense)     (1,258 )       (1,570 )       (312 )       24.8 %  
Net loss   $ (6,849 )     $ (7,377 )     $ (528 )       7.7 %  

Revenue

To date, we have not generated revenue from the sale of any products. We recorded $1.2 million and $375,000 in revenue in the years ended December 31, 2014 and 2015, respectively, related to our development agreement with Synageva. On April 4, 2014, we entered into an exclusive development and option agreement, or development agreement, with Synageva, pursuant to which we agreed to conduct certain development activities in connection with the development of our mRNA and polymer products. Synageva paid us a non-refundable upfront fee in the aggregate amount of $1.5 million in 2014. The development agreement with Synageva expired in 2015. The fee was recognized over the term of the agreement. See “Certain Relationships and Related Party Transactions — Development and Option Agreement with Synageva BioPharma Corp.”

Research and Development Expenses

Our research and development expenses were $4.9 million in each of the years ended December 31, 2014 and 2015. Excluding a decrease in depreciation expense of $138,000 in 2015, research and development expenses increased $162,000, or 3.7%, for the year ended December 31, 2015, compared to research and development expenses for the year ended December 31, 2014. The increase was primarily attributable to a $306,000 increase in outsourced contract research expenses which was offset by a decrease in usage of laboratory supplies of $132,000. The decrease in depreciation expense was predominantly due to our leasehold improvements and some of our laboratory equipment having fully depreciated in 2015.

General and Administrative Expenses

General and administrative expenses were $1.3 million for the year ended December 31, 2015, which was a decrease of approximately $632,000 or 33%, compared to general and administrative expenses of $1.9 million for the year ended December 31, 2014. The decrease was primarily due to a decrease of $548,000 in legal fees associated with the Synageva agreements entered in 2014.

Interest Expense

Interest expense increased approximately $282,000, or 21%, from $1.4 million for the year ended December 31, 2014 to $1.6 million for the year ended December 31, 2015. Increase in interest expense was attributable to the increase in convertible notes payable in 2015. We expect interest expense to decrease when the convertible notes and related unpaid accrued interest are converted into series A preferred stock and then into common stock immediately prior to the pricing of this offering.

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Liquidity and Capital Resources

From inception to December 31, 2015, we have incurred an accumulated deficit of $49.3 million. We have financed our operations since inception primarily with the net proceeds of $25.7 million from the sales of shares of our convertible preferred stock and $20.2 million from the issuance of convertible notes and warrants. We also received a $1.5 million upfront fee from Synageva in 2014 pursuant to a development agreement which expired in 2015. At December 31, 2015, we had $3.3 million of cash and cash equivalents. We anticipate that we will continue to incur losses, and that such losses will increase over the next several years due to development costs associated with our urea cycle disorder programs. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic alliances.

Loan and Security Agreement

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. Interest accrues on the term loans at the rate of 5% per annum. The maturity date of the term loans is December 21, 2016, unless earlier converted into equity or otherwise repaid. The repayment of the term loans is subject to acceleration upon the occurrence of certain customary events of default contained in the loan and security agreement. As of     , the aggregate outstanding principal amount of the term loans, plus all accrued and unpaid interest thereon, was approximately $    . The entire outstanding principal amount of the term loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Among other things, a qualified offering under the loan and security agreement requires a firm commitment underwritten initial public offering of our common stock not later than June 5, 2016 at a pre-offering valuation of at least $24 million (exclusive of the term loans and their subsequent conversion) and which results in gross proceeds to us of at least $16.9 million. We expect this offering to constitute a qualified offering under the terms of the loan and security agreement, and therefore, upon the closing of this offering, we will issue an aggregate of      shares of common stock to the investors under the loan and security agreement, based on an assumed initial public offering price of $    , which is the midpoint of the price range set forth on the cover page of this prospectus.

We also granted to Titan Multi-Strategy Fund I, LTD., as security agent, for the benefit of the lenders under the loan and security agreement, a first priority security interest to all of our right, title and interest in and to our assets as collateral to secure the payment and performance of all obligations under the loan and security agreement.

Under the loan and security agreement, we are subject to affirmative and negative covenants. We agreed to, among other things, use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016 and deliver certain financial statements. In addition, we agreed to use the proceeds from the loans solely as working capital and for general corporate purposes in the ordinary course of business. Under the loan and security agreement, and subject to certain exceptions, we may not take certain actions without the consent of the lenders representing at least 51% of the outstanding principal amount of the term loans, or the required lenders, such as incur or repay indebtedness, engage in related party transactions, dispose of our assets, or issue shares of our capital stock. In addition, upon any sale of all or substantially all of our assets that results in net cash proceeds sufficient to satisfy our obligations under the loan and security agreement, we are required to satisfy the entire outstanding principal amount of the term loans, all accrued and unpaid interest thereon and all other obligations thereunder, together with a prepayment premium equal to 25% of the outstanding principal amount of the term loans on the date of repayment. We may not voluntarily prepay the term loans without the consent of the required lenders.

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An event of default under the loan and security agreement will be deemed to occur or exist in the event we fail to make principal or interest payments when due; if the accredited investors cease to have a first priority perfected lien in the collateral, if we breach and fail to cure within a specified period of time in any material respect any term, covenant or agreement in the loan and security agreement or the other facility documents, except for the non-occurrence of the qualified offering; or upon the occurrence of certain other events.

Registration Rights Agreement

As contemplated by the loan and security agreement, on February 29, 2016, we entered into a registration rights agreement with the investors in the December 2015 financing, pursuant to which we agreed to use our reasonable best efforts to register the resale of the shares of common stock issuable upon the conversion of our term loans concurrently with the registration of this initial public offering and to keep the related registration statement continuously effective until the earlier of the date that is one year from the date such registration statement is declared effective or all of the shares issuable upon the conversion of our term loans have been sold thereunder or pursuant to Rule 144 or may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for us to be in compliance with the current public information requirement under Rule 144. In the event we are unable to register all such shares in the registration statement contemplated by the registration rights agreement, we agreed to use our commercially reasonable efforts to file amendments to the initial registration statement to cover any such unregistered shares. We agreed to pay all fees and expenses related to the filing of such registration statements.

Convertible Notes

As of December 31, 2015, we have an aggregate amount of convertible notes, plus accrued and unpaid interest thereon, of approximately $19.4 million. The convertible notes carry interest at a rate of 8% per annum. The convertible notes are payable upon demand of the holders of a majority of the applicable series of convertible notes, except that such demand may not be made with respect to the convertible notes issued in October 2015 until March 1, 2016. The convertible notes are also payable upon the occurrence of certain liquidation or financing events set forth in such convertible notes. The repayment of the convertible notes is subject to acceleration upon the occurrence of certain customary events of default contained in the convertible notes. We also issued to purchasers of our convertible notes seven-year warrants to purchase shares of the same class and series of capital stock into which the convertible notes convert. Immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, the convertible notes and unpaid accrued interest thereon will be converted into, and certain of the warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus.

We believe that our existing cash and cash equivalents as of December 31, 2015, excluding the anticipated proceeds from the initial public offering described in this prospectus, will finance our planned operations through May 2016, and the anticipated proceeds from this offering will be sufficient to meet our anticipated cash requirements for at least the next 12 months. In addition, we intend to pursue a combination of debt financing and strategic partnerships to further finance our operations. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Our primary uses of cash are to fund operating expenses and research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

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Our future capital requirements are difficult to forecast and will depend on many factors, including:

the initiation, progress, timing and completion of preclinical studies of our lead product and potential product candidates;
the number and characteristics of product candidates that we pursue;
the progress, costs and results of our clinical trials;
the terms and timing of any other strategic alliance, licensing and other arrangements that we may establish;
the outcome, timing and cost of regulatory approvals;
delays that may be caused by changing regulatory requirements;
the costs and timing of hiring new employees to support our continued growth;
the costs required for operating a public company;
the costs and timing of procuring preclinical supplies of our product candidates; and
the extent to which we acquire or invest in businesses, products or technologies.

The following table shows a summary of our cash flows for the years ended December 31, 2014 and 2015.

   
  Years Ended December 31,
     2014   2015
     (in thousands)
Net Cash provided by (used in)
                 
Operating activities   $ (4,861 )     $ (5,980 )  
Investing activities     (53 )       (114 )  
Financing activities     5,268       7,353  
  $ 354     $ 1,259  

Operating Activities

Net cash used in operating activities was $6.0 million for the year ended December 31, 2015, compared to net cash used in operating activities of $4.9 million for the same period in 2014. The increase in net cash used in 2015 was primarily due to the development agreement entered with Synageva in 2014. We received a $1.5 million upfront non-refundable fee from Synageva in 2014 offset by approximately $548,000 in legal fees. Contract research expenses increased $306,000 in the year ended December 31, 2015 due to our increased outsourced preclinical research which was offset by a decrease in laboratory supplies of $132,000.

Investing Activities

The net cash used in investing activities for the periods presented relates entirely to the purchases of property and equipment, primarily lab equipment. The amount spent in the years ended December 31, 2014 and 2015 was approximately $53,000 and $114,000, respectively.

Financing Activities

Net cash provided by financing activities was $7.4 million for the year ended December 31, 2015, which was due to the issuance of convertible notes payable of $3.7 million net of debt issuance costs of $332,000 and issuance of convertible term loans of $4.0 million. Net cash provided by financing activities was approximately $5.3 million for the year ended December 31, 2014, which was due to the issuing of Series A-1 preferred stock of $5.5 million related to the agreement with Synageva. This was offset by $232,000 in principal payments of our credit facility which was paid in full in 2014.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet financing arrangements through special purpose entities.

Emerging Growth Company Status

Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for

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complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We have elected to avail ourselves of the following provisions of the JOBS Act:

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

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BUSINESS

Overview

We are a preclinical biopharmaceutical company developing a portfolio of products for the treatment of inherited enzyme deficiencies in the liver using intracellular enzyme replacement therapy, or i-ERT, and expect to generate clinical safety and efficacy data in 2018. We are not aware of any other enzyme replacement therapies for intracellular enzyme deficiencies currently being marketed for inherited enzyme deficiencies in the liver, and believe that the commercial potential for i-ERT is completely untapped and similar to the large and growing $4 billion worldwide market for conventional ERT, which includes drugs such as Cerezyme. Our i-ERT approach is enabled by our proprietary Hybrid mRNA Technology platform, which allows synthesis of the missing enzyme inside the cell. Our initial product portfolio targets the three urea cycle disorders OTCD, ASL deficiency and ASS1 deficiency. We have preclinical proof of concept in a mouse model of a urea cycle disorder showing significant reductions in the level of blood ammonia, which is the approvable endpoint by the FDA for the demonstration of efficacy in human clinical trials of the urea cycle disorders. To our knowledge, there are no ERT products on the market to treat these diseases, because the urea cycle reaction occurs inside the cell and is inaccessible to the administered enzyme. In contrast, we expect delivery of the missing enzyme using i-ERT with our Hybrid mRNA Technology to be a promising approach to treat these patients. Beyond the urea cycle disorders, we believe there are a significant number of inherited disorders of metabolism in the liver that are candidates for our therapeutic approach and that proof of concept for the treatment of one inherited liver disorder with our Hybrid mRNA Technology can be adapted to develop mRNA therapeutics for the treatment of other inherited liver disorders using our platform.

Our i-ERT approach is accomplished by delivering normal copies of the mRNA that make the missing enzyme inside the liver cell, thereby reinstating the normal physiology and correcting the disease. A key challenge with mRNA therapeutics historically has been their satisfactory delivery into the patients’ cells. We believe that our Hybrid mRNA Technology addresses these difficulties and also directs synthesis of the desired protein to the hepatocyte, which is the chief functional cell type in the liver harboring the metabolic cycles that need to be corrected in metabolic liver diseases. We believe our technology is superior to alternative technologies because, based upon peer-reviewed journal articles and presentations of our competitors and our internal preclinical studies, it results in high-level synthesis of the desired protein in the hepatocyte, has better tolerability and can be repeat-dosed without loss of effectiveness, thus enabling treatment of chronic conditions.

We are focused on inherited, single-gene disorders of metabolism in the liver that result in deficiency of an intracellular enzyme and thus have been unable to be treated with conventional ERT. Some inherited orphan liver diseases, such as the lysosomal storage disorders, can be successfully treated with conventional ERT. However, this approach does not work for many of the inherited orphan liver diseases, including the urea cycle disorders, because the missing enzyme is inside the cell, and the administered enzyme is unable to get inside the target cell where it is needed to be therapeutically active. Our approach is to deliver mRNA encoding the missing enzyme into the cell using our Hybrid mRNA Technology, such that the mRNA makes the missing enzyme inside the cell, restores the intracellular enzyme function and corrects the disease.

As noted above, our initial focus is on urea cycle disorders, which are a group of rare genetic diseases generally characterized by the body’s inability to remove ammonia from the blood. The urea cycle consists of several enzymes, including OTC, ASL and ASS1. Since the urea cycle reactions occur inside the cell, conventional ERT does not work as a treatment for these disorders. Urea cycle disorders are caused by a genetic mutation that results in a deficiency of one of the enzymes of the urea cycle that is responsible for removing ammonia from the bloodstream, causing elevated levels of ammonia in the blood. The elevated ammonia then reaches the brain through the circulation, where it causes cumulative and irreversible neurological damage, and can result in coma and death. While currently marketed ammonia scavengers such as Ravicti (glycerol phenylbutyrate) and Buphenyl (sodium phenylbutyrate) provide palliative care of the symptoms, liver transplant is the only currently available cure for urea cycle disorders. Our goal is to treat the urea cycle disorders by intravenous delivery of mRNA that makes the relevant missing urea cycle enzyme inside the cell, thus reinstating normal control of blood ammonia. We believe that anticipated improvements in newborn screening and the availability of corrective therapy will lead to improved diagnosis and survival rates among patients with urea cycle disorders.

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We have three therapeutic urea cycle disorder programs under development: PRX-OTC to treat OTCD, PRX-ASL to treat ASL deficiency and PRX-ASS1 to treat ASS1 deficiency. Preclinical efficacy has been established for PRX-OTC with two biological measures, including normalization of the level of ammonia in the blood. Lowering the level of ammonia in the blood is an approvable endpoint by the FDA for the treatment of urea cycle disorders, since it was the basis for the approval of Ravicti by the FDA in 2013. We expect to achieve preclinical proof of concept for the treatment of a second urea cycle disorder and select a urea cycle disorder product candidate for further development and eventual commercialization in the first half of 2016. We also plan to scale up the manufacturing of this product candidate and conduct further preclinical studies in the second half of 2016. In addition, we plan to test the safety and efficacy of the Hybrid mRNA Technology in large animals by the end of 2016. We intend to initiate IND-enabling studies in the first half of 2017 and plan to start manufacturing clinical supplies of the lead urea cycle disorder product candidate consistent with cGMP in the third quarter of 2017. We expect to file an IND application with the FDA in the fourth quarter of 2017 for this candidate and to conduct Phase 2a/2b single- and repeat-dose clinical proof of concept studies in urea cycle disorder patients that are expected to generate Phase 2a safety and efficacy data in the first half of 2018 and Phase 2b safety and efficacy data in the second half of 2018, including measurement of reduction in blood ammonia.

We are engaged in discussions with a number of prospective biopharmaceutical companies regarding partnership opportunities focused on our product pipeline, the use of our Hybrid mRNA Technology for the delivery of potential partners’ mRNAs and the use of Hybrid mRNA Technology for in vivo gene editing. In vivo gene editing is a type of in vivo genetic engineering in which DNA is inserted, deleted or replaced in the genome of an organism using proteins called nucleases. Gene editing requires the delivery of mRNA and/or DNA into cells, which can be accomplished by several methods, the two most common of which are using engineered viruses as gene delivery vehicles, or viral vectors, and those that use naked DNA/RNA or DNA/RNA complexes, or non-viral methods. Gene editing companies are interested in our Hybrid mRNA Technology for its potential to express nucleases-encoding mRNAs in the hepatocyte, providing a non-viral delivery platform for in vivo gene editing, ultimately correcting the genetic defects in the liver of patients. We believe that our approach offers advantages over viral vectors for in vivo gene editing, which can persist in the patient over the long term, and thus may cause continued modification of the genome after the intended change to the desired gene has been made. If successful, we believe that our technology would enable genes to be added, repaired or deleted in a patient’s hepatocytes for therapeutic benefit. To date, we have not entered into any partnerships or collaborations for our current product candidates.

Our pipeline includes our most advanced mRNA therapeutic program for the treatment of OTCD, for which we have shown preclinical proof of concept, and programs for ASL deficiency and ASS1 deficiency which are under development as summarized in the table below:

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Our Strategy

Our strategy is to use our proprietary Hybrid mRNA Technology to develop mRNA therapeutics for the treatment of orphan liver diseases. We believe that our focus on urea cycle disorders maximizes the leverage of our know-how and proprietary technology and allows us to build value through our programs by moving them forward into development in a cost-efficient manner with the goal of promptly delivering safe and effective therapies to urea cycle disorder patients in need of effective treatment.

Our business strategy includes the following:

Rapidly develop a portfolio of mRNA therapeutics to treat orphan liver diseases that are intractable to ERT, with initial focus on the urea cycle disorders .  We have achieved preclinical proof of concept for our OTCD program, with additional data in ASL and/or ASS1 programs expected to follow in the first half of 2016. We intend to initiate IND-enabling studies in the first half of 2017, file an IND in the fourth quarter of 2017 and expect to generate clinical proof of concept in urea cycle disorder patients in the first half of 2018.
Leverage our Hybrid mRNA Technology across a broad range of additional orphan liver diseases .  There are many other orphan liver diseases beyond the urea cycle disorders that we believe would be good candidates for mRNA replacement therapy. Given that the delivery system will be the same across the programs, once the Hybrid mRNA Technology is successful with one mRNA and orphan liver disease, we anticipate that the costs and risks associated with developing new mRNA therapeutics for other orphan liver diseases will be relatively low.
Pursue and form strategic collaborations that leverage our Hybrid mRNA Technology .  We are engaged in discussions with potential partners for developing mRNA programs in various disease indications. We intend to pursue partnerships in order to accelerate the development and maximize the market potential of our Hybrid mRNA Technology platform. In particular, we intend to partner with larger biopharmaceutical companies that possess market know-how and marketing capabilities to complete the development and commercialization of mRNA therapeutics. Our Hybrid mRNA Technology also enables us to deliver nuclease-encoding mRNAs to the liver. The combination of our Hybrid mRNA Technology and gene editing technology has the potential to enable in vivo gene editing, to either add or delete gene function in humans, which, if successful, could have a variety of important potential medical applications. For example, deleting gene function could be used for lowering cholesterol, and adding gene function could be used to correct certain types of hemophilia.

Our Competitive Strengths

With our proprietary Hybrid mRNA Technology, intellectual property portfolio and experienced management team, we believe we are well positioned to advance our development candidates and partner our technology platform to expand future development and commercial opportunities. Although our technology is at a preclinical stage of development and will require substantial resources and clinical and regulatory validation of efficacy, we believe that our delivery technology will provide opportunities to create value with therapeutic mRNAs for the treatment of orphan liver diseases in a cost-effective way.

We believe that our competitive strengths include:

Specific production of desired proteins in hepatocytes .  Based on the internal preclinical studies we have conducted, the Hybrid mRNA Technology enables protein production specifically in hepatocytes in the liver with minimal impact in other major organs and tissues. This outcome is accomplished by attaching the hepatocyte-specific targeting ligand molecule GalNAc to the polymer used in our Hybrid mRNA Technology, which results in hepatocyte-specific expression of the desired protein. GalNAc targeting of mRNA expression is a notable aspect of our technology and we are not aware of any competitor that is using GalNAc to target expression of mRNA therapeutics. This specificity limits off-target effects that may occur by producing proteins in tissues outside the liver.
Ability to repeat dose .  Our preclinical data shows that the Hybrid mRNA Technology enables repeat dosing at therapeutically efficacious doses without loss of protein production. This ability enables treatment of chronic indications that require multi-dose treatment regimens.

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Better tolerability relative to other nucleic acid delivery systems .  In our preclinical studies, the Hybrid mRNA Technology has demonstrated better tolerability relative to other nucleic acid delivery systems, as demonstrated by the lack of an immune system response evidenced by the low levels of a number of cytokines observed in mice. Moreover, at doses well above those needed for a therapeutic effect, liver enzyme levels, a measure of liver damage, remained within normal ranges in mice. This ability to dose at high mRNA levels in combination with the ability to multi-dose without loss of expression upon subsequent dosing represents one of the significant strengths of the Hybrid mRNA Technology.
Potential for rapid development of follow-on products with unusually low cost and risk .  There are many single-gene inherited metabolic disorders of the liver which may be candidates for our mRNA therapeutic approach. Once proof of concept has been established for one orphan liver disease with the Hybrid mRNA Technology, we believe that the same delivery platform may be used to deliver many different mRNAs. Because our delivery technology platform is largely complete and the sequence of all mRNAs is widely known and in public domain, once we successfully develop an mRNA therapeutic for one of the single-gene inherited metabolic disorders of the liver, we believe that development of an mRNA therapeutic targeting other single-gene inherited metabolic disorders of the liver can be made in a significantly shorter amount of time and at less cost relative to a conventional drug discovery process, which generally takes several years to discover new drugs. In addition, we believe that the precise specificity of mRNA for its target minimizes off-target risks associated with conventional drug development, which we believe will contribute to lower cost and risks. For these reasons, while not mitigating potential future regulatory or clinical risks, and not shortening regulatory or clinical timelines for drug approval, we believe our approach can lead to the generation of new drugs more rapidly and with lower risk compared to conventional drug development.
Ability to develop high-barrier to entry products .  Due to our propriety know-how in nucleic acid therapeutics and their delivery, we expect to develop high barrier to entry therapeutics which we believe will result in our products being subject to relatively less competition in the market.
Experienced team .  Our management team has an extensive track record and experience in the research, development and delivery of RNA therapeutics. Our management team has over 50 years of combined experience in RNA delivery technologies and RNA therapeutics, and our team is well placed to further develop the Hybrid mRNA Technology for orphan liver disease therapeutics and for gene editing applications.
Patent protection for our Hybrid mRNA Technology .  In order to protect our innovations, we have aggressively built upon our extensive and enabling intellectual property estate worldwide. Our portfolio of patents and patent applications includes multiple families and is primarily focused on synthetic polymers and related compositions, the use of polymer and polymer- LNP, compositions for delivery of mRNA and other therapeutic agents, including the use of polymer-LNP compositions in our core platform technology, and methods for treating protein deficiency diseases such as orphan diseases characterized by single-gene metabolic defects in the liver, including OTCD. As of March 31, 2016, we own or have in-licensed 11 issued U.S. patents, 20 issued foreign patents, and over 35 pending U.S. and foreign patent applications.

While future manufacturing, regulatory and clinical challenges have not yet been addressed by us, our Hybrid mRNA Technology has proven highly effective in internal preclinical testing. However, to date, none of the above described studies involved human subjects. As such, there can be no assurance that we will achieve the same results upon the commencement of human clinical trials. Should we fail to achieve similar results in human clinical trials, it could result in a material adverse effect on our business and operations. Establishing the efficacy of our technology in human subjects will require substantial funds and could take multiple years. In addition, our successful development is subject to many risks, both known and unknown that may impede our ability to ever bring this technology to market or to generate revenue. See “Risk Factors” beginning on page 12 .

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The main competitive technologies to provide treatment for our target diseases are AAV vectors, and mRNA delivery using conventional LNPs. AAV vectors offer the potential of longer-term correction of the liver disease by gene therapy. These vectors are in clinical development to treat orphan liver diseases such as hemophilia. However, triggering of multiple types of immune response to the virus represents a major challenge facing development of these viral vectors and can make repeat dosing ineffective. So if the therapy wanes over time, or if the cells targeted by a first AAV treatment turnover or die, then a repeat administration may be ineffective. mRNAs may also be delivered by conventional LNPs. We believe at least one mRNA/LNP formulation has been reviewed by the FDA to enter clinical trials for an orphan liver disease indication. While LNPs are effective in delivering mRNA cargo into the liver, and hence, if successfully developed, could become a significant competitive technology for us, LNPs generally contain fusogenic lipids that can activate the innate immune system and result in dose-limiting toxicities.

Our Team

We were founded by Robert W. Overell, Ph.D., our president and chief executive officer, and world leaders in polymer-based drug delivery systems Patrick S. Stayton, Ph.D., professor of bioengineering at the University of Washington, and Allan S. Hoffman, Ph.D., professor emeritus of bioengineering at the University of Washington, together with Oliver W. Press, M.D., Ph.D., a member of the Fred Hutchinson Cancer Research Center and a professor of medicine at the University of Washington, and Paul H. Johnson Ph.D., our founding chief scientific officer.

We believe that success in the field of in vivo nucleic acid delivery and therapeutics requires a highly specialized team. We have a highly experienced management team with over 50 years of combined experience in the delivery and development of nucleic acid therapeutics working in state-of-the-art chemistry and biology facilities in Seattle, Washington. In addition to the experience of our management team, leadership in research and development includes Mary Prieve, Ph.D., senior director of biology and Sean Monahan, Ph.D., senior director of chemistry, each of whom have over 10 years of experience in nucleic acid delivery. We also use consultants and advisors who provide us with key advice in specific areas. These include Gordon Brandt, M.D., our chief clinical advisor, who has been working with us for five years and most recently served as president and executive vice president of clinical affairs for Nastech Pharmaceutical Company Inc., which became MDRNA Inc., where he worked on the development of nucleic acid therapeutics from 2004 until 2008; James Watson, MBA, who serves as our head of corporate development and most recently served as chief business officer at Alvine Pharmaceuticals, Inc. from 2011 to 2016, and, prior to that, was a managing director and head of private equity at Burrill & Company and chief executive officer of Burrill & Company’s merchant banking group; and Stuart Swiedler, M.D., Ph.D., our clinical advisor for orphan drug development, who has been working with us since 2014 and most recently served as senior vice president of clinical affairs at BioMarin Pharmaceutical Inc., an orphan drug company, where for over a 10-year period he contributed to both the non-clinical and clinical aspects of drug development for the regulatory approvals of the orphan drugs Aldurazyme®, Naglazyme® and Kuvan®.

Our Mission and Culture

We are dedicated to the development of mRNA therapeutics that hold promise for treatment of orphan diseases for which few, if any, effective therapeutic options are available. Our guiding principles, against which all employees have been evaluated annually as a key component of our performance management system since our inception, are:

Open Communication .  This is especially important in a drug development company, where tremendous value can be built from close collaboration between team members.
Teamwork .  Talented multidisciplinary teams, with the right skill set, that collaborate effectively against a common goal can create a practically unstoppable force.
Mutual Respect .  We each have different points of view, and nobody is right all of the time. Trust your instincts, but respect those of others too, especially in areas of their expertise.
Excellence and Integrity .  We strive for excellence in everything we do, and do it with the highest level of personal and professional integrity.

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Company Information

We were incorporated on March 9, 2006 as a Delaware corporation. Our principal executive office is located at 410 W. Harrison Street, Suite 300, Seattle, Washington 98119. Our telephone number is 206-805-6300. Our website address is www.phaserx.com . Information contained in, or accessible through, our website does not constitute a part of this prospectus or any prospectus supplement.

Our Initial Target Diseases: Urea Cycle Disorders

Our initial target diseases are urea cycle disorders. Urea cycle disorders are a family of inherited rare genetic metabolic disorders, each of which is caused by a mutation that results in a deficiency of one of the enzymes that are necessary for the normal function of the urea cycle to remove ammonia from the bloodstream. When proteins are broken down by the body, ammonia is produced as a waste byproduct. The urea cycle involves a series of biochemical steps which removes ammonia from the blood. Normally, in individuals with a functioning urea cycle, ammonia is converted into a compound called urea and excreted in urine. In patients with urea cycle disorders, the liver’s ability to convert ammonia to urea is diminished, and the process of removing ammonia from the bloodstream is disrupted. As a result, excess ammonia accumulates in the blood, a condition known as hyperammonemia. Ammonia is a potent neurotoxin, and when ammonia reaches the brain through the bloodstream, it causes severe medical complications including cumulative and irreversible brain damage, and can cause coma and death.

Urea cycle disorders are diagnosed either through newborn screening or when symptoms occur and are recognized as related to a urea cycle disorder by further blood and urine testing. Initial urea cycle disorder symptoms range from catastrophic illness with coma occurring within a few days of birth to milder and non-specific symptoms such as difficulty sleeping, headache, nausea, vomiting, disorientation and seizures, particularly in patients who present later in life.

Urea cycle disorders occur in approximately 1 in 35,000 births in the United States, with OTCD being most common at a rate of approximately 1 in 56,500 live births, followed by ASL deficiency at a rate of approximately 1 in 218,750 live births and ASS1 deficiency at a rate of approximately 1 in 250,000 live births according to the journal article “The Incidence of Urea Cycle Disorders” published in Molecular Genetics and Metabolism , 2013, or the Incidence of Urea Cycle Disorders article. Based on demographic data for those patients enrolled in the National Institutes of Health-sponsored urea cycle disorder consortium longitudinal study, “A Longitudinal Study of Urea Cycle Disorders” published in Molecular Genetics and Metabolism , 2014, or the Longitudinal Study article, approximately one quarter of patients with urea cycle disorders are diagnosed in the neonatal period (first month of life), seventy percent are diagnosed after the neonatal period, and 5% remain asymptomatic throughout life. According to the Longitudinal Study article, approximately 114 newborns are predicted to be born with a urea cycle disorder in the United States each year, and approximately one quarter of the patients diagnosed in the neonatal period die due to the urea cycle disorder, compared with 11% mortality for patients with late onset disease. There were approximately 3.9 million births in the United States in 2013, according to Centers for Disease Control and Prevention (source: http://www.cdc.gov/nchs/births.htm , last visited Mar. 11, 2016).

Our Development Programs

Our mRNA therapeutics for the urea cycle disorders are intended to provide to patients greater than two years of age weekly or biweekly intravenous delivery of mRNA encoding the missing enzyme, thereby allowing the patient to produce the needed enzyme and correcting the disease. Because our approach addresses the underlying cause of the disease by reinstating the normal physiology, it is anticipated that no dietary restriction or special amino acid supplementation will be necessary, and the disease can be managed without crisis or continued neurologic deterioration. For all of our urea cycle disorder programs, the product profile of our candidates is anticipated to include reversal of the enzyme deficiency, which would be expected to correct the disorder by restoring the normal physiology, and normalize plasma ammonia levels, eliminate the dietary restrictions, and eliminate hyperammonemic crises.

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OTCD

Our most advanced program is for OTCD. OTCD is the most common subtypes of the urea cycle disorders and affects all ethnic groups and geographic areas. OTC is a critical enzyme in the urea cycle that removes ammonia in the blood. Patients with severe OTCD rapidly develop hyperammonemia soon after birth and have a disease phenotype which may lead to coma or death in the absence of liver transplant. In some affected individuals, signs and symptoms of OTCD may be less severe, and may not appear until later in life, but most patients show symptoms of OTCD by age 12 which typically manifest as hyperammonemic crises. The gene that codes for OTC is located on the X-chromosome, and hence, the majority of severe patients are male, but females with one abnormal gene in their gene pair can also be affected, usually after the neonatal period, as reported in the journal article “Diagnosis, Symptoms, Frequency and Mortality of 260 Patients with Urea Cycle Disorders from a 21-year, Multicentre Study of Acute Hyperammonaemic Episodes” published in Acta Paediatrica , 2008. Patients can present at almost any time of life with a stressful triggering event such as an infection or pregnancy, resulting in elevations of plasma ammonia concentration. Despite milder presentations in adulthood, patients are at constant risk of ammonia level rising, and hyperammonemia, encephalopathy, cerebral edema, and death can occur. The incidence of OTCD is 1 in 56,500 live births, according to the Incidence of Urea Cycle Disorders article.

Preclinical Development

In 2015, we achieved preclinical proof of concept for OTCD in a well-accepted animal model of a human orphan liver disease using OTC-spf ash mice. Hyperammonemia is induced in these mice by treating the animals with a viral vector containing a short hairpin RNA designed to knock down mouse OTC mRNA. Over time as the mouse OTC mRNA levels are decreased, OTC enzyme levels also decrease resulting in the mice developing elevated ammonia levels in the blood. Normal mice have ammonia levels of ~100 μM. Delivery of the human OTC mRNA using our Hybrid mRNA Technology resulted in the production of the natural human OTC enzyme and normalization of two key clinical biomarkers, ammonia level in the blood and orotic acid level in the urine when dosed once a week or twice a week. In contrast, the treatment of mice with a human OTC mRNA designed not to be translated (a negative control) resulted in the mice having higher ammonia and orotic acid levels. As shown in the figure below, treatment of mice twice a week with 3 mg/kg doses of a functional human OTC mRNA over a three-week period resulted in a statistically significant reduction in blood ammonia levels and normalized ammonia levels to those observed in the wild type mice. To determine whether data is statistically significant compared to controls we use standard statistical measures, in this case the t-test. The t-test provides a “p-value” representing the probability that random chance could explain the result. In general, a 5% or lower p-value (p < 0.05) is considered to be statistically significant by the FDA. However, it should be noted that statistical significance alone may not be sufficient to establish efficacy by the FDA. Rather, efficacy endpoints are generally agreed upon with the FDA prior to commencement of a study, which may require clinical significance beyond a statistically significant p-value. Notwithstanding that fact, the p-value calculated in this study was p < 0.001, as shown in the figure below, meaning that the probability that random chance could explain this result is 0.1%. Normalization of ammonia levels was also achieved with treatment of mice once a week. The study has shown meaningful reduction in ammonia levels, the endpoint that was evaluated by the FDA in order to grant approval of Ravicti.

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Normalization of Ammonia Levels in OTC-spfash Mice Treated with Human OTC mRNA
Delivered by Hybrid mRNA Technology

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Moreover, levels of the other well-accepted biomarker, urinary orotic acid, were also normalized in this study. As shown in the figure below, treatment of mice twice a week with 3 mg/kg doses of a functional human OTC mRNA over a three-week period demonstrated that the orotic acid levels were maintained at the levels similar to the orotic acid levels in normal mice. Similar results were obtained with treatment of mice once a week. Mice treated with buffer or the negative control mRNA resulted in urinary orotic acid levels that were 10 to 30-fold higher.

Normalization of Orotic Acid Levels in OTC-spf ash Mice Treated with Human OTC mRNA
Delivered by Hybrid mRNA Technology

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The induction of hyperammonemia in OTC-spf ash mice resulted in ataxia, significant body weight loss and, ultimately, the mice succumbing to the effects of elevated ammonia levels. As shown in the figure below, mice treated with buffer or the negative control mRNA did not live beyond days 21 and 27, respectively. Mice treated twice a week with 3 mg/kg doses of a functional human OTC mRNA showed complete survival of the mice as long as 35 days. Additionally, no outward signs of ataxia were observed in the treated mice, and all mice in the treated group gained weight. When therapy with the Hybrid mRNA Technology was terminated in these mice, the mice remained disease-free for two weeks at which time the mice started to succumb to the effects of elevated ammonia levels.

Complete Survival of OTC-spfash Mice Treated with Human OTC mRNA
Delivered by Hybrid mRNA Technology in Hyperammonemia Model

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Delivery of the human OTC mRNA using our Hybrid mRNA Technology in the OTC-spf ash mice was well tolerated, based on our internal tolerability study with formulation being dosed twice per week for three weeks in fragile OTC-spf ash mice, with normal serum chemistries (electrolytes, albumin and creatinine levels) observed 48 hours following dosing, and no elevation of alanine aminotransferase, or ALT, level in the blood, which is a test for liver damage. This is shown in the figure below.

Levels of Liver Enzymes in Mice Dosed with Hybrid mRNA Technology

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Moreover, we observed no detection of the cytokine IP-10 in OTC-spf ash mice 3 hours following dosing (below limit of quantitation, or BLOQ), indicating no stimulation of the innate immune system. When the dose of human OTC mRNA was doubled to 3 mg/kg, transient low levels of cytokine IP-10 were observed in half of the OTC-spf ash mice while the remaining half of the mice had levels at limit of quantitation or BLOQ.

Levels of the Cytokine IP-10 in OTC-spf ash Mice Treated with Hybrid mRNA Technology

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* BLOQ: below limit of quantitation

ASL Deficiency

ASL deficiency is the second subtype of urea cycle disorder we are pursuing as a development program. ASL deficiency affects the body’s ability to clear the nitrogen already incorporated into the urea cycle as citrulline and argininosuccinate. As in OTCD, ASL deficiency often manifests with rapid-onset hyperammonemia in the newborn period or as a late onset form with episodic hyperammonemia and/or long term complications that include liver dysfunction, neuro-cognitive deficits and hypertension. The accumulation of citrulline and argininosuccinic acid is the biochemical hallmark of ASL deficiency. The incidence of ASL deficiency is estimated at 1 in 218,750 live births, according to the Incidence of Urea Cycle Disorders article.

Preclinical Development

We have designed and manufactured the ASL mRNA, obtained ASL-deficient mice and are working with animal disease models for ASL deficiency internally. We plan to perform initial studies to examine production of ASL mRNA in normal mice, and following confirmation of the synthesis of the corrected gene, we plan to administer therapeutic ASL mRNA into ASL hypomorphic mice suffering from a genetic mutation to examine protein production in the liver and reduction of argininosuccinic acid levels in plasma. We anticipate using the same delivery platform used for our OTCD formulation.

ASS1 Deficiency

ASS1 deficiency is the third subtype of urea cycle disorder we are pursuing as a development program. The argininosuccinate synthase 1 enzyme is responsible for combining two amino acids, citrulline made by other enzymes in the urea cycle, and aspartate, to form a molecule called argininosuccinic acid. A series of additional chemical reactions in the urea cycle uses argininosuccinic acid to form urea. If the ASS1 enzyme is absent or defective, then a build-up of citrulline and ammonia in the blood can occur, resulting in hyperammonemia. The incidence of ASS1 deficiency is estimated at 1 in 250,000 live births, according to the Incidence of Urea Cycle Disorders article.

Preclinical Development

We have designed and manufactured the ASS1 mRNA, obtained ASS1-deficient mice and are working with animal disease models for the treatment of ASS1 deficiency internally. We plan to perform initial studies to examine the production of ASS1 mRNA in normal mice, and following confirmation of the synthesis of the

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corrected gene, we plan to administer therapeutic ASS1 mRNA into ASS1-deficient mice to examine protein production in the liver, reduction of citrulline levels in plasma and presence of argininosuccinic acid levels in plasma. We anticipate using the same delivery platform used for our OTCD formulation.

IND-Enabling Studies and Clinical Development Plans

Urea Cycle Disorder Candidate Selection and IND-Enabling Studies

We plan to advance the urea cycle disorder programs by conducting further preclinical studies, including optimal dosing interval and maximum tolerated dosing studies in the first half of 2016. Upon successful completion of these studies, we plan to select the first urea cycle disorder candidate to move forward into development. We intend to scale up the manufacturing process for the selected urea cycle disorder therapeutic candidate in the first half of 2017 to initiate IND-enabling studies, including preclinical GLP-compliant toxicology studies in rodents and large animals in the second half of 2017. We expect that we will require substantial additional capital to conduct clinical activities for our lead mRNA product candidates.

Clinical Development Plans

Based on the results of the preclinical studies, we expect to demonstrate safety and clinical efficacy in a Phase 2a study in the first half of 2018 and in a Phase 2b study in the second half of 2018 in urea cycle disorder patients. The clinical development of the selected urea cycle disorder candidate is planned to include a two-stage clinical trial for adults and pediatric patients who are currently on Ravicti. In the first stage Phase 2a trial, we intend to enroll a limited number of adult patients for evaluation of the pharmacokinetics, as measured by blood concentration, and pharmacodynamics, as measured by plasma ammonia levels, following administration of our urea cycle disorder therapeutic. This stage is expected to be followed by a repeat-dose Phase 2b trial in which we intend to enroll a larger number of adults and pediatric patients and plan to include a direct comparison of ammonia levels between Ravicti and our therapeutic candidate. Following this study, we intend to offer all patients enrollment into a one-year extension study with our urea cycle disorder therapeutic.

Market Opportunities

Currently, there is no cure for urea cycle disorders other than liver transplant. Liver transplant is limited by donor availability and patient eligibility, and it is also associated with significant risks and complications, including perioperative morbidity and mortality, liver rejection, kidney failure and vulnerability to infection due to lifelong immunosuppressant medication. Therefore, liver transplant is an option typically reserved for the most severely affected patients in life-threatening conditions. Liver transplantation is especially complicated for patients with urea cycle disorders as many of them show symptoms shortly after birth.

Current management of urea cycle disorders includes decreasing ammonia production through the reduction of protein in the diet, supplementation with essential and/or branched chain amino acids, the use of dietary supplements such as arginine and citrulline and ammonia lowering agents, including Ravicti and Buphenyl, FDA-approved ammonia scavenger products currently being marketed by Horizon Pharma plc. Horizon Pharma plc acquired Ravicti and Buphenyl in 2015 through the acquisition of Hyperion Therapeutics Inc. for $958 million.

Ravicti was approved by the FDA in 2013 for chronic management of urea cycle disorders in adult and pediatric patients greater than two years of age. It is a three times daily oral drug that must be used with a protein-restricted diet and amino acid dietary supplements. As reported in the FDA news release, dated February 1, 2013, announcing approval of Ravicti, the major study supporting Ravicti’s safety and effectiveness involved 44 adults who had been using Buphenyl. According to this news release, patients were randomly assigned to take Buphenyl or Ravicti for two weeks before being switched to the other product for an additional two weeks. The FDA news release reported that blood testing showed Ravicti was as effective as Buphenyl in controlling ammonia levels. Three additional studies in children and adults provided evidence supporting the long-term safety and effectiveness of Ravicti in patients two years and older. The revenue projection for 2016 for Ravicti is $138 million in the United States, based on the sales data from the fourth quarter of 2015 reported by Horizon Pharma plc in its press releases. The revenues for Ravicti are growing at approximately 14% per year based on the sales data from the third and the fourth quarters of 2015 reported by Horizon Pharma plc in its press releases.

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Buphenyl was approved by the FDA in 1996 and was the only branded FDA-approved therapy for the chronic management of certain subtypes of urea cycle disorders prior to Ravicti’s approval for the same subtypes. Buphenyl is also available for the treatment of urea cycle disorders in select countries throughout Europe, the Middle East, and the Asia-Pacific region. Buphenyl is administered in tablet and powder form and sold in the United States to patients who have not transitioned to Ravicti.

Ammonul (sodium benzoate and phenylacetate), an intravenous therapy marketed by Ucyclyd Pharma, Inc., a wholly owned subsidiary of Valeant Pharmaceuticals International, Inc., was approved by the FDA in the United States in 2005. We believe that Ammonul is the only FDA-approved adjunctive therapy for the treatment of hyperammonemic crises in adult and pediatric patients with the most prevalent urea cycle disorders. Currently, Ammonul is not approved for use outside the United States, but is being prescribed by physicians in parts of Europe.

Current commercial products for treatment of urea cycle disorders such as Ravicti, Buphenyl and Ammonul are ammonia scavengers that provide, in our opinion, palliative care of the symptoms at best and have substantial limitations. When urea cycle disorders are not well controlled, or even in well-controlled patients who experience concurrent illness such as infection, or physiological stress such as pregnancy or surgery, hyperammonemia crises may occur. In a Phase 2 trial of Ravicti, two-thirds of patients with high ammonia levels at the start of the clinical trial still had high ammonia levels at the end of the trial despite taking Ravicti, as reported in the journal article “Phase 2 Comparison of a Novel Ammonia Scavenging Agent with Sodium Phenylbutyrate in Patients with Urea Cycle Disorders: Safety, Pharmacokinetics and Ammonia Control” published in Molecular Genetics and Metabolism , 2010. In the Phase 3 trials of Ravicti, sixteen percent of adult patients and 25% of pediatric patients experienced hyperammonemic crises while taking Ravicti during the one year extension trial, according to the journal articles “Ammonia Control and Neurocognitive Outcome among Urea Cycle Disorder Patients Treated with Glycerol Phenylbutyrate” published in Hepatology , 2013 and “Glycerol Phenylbutyrate Treatment in Children with Urea Cycle Disorders: Pooled Analysis of Short and Long-term Ammonia Control and Outcomes” as published in Molecular Genetics and Metabolism , 2014. In the pivotal Ravicti pediatric studies, 20% of subjects 0-5 years old and 18% of subjects 6-17 years old required a gastric tube for management of feeding while on ammonia scavengers according to the journal articles “Ammonia Control in Children Ages 2 Months Through 5 Years with Urea Cycle Disorders: Comparison of Sodium Phenylbutyrate and Glycerol Phenylbutyrate” published in The Journal of Pediatrics in 2013 and “Ammonia Control in Children with Urea Cycle Disorders (UCDs); Phase 2 Comparison of Sodium Phenylbutyrate and Glycerol Phenylbutyrate” published in Molecular Genetics and Metabolism in 2011. In addition, Buphenyl has a high pill burden or large quantity of powder and frequent dosing of 3 – 6 times per day and a taste and smell deemed unpleasant by many patients, which makes compliance for many urea cycle disorder patients difficult.

We believe our approach, which is to deliver mRNA encoding the missing enzyme into the cell, thereby making the missing enzyme and reinstating the normal intracellular physiology, offers the potential to correct certain subtypes of urea cycle disorders and avoid the need for scavenger therapy, restrictive diet and dietary supplements. In view of the rapid onset of expression observed with our Hybrid mRNA Technology in our luciferase expression studies in mice, our approach may also lead to more effective treatment of acute hyperammonemic crises in urea cycle disease patients. Additionally, the current ammonia scavengers can only remove a fixed amount of ammonia from the blood: each molecule of Ravicti can remove up to six molecules of ammonia, and each molecule of Buphenyl can remove up to two molecules of ammonia, according to the U.S. package inserts for Ravicti and Buphenyl, respectively. In comparison, there is no fixed limit on the number of ammonia molecules which can be removed following replacement of a missing enzyme.

We are not aware of any other enzyme replacement therapies for intracellular enzyme deficiencies currently being marketed for inherited enzyme deficiencies in the liver, and believe that the commercial potential for i-ERT is completely untapped and similar to the large and growing $4 billion worldwide market for conventional ERT, which includes drugs such as Cerezyme (see sales data for 2015 in the press releases and annual reports filed in 2016 by Sanofi S.A., BioMarin Pharmaceutical Inc., Shire plc and Protalix BioTherapeutics, Inc.). Cerezyme costs approximately $25,000 for a month’s course of therapy in 2014, according to a news article published in the Boston Globe (Sept. 2, 2014), and commercially available ERTs list for $290,000 –  $1.28 million per patient per year according to goodrx.com (last visited Mar. 11, 2016). Therapeutics for orphan liver diseases treated with ERT with

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similar incidences to the urea cycle disorders (1/56,500 – 1/250,000) have generated substantial sales, including for Gaucher’s disease, with estimated incidence of 1/60,000, according to GeneReviews®, and worldwide sales of $1.2 billion in 2015 according to sales data by Sanofi S.A. and Shire plc; Fabry disease, with estimated incidence of 1/50,000 – 1/117,000, according to GeneReviews, and worldwide sales of $1.1 billion in 2015 according to sales data by Sanofi S.A. and Shire plc; Pompe disease, with estimated incidence of 1/40,000 – 1/100,000, according to GeneReviews, and worldwide sales of $728 million in 2015 according to sales data by Sanofi S.A.; and mucoploysaccharidosis type VI, with estimated incidence of 1/250,000 – 1/600,000 according to Genetics Home Reference and worldwide sales of $303 million in 2015 according to sales data by BioMarin Pharmaceutical Inc. Conventional ERTs are generally dosed intravenously once a week to once every two weeks, according to the article “Enzyme-Replacement Therapies for Lysosomal Storage Diseases” published online by the National Center for Biotechnology Information ( source: http://www.ncbi.nlm.nih.gov/books/NBK117223 , last visited Mar. 11, 2016), and can be given by home infusion or in an outpatient setting, according to the journal article “Intravenous Enzyme Replacement Therapy: Better in Home or Hospital?” published in British Journal of Nursing , 2006.

The value that can be created by orphan drug companies early in clinical development is exemplified by Shire plc’s acquisition of Dyax Corp. for approximately $5.9 billion, since at the time, Dyax Corp.’s most advanced asset was in a rare disease setting for hereditary angioedema and had efficacy data based on clinical trial results in approximately 40 patients, according to Shire plc’s press release ( source: https://www.shire.com/newsroom/2015/november/shire-to-acquire-dyax-corp ). Hereditary angioedema has an incidence of 1/50,000 births, according to the journal article “Hereditary Angioedema: Epidemiology, Management, and Role of Icatibant” published in Biologics, 2013.

Our Hybrid mRNA Technology

mRNA Therapeutics and Competitive Approaches

mRNAs play an essential role in the process of encoding and translating genetic information from DNA to proteins. The genes in DNA encode protein molecules, including enzymes, which are essential building blocks to the functions necessary for life. Expressing a gene means synthesizing proteins encoded by the gene. The information stored within DNA are “read” and expressed in two major steps: transcription and translation. During transcription, the genes in the DNA are transcribed into mRNA, which encodes the protein sequence. mRNA serves as the blueprint for making the desired protein by cellular machinery called ribosomes during translation.

Genetic diseases are the result of a key protein not being correctly coded in the DNA. As a result, the mRNA corresponding to the gene is either defective or missing, resulting in a defective or missing protein. Our therapeutic mRNAs seek to restore the normal mRNA encoding of the normal protein, thereby restoring the missing protein function within target tissues and correcting the disease. In the case of a large number of inherited metabolic diseases of the liver that are caused by single-gene defects, expression, or synthesis, of a therapeutic mRNA providing a functional copy of the missing or defective protein has the potential to correct the genetic disorder.

The main impediment in the development of mRNA therapeutics has been a lack of effective delivery, principally due to the fact that mRNA molecules are (i) fragile and easily degradable by nucleases in the blood, and (ii) large and highly charged molecules that are typically taken up into cellular vesicles called endosomes from which they are unable to cross the endosomal membrane and enter the cytoplasm of the cell. These delivery challenges prevent therapeutic mRNA molecules from reaching the target tissue and being taken up into the cytoplasm of the target cells so that they can be translated into the desired protein of interest. To overcome these impediments, mRNA has typically been formulated into LNPs, which function to protect the mRNA from degradation in the blood and enable uptake of the mRNA inside the cell. While LNPs are effective in delivering mRNA cargo into the liver, and hence, if successfully developed, could become a significant competitive technology for us, LNPs generally contain fusogenic lipids that can activate the innate immune system and result in dose-limiting toxicities, according to the journal articles “Lipid-Based Nanocarriers for RNA Delivery” published in Current Pharmaceutical Design , 2015, and “Nanotoxicity: a Key Obstacle to Clinical Translation of siRNA-based Nanomedicine” published in Nanomedicine , 2014.

An alternative approach to treating orphan liver diseases is gene therapy using AAV vectors; however, triggering of multiple types of immune response to the virus represents a major challenge facing development of these viral vectors, according to the journal article “Gene Therapy in Liver Diseases: State-of-the-Art and

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Future Perspectives” published in Current Gene Therapy , 2012. The AAV vectors offer the potential of longer-term correction of the liver disease by gene therapy, but they can be susceptible to pre-existing neutralizing antibody-mediated immunity against the virus present in a significant number of patients; they trigger immune responses in the body can prevent repeat dosing, since the initial dose primes the immune system and can neutralize vector given in a subsequent administration; and they can stimulate cell mediated immunity against infected liver hepatocytes, according to the journal articles “Hemophilia Gene Therapy: Caught Between a Cure and an Immune Response” published in Molecular Therapy , 2015, and “Immune Responses to AAV Vectors: Overcoming Barriers to Successful Gene Therapy” published in Blood , 2013.

Our Hybrid mRNA Technology

Our Hybrid mRNA Technology provides a differentiated polymer-LNP-based formulation approach for the delivery of mRNA into the hepatocytes in the liver. The Hybrid mRNA Technology utilizes our SMARTT Polymer Technology in combination with an inert LNP which functions as a carrier for the mRNA. The LNP, which is comprised of several distinct lipids, encapsulates and protects the mRNA following intravenous injection while it transits the blood and is taken up into the hepatocytes while the polymer delivers mRNAs into the cytoplasm by mediating their escape from endosomes. The synthetic polymers exploit a proprietary mechanism to effect passage of mRNA molecules across the endosomal membrane. Our approach does not require fusogenic lipids typical of competitor LNPs and we believe that is one of the reasons why our delivery system is better tolerated than our competitors’ technology.

Our SMARTT Polymer Technology is comprised of a diblock vinyl polymer comprising two blocks of monomers with distinct delivery functionalities. The polymer is targeted to the asialoglycoprotein receptor on liver hepatocytes by the inclusion of a GalNAc moiety to one end of the polymer. The polymers have a first hydrophilic block comprising 2-3 hydrophilic monomers which impart water solubility to the polymer and a second hydrophobic block comprising 2-3 hydrophobic monomers that are pH-tunable and mediate endosome escape of the mRNA cargo into the cytoplasm. These polymers self-assemble into nanoparticles. The structure of the polymer is shown below.

Schematic Representation of the PhaseRx Hybrid mRNA Technology

[GRAPHIC MISSING]

We have performed two studies in collaboration with external specialist contract research laboratories using one of polymers as a polymer-siRNA, or small interfering RNA, conjugate. The polymers had the same diblock architecture as shown above, and were similar in composition to the polymers used in the Hybrid mRNA Technology. In the first study, we evaluated the absorption, distribution, metabolism, and excretion of a polymer with a radioactive label in rats which showed rapid uptake into the liver, with greater than 95% of the polymer dose in the liver within two hours after dosing. Very little or no polymer was detected in other tissues or organs. The main route of polymer clearance from the liver was into the bile and then feces with

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71% of the dose being cleared into bile within 72 hours after dosing. In the second study, the safety and efficacy of a polymer was evaluated in non-human primates. In a single dose, dose ranging study, primates received doses of a polymer conjugate ranging from 1 to 2.4 mg/kg of RNA. The formulation was well tolerated with no significant dose-related changes in serum chemistry, hematology, or coagulation. Moreover, no changes in complement activity or increase in IL-6 cytokine levels, which indicates stimulation of the immune system, were observed, and histopathological evaluation of the liver, kidneys and spleen of treated animals showed no dose-related effects. In addition, our internal studies using dye-labeled siRNA conjugates of our polymers have shown that GalNAc-targeted polymers deliver siRNA effectively to the hepatocytes in vivo, while polymers targeted with mannose were ineffective in mediating siRNA delivery to the hepatocytes.

Our Hybrid mRNA Technology has been shown in our internal preclinical studies to result in synthesis of intended proteins in hepatocytes with a fast onset of action, suggesting highly effective delivery of mRNA molecules, and the synthesis of a number of protein classes including cytosolic proteins, mitochondrial proteins and secreted proteins. By developing a rapid in vivo-based screening program, we have gained valuable information about the structure-activity relationships of formulation components. The figure below illustrates the dramatic changes in activity that have resulted from our formulation screening program showing a 5000-fold improvement in the production of luciferase in the livers of mice treated intravenously with a single 1 mg/kg dose of mRNA encoding luciferase delivered with our Hybrid mRNA Technology, as measured six hours after dosing. The numbers 1 through 7 at the bottom of the figure below represent the successive generations of the Hybrid mRNA Technology that were tested in this assay which showed progressively increased activity. In addition, expression levels within three-fold of maximal luciferase signal were observed within three hours after dosing, which indicates that the synthesis of the desired protein in the liver can be very rapid following administration of the mRNA therapeutic using our Hybrid mRNA Technology. These observed levels of fluorescence are 1 million-fold above background.

5,000-fold Increase in Activity of Hybrid mRNA Technology Through Formulation Development and
Screening as Measured by Luciferase Expression

[GRAPHIC MISSING]

Moreover, when the Hybrid mRNA technology was used to deliver human erythropoietin mRNA and administered intravenously to mice at a dose of 1 mg/kg, it resulted in supraphysiological levels of the secreted protein erythropoietin 20,000 times above normal levels in untreated mice.

In addition to the ability of the Hybrid mRNA Technology to effect high levels of production of desired proteins, our internal preclinical studies with luciferase mRNA showed that luciferase expression is highly specific to the liver, with little or no expression in immune organs such as the spleen or other tissues. This data is shown in the figure below. Mice were injected intravenously with 1 mg/kg of luciferase mRNA delivered using the Hybrid mRNA Technology, and six hours later the various organs were harvested and analyzed for expression of luciferase. As can be seen from the data below, expression of the luciferase mRNA was specifically seen in the liver, with no detectable expression in other organs, including the spleen. This data is in contrast to a recent report with a fusogenic LNP-based mRNA formulation where expression was also observed in the spleen and pancreas, as reported in Optimization of Lipid Nanoparticle Formulations for

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mRNA Delivery in Vivo with Fractional Factorial and Definitive Screening Designs published in ACS Nanoletters, 2015. We believe that the specificity of mRNA expression to the liver observed with our technology will minimize off-target toxicities that can result from the unintended expression of therapeutic proteins in other tissues.

Imaging of Expression of Luciferase in Individual Organs Dissected from Mice Treated with
Luciferase mRNA Delivered using the Hybrid mRNA Technology

[GRAPHIC MISSING]

In addition to organ specificity, the expression of the luciferase protein was seen predominantly in the hepatocyte, the desired cell type in the liver, with no apparent expression in Kuppfer cells in the liver lining the walls of the sinusoids. This result is shown in the immunofluorescence figure below in which the luciferase expression occurs as bright green areas that are specifically in the hepatocytes. The blue areas represent nuclei of individual cells. The observed specificity of expression to the hepatocytes, in addition to the organ specificity shown above, is expected to further improve the safety profile of our products.

Immunofluorescent Staining of Luciferase Protein in Liver Section from Mice Treated with
Luciferase mRNA Delivered using Hybrid mRNA Technology

[GRAPHIC MISSING]

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Moreover, in our chronic dosing study, the Hybrid mRNA Technology enabled mRNA to be repeat-dosed every week over a 3-month period without loss of expression at each dose. In the data presented in the figure below mice were treated intravenously once a week for 12 weeks with 0.5 mg/kg of luciferase mRNA formulated with Hybrid mRNA Technology without loss of the luciferase fluorescence signal at each dose given. In these studies, luciferase activity was measured six hours after the weekly dosing. The significance of this result is that our Hybrid mRNA Technology would likely be able to be chronically administered without the loss of potency after each dose that has been observed with other LNP-only formulations, as reported in the journal article “Accelerated Blood Clearance of PEGylated Liposomes following Preceding Liposome Injection: Effects of Lipid Dose and PEG Surface-Density and Chain Length of the First-Dose Liposomes” published in the Journal of Controlled Release , 2005.

Luciferase Expression Measured Immediately After Each Dose of a Repeat-Dosing Regimen of the
Hybrid mRNA Technology in Mice

[GRAPHIC MISSING]

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Of critical importance to mRNA therapeutics is the ability to avoid unwanted induction of cytokines which can cause dose-limiting toxicities through activation of the innate immune system. This type of an acute response can result in lower levels of protein expression. Mice injected with 0.5 mg/kg of luciferase mRNA delivered using the Hybrid mRNA Technology did not elicit an innate immune response as determined by measuring levels of cytokines, interferon gamma-induced protein 10 (IP-10), tumor necrosis factor alpha (TNF-α), interleuckin-6 (IL-6), interferon gamma (IFN-ϒ), interleukin 12, (IL-12) and macrophage inflammatory protein alpha (MIP-1α), as shown in the figure below. The levels of cytokines observed in all cases were generally similar to untreated mice and differences were not statistically significant. The term “n.s”. in each graph, means “not significant” and represents a p-value greater than 0.05. We believe that the levels of cytokine induction observed in the preclinical study support the likelihood of our product candidate having a favorable safety profile, hence offering potential advantages over other mRNA delivery using fusogenic LNPs or AAV-based approaches.

Assessment of Cytokine Levels in Mice Treated with Luciferase mRNA Delivered
Using the Hybrid mRNA Technology

[GRAPHIC MISSING]

  

We have developed our Hybrid mRNA Technology into a robust system for in vivo mRNA delivery that allows protection of mRNA in the circulation, endosome escape and targeted expression in the hepatocytes. Our mRNA therapeutic candidates using our Hybrid mRNA Technology have proven effective in preclinical models, and have shown proof of concept and efficacy across a number of studies in OTCD mice, including meaningful reduction in ammonia levels in the blood, which is an approvable endpoint by the FDA for the treatment of urea cycle disorders. Our delivery technology is designed to provide a versatile, predictable, reproducible and scalable mRNA delivery system with the ability to manufacture at scale, using a process known as RAFT polymerization which has enabled manufacturing of polymers at the hundreds of kg scale. We believe that our technology enables rapid deployment of mRNA therapeutics to new disease targets, and we intend to leverage our technology platform to develop a pipeline of product candidates for the treatment of many chronic and life-threatening orphan liver diseases. Beyond the urea cycle disorders, these diseases include organic acidemias, a group of diseases with an aggregate incidence of 1 in 1,000 live births according to GeneReviews; glycogen storage diseases, a group of diseases with an aggregate incidence of 1 in 20,000 live births according to Medscape: Glycogen Storage Diseases Types I-VII, 2014; porphyria, a group of diseases with an aggregate incidence of 1 in 75,000 live births according to a journal article “Porphyrias” published in Lancet, 2010; hyperoxalurea, with an incidence of 1 in 175,000 live births according to

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GeneReviews; phenylketonuria, with an incidence of 1 in 15,000 live births according to a National Institutes of Health Consensus Statement, “Phenylketonuria: Screening and Management” published online in 2000; tyrosinemia type 1 with an incidence of 1 in 100,000 live births according to GeneReviews; and Wilson’s Disease, with an incidence of 1 in 30,000 live births according to GeneReviews. We believe the i-ERT market potential is as large as the $4 billion ERT market because (1) the incidences of the diseases treatable by ERT and i-ERT are similar, as noted above, and (2) the numbers of diseases currently treated by ERT (six diseases, according to a brief “Enzyme Replacement Therapies for Lysosomal Storage Diseases” published by the Agency for Healthcare Research and Quality in 2013) are similar to the number of target diseases for i-ERT.

Partnering Opportunities

We believe that our Hybrid mRNA Technology can be of significant interest to potential corporate partners who are interested in developing mRNA therapeutics. In addition, we have received indications of interest from gene editing companies to use our technology to introduce gene editing therapeutics into the hepatocytes in order to enable in vivo gene editing. Companies developing mRNA and in vivo gene editing therapeutics have reported to us a common set of challenges that we believe can be addressed by our technology, including in vivo instead of ex vivo delivery, high levels of expression and activity, specificity of expression to the liver, avoidance of off-target effects and ability to use repeat dosing regimens without loss of expression on subsequent dosing. Companies focused on gene editing include bluebird bio, Inc., Cellectis S.A., CRISPR Therapeutics AG, Editas Medicine, Inc., Intellia Therapeutics, Inc., Precision Biosciences, Inc. and Sangamo Biosciences, Inc.

There are many companies interested in mRNA therapeutics to treat orphan liver diseases, including Shire plc, Moderna LLC, Alexion Pharmaceuticals, Inc. and Ultragenyx Pharmaceutical Inc. Also, there are many single-gene inherited metabolic disorders of the liver beyond the urea cycle disorders that we believe may be good candidates for mRNA replacement therapy. Once proof of concept is obtained in one orphan liver disease, we believe our technology can be used to rapidly develop mRNA therapeutics to treat other orphan liver diseases. The mRNA sequences for each of these diseases are readily available in public databases, and we expect those mRNAs can readily be manufactured by contract manufacturers. As a result, we believe that new potential mRNA therapeutics may be efficiently developed by combining different mRNAs with our Hybrid mRNA Technology. Given that the delivery system will be the same across the programs, once the Hybrid mRNA Technology is successful with one mRNA therapeutic to treat an orphan liver disease, we anticipate that the costs and risks associated with developing new mRNA therapeutics for other orphan liver diseases will be relatively low. We are engaged in discussions with potential partners for developing mRNA programs in various disease indications. We intend to pursue partnerships in order to accelerate the development and maximize the market potential of our Hybrid mRNA Technology platform. In particular, we intend to partner with larger biopharmaceutical companies that possess market know-how and marketing capabilities to complete the development and commercialization of mRNA therapeutics.

In addition, the ability of our technology platform to effectively deliver mRNA to the liver hepatocytes provides the potential to apply our technology platform to in vivo gene editing — the modification of the genome of a patient’s cells in vivo to either delete genes that are causing disease or to add genes to correct genetic defects, which, if successful, could have a variety of important potential medical applications. For example, deleting gene function could be used to lower levels of drug targets such as PCSK-9 for lowering cholesterol, and adding gene function could be used to correct certain types of hemophilia. We believe that such applicability provides opportunities to form revenue-generating strategic collaborations with partners developing gene editing technologies.

In 2014, we entered into a collaboration and development agreement with Synageva, pursuant to which we and Synageva agreed that we would develop mRNA technologies for the treatment of inherited orphan liver diseases, including development of the Hybrid mRNA Technology. Under this agreement, Synageva had an option to acquire us. This right was not exercised mainly, we believe, because of the acquisition of Synageva by Alexion Pharmaceuticals, Inc. in May 2015, which occurred during Synageva’s option period. All rights to the technology and products generated under this collaboration and development agreement have now reverted to us. Subsequent to our collaboration and development agreement with Synageva, we have not entered into any additional partnerships, collaborations or license agreements for our current product candidates.

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Competition

The biotechnology industry is characterized by intense and rapidly changing competition to develop new technologies and proprietary products and affected by new technologies, new developments, government regulations, health care legislation, availability of financing and other factors. We compete with numerous other companies that currently operate, or intend to operate, in the industry, including companies that are engaged in RNA-based therapeutic technologies and other manufacturers that may decide to undertake development of such products, as well as other companies that are pursuing non-RNA-based approaches for the treatment of urea cycle disorders. While we believe that our intellectual property portfolio, scientific expertise and our Hybrid mRNA Technology provide us with competitive advantages, we face potential competition from many different sources, including larger and better-funded biotechnology and pharmaceutical companies, who, due to their size, may have significant advantages over us. These larger companies have substantially greater capital resources, larger customer bases, broader product lines, larger sales forces, greater marketing and management resources, larger research and development staffs and larger facilities than ours and have established reputations and relationships with physicians and patients, as well as worldwide distribution channels that are more effective than those we will have. In addition, due to ongoing consolidation in the industry, there are high barriers to entry for small biotechnology companies. For a discussion of some of these advantages and the competitive risks we face, see “Risk Factors — Risk Related to our Industry.”

We are aware of several companies that are developing nucleic acid-based therapeutics for orphan liver diseases. There are several companies developing AAV-based approaches to gene therapy including REGENXBIO Inc., Dimension Therapeutics, Inc. and uniQure N.V. Of these, Dimension Therapeutics, Inc. has selected OTCD as one of its development programs as of February 2016. In addition, Moderna LLC is developing injectable modified mRNA therapeutics encoding a variety of proteins. Alexion Pharmaceuticals, Inc. has established an exclusive agreement with Moderna LLC for the discovery and development of mRNA therapeutics to treat rare diseases. As of January 2016, Moderna LLC and Alexion Pharmaceuticals, Inc. have announced that their first mRNA therapeutic program is the treatment of Crigler Najjar Syndrome, an orphan liver disease. Shire plc is known to have pursued mRNA replacement therapy for ASS1 as a development candidate, but its lead mRNA therapeutic candidate is for cystic fibrosis. Arcturus is developing mRNA-based therapeutics for the treatment of OTCD as well as for iron deficiencies, thrombopoietin and cystic fibrosis. Alnylam Pharmaceuticals, Inc. and Dicerna Pharmaceuticals, Inc. are developing a LNP delivery platform for targeted delivery of small interfering RNA, or siRNA, therapeutics to hepatocytes for silencing specific mRNA to prevent disease-causing proteins from being made and are using this approach to develop therapeutics for primary hyperoxalurea and hepatic porphyrias. There are substantial differences to what these companies are doing relative to us. Specifically, through our technology we are seeking to deliver and replace a specific missing mRNA in the cell, whereas Alnylam Pharmaceuticals, Inc. and Dicerna Pharmaceuticals, Inc. are decreasing the amount of a specific mRNA. In addition, although Alnylam Pharmaceuticals, Inc. and Dicerna Pharmaceuticals, Inc.’s approach uses a covalent GalNAc conjugate to target the siRNA, we use GalNAc to target the polymer component of the delivery system which enables intracellular delivery of the mRNA.

Because liver transplant in newborns is technically difficult, Cytonet GmbH & Co. is developing a therapy for newborns severely affected by urea cycle disorders, and recently filed a Marketing Authorization Application, or MAA, with the EMA and is seeking approval for its liver cell therapy for treatment of urea cycle disorders in children. This treatment involves the infusion of human liver cells with the aim of prolonging crisis-free survival until the patients are able to undergo a liver transplant. In addition, Promethera Biosciences S.A., a Belgian company, is evaluating stem cell based therapy for treatment of urea cycle disorders in the pediatric population. Promethera Biosciences S.A. has completed a 20 patient Phase 1/2 trial in Europe and is currently enrolling patients in a Phase 2b trial. Other potential therapies for the urea cycle disorders in early stage preclinical or clinical testing include gene therapy and mitochondrial enzyme replacement. For example, Aeglea Biotherapeutics, Inc. has a degrading enzyme treatment in preclinical development for arginase 1 deficiency. Ocera Therapeutics Inc. is developing an ammonia scavenger which they claim has improved properties. Bio Blast Pharma Ltd., an Israeli biopharmaceutical company, is pursuing a mitochondrial protein replacement platform in OTCD, which is currently in preclinical development. Synlogic, Inc. is developing a engineered synthetic biotic designed to change the microbiome in the gut

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which, according to Synlogic, Inc., could reduce excess ammonia in the blood for the treatment of urea cycle disorders and other forms of hyperammonemia.

Other companies with mRNA delivery technologies that may compete for gene editing partnerships include Arcturus Therapeutics, Inc., Acuitas Therapeutics Inc., Arbutus Biopharma Corporation, CureVac AG, and BioNTech AG.

These companies also compete with us in recruiting personnel and securing licenses to complementary technologies or specific substances that may be critical to the success of our business. They also compete with us for potential funding.

Intellectual Property

We rely on a combination of patents, trade secrets, non-disclosure agreements, and other intellectual property to protect the proprietary technologies that we believe are important to our business. Our success will depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions and know-how, defend and enforce our patents, maintain our licenses, preserve our trade secrets, and operate without infringing valid and enforceable patents and other proprietary rights of third parties. We also rely on continuing technological innovation to develop, strengthen, and maintain our proprietary position in the field of mRNA therapeutics and delivery.

Our Patent Portfolio

Our portfolio of patents and patent applications includes multiple families that protect various aspects of our business. The patents and patent applications that make up our patent portfolio are primarily focused on synthetic polymers and related compositions, the use of polymer and polymer-LNP compositions for delivery of mRNA and other therapeutic agents, including the use of polymer-LNP compositions in our core platform technology, and methods for treating protein deficiency diseases such as orphan diseases characterized by single-gene metabolic defects in the liver, including OTCD. As of March 31, 2016, we own or have in-licensed 11 issued U.S. patents, 20 issued foreign patents, and over 35 pending U.S. and foreign patent applications:

     
Case Family   Issued Patents   Pending
Applications by
Jurisdiction
  Owned or In-licensed
Enhanced Transport   US 6,835,393; US 7,374,778;
US 8,003,129; US 8,846,106;
EP 1044021; AU 758368; CA 2317549
  US   In-licensed
Enhanced Transport   US 7,737,108; US 8,318,816        In-licensed
Temperature and pH-responsive Compositions   US 7,718,193        In-licensed
Diblock Copolymer   EP 2281011; AU 2009246327; CN ZL200980122888.3; IL 209238; MX 316902; SG 166444; ZA 2010/08729   US, AU, CA, JP, BR, CN, IN, KR   Co-owned; UW’s rights in-licensed
Micellic Assemblies   EP 2285853; AU 2009246329; JP 5755563; MX 315375   US, AU, CA, JP, KR   Co-owned; UW’s rights in-licensed
Polymeric Carrier   US 9,006,193   US   Co-owned; UW’s rights in-licensed
Heterogeneous Polymeric Micelles   US 9,211,250        Co-owned; UW’s rights in-licensed
Bispecific Intracellular Delivery Vehicles   US 8,822,213; 9,220,791   US, EP, CA   Co-owned; UW’s rights in-licensed

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Case Family   Issued Patents   Pending
Applications by
Jurisdiction
  Owned or In-licensed
Hydrophilically Shielded Copolymers        US   Co-owned; UW’s rights in-licensed
Multiblock Copolymers   EP 2364330; AU 2009313358; CN ZL200980148153.8; JP 5766611; MX 330456; SG 171100   US, CA, BR, IL, IN, KR, ZA   Co-owned; UW’s rights in-licensed
Omega-Functionalized Polymers        US   Co-owned; UW’s rights in-licensed
Targeting Monomers        US   Co-owned; UW’s rights in-licensed
RNA Targeted to Beta-Catenin        US   Owned
RNA Targeted to c-Met        US   Owned
Block Copolymers        US, AU, EP, CA   Owned
Polymer-LNP Delivery        PCT, US   Owned

A significant portion of our patent portfolio is in-licensed from UW. The UW license, which is exclusive, worldwide, and sublicensable and is described more fully below under “— License Agreements —  UW License Agreement,” is in the field of drug delivery, human therapeutics, human prophylactics and research reagents. We co-own, with UW, several families within this in-licensed portfolio. The co-owned patent filings include two granted European patents, EP 2281011 and EP 2285853, covering membrane destabilizing polymers and polymer compositions used in our core platform technology. Corresponding patents have also issued in other foreign jurisdictions, including Australia, and corresponding applications are pending within the United States and outside the United States, including Canada and Japan. The U.S. patent application corresponding to EP 2285853 has been allowed. These issued foreign patents and the U.S. patent expected to issue from the allowed application are projected to expire in 2029. We have another patent family directed to diblock polymers that includes issued patents in Europe, Australia, Israel, and several other foreign jurisdictions, has pending applications in the U.S., Canada, Japan, China, and several other foreign jurisdictions, and any patents issuing in this family are projected to expire in 2029.

We are the sole owner of an international Patent Cooperation Treaty, or PCT, application with a U.S. provisional application priority claim. The PCT application is directed to our core technologies for mRNA delivery, including membrane destabilizing polymer and LNP drug carrier compositions, compositions and systems comprising a combination of polymer and LNP drug carrier, and methods of using such compositions and systems for delivering therapeutic agents, such as mRNA, into cells, including targeted delivery of mRNA to the liver. This application is further directed to related methods for treating diseases characterized by deficiency of a functional protein by in vivo delivery of mRNA encoding the functional protein, including methods for treating OTCD via liver-specific delivery of OTC-encoding mRNA. Any patent issuing from this application is projected to expire in 2036.

Patent Term

The term of individual patents and patent applications in our portfolio will depend upon the legal term of the patents in the countries in which they are obtained. In most countries, the patent term is 20 years from the date of filing of the patent application or examined priority application, if applicable. For example, if an international PCT application is filed, any patent issuing from the PCT application in a specific country expires 20 years from the filing date of the PCT application. Patents issuing from applications filed in the United States on or after June 8, 1995, will have a term that is twenty years from the filing date of the earliest examined priority application, absent any patent term adjustment for the U.S. Patent and Trademark Office delay.

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Under the Hatch-Waxman Act, the term of a patent that covers an FDA-approved drug or biological product may also be eligible for patent term extension, or PTE. PTE permits restoration of a portion of the patent term of a U.S. patent as compensation for the patent term lost during product development and the FDA regulatory review process if approval of the application for the product is the first permitted commercial marketing of a drug or biological product containing that active ingredient. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a new drug application, or NDA, or biologics license application, or BLA, plus the time between the NDA or BLA submission date and the approval of that application. The Hatch-Waxman Act permits the owner of a patent to apply for a PTE for only one patent applicable to an approved drug, and the maximum period of restoration is five years beyond the expiration of the patent. A PTE cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and a patent can only be extended once, and thus, even if a single patent is applicable to multiple products, it can only be extended based on one product. Similar provisions may be available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of an NDA or BLA, we expect to apply for PTEs for patents covering our product candidates and their methods of use, or to work with our licensors, as owners or co-owners of such patents, to obtain such extensions, if available.

License Agreements

UW License Agreement

In 2006, we obtained from UW an exclusive, worldwide license to polymer technology for drug delivery, human therapeutics, human prophylactics and research reagents used for the in vitro and in vivo delivery and/or uptake of any entity including polymers, particles, nucleic acids, proteins, peptides and/or other molecules into cells, tissues, or organs pursuant to the Exclusive Patent License Agreement, dated as of December 6, 2006, as amended and restated on January 20, 2016, and on February 9, 2016, or the UW License Agreement. Licensed patents include three patent families owned by UW and nine patent families co-owned by us and UW. One of the licensed patent families is co-owned by UW and the University of Massachusetts, and the University of Massachusetts’s rights in this patent family are licensed to us under an inter-institutional agreement between UW and the University of Massachusetts.

Under the UW License Agreement, we are obligated to use our commercially reasonable efforts to commercialize, manufacture and maximize sales of the licensed products. The UW License Agreement requires us to pay an annual maintenance fee, low single digit royalty payments based on a percentage of net sales with a minimum annual royalty payment and certain financial and performance milestone payments. The potential aggregate milestone payments are in the low single digit millions of dollars per specific drug target. We and our material sublicensees have the right to sublicense our rights under the UW License Agreement, provided that such sublicensees agree to terms consistent with the UW License Agreement. The UW License Agreement prohibits us from granting a security interest or allowing any person to assert or perfect a security interest in our rights under the UW License Agreement.

The UW License Agreement is effective until either terminated in accordance with the terms of the UW License Agreement or no license patent is valid and subsisting or pending in any country in the territory set forth in the UW License Agreement. UW may terminate the UW License Agreement upon delivery of a written notice of termination if we breach or fail to perform any of our obligations under the UW License Agreement and such breach or failure has not been cured in full within 60 days after the delivery to us of the notice of such breach or failure. UW may also terminate the UW License Agreement upon 10 days’ notice to us if we become insolvent. We have the right to terminate our agreement with UW for any reason upon 60 days’ notice.

Commonwealth Scientific and Industrial Research Organisation License Agreement

In 2009, we obtained from CSIRO, a non-exclusive, royalty-bearing, worldwide license to RAFT polymerization technology within the field of membrane destabilizing polymers that are used for the delivery of nucleic acids, proteins, peptides and/or other molecules in the diagnosis, prophylaxis or treatment of human disease pursuant to the Non-Exclusive License Agreement, dated as of October 26, 2009, as amended and restated on January 22, 2016, or the CSIRO Agreement.

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Under the CSIRO Agreement, we are obligated to use our reasonable commercial endeavors to exploit the licensed patents to maximize the return from that exploitation to us and CSIRO. We are solely responsible for the manufacture, quality control, marketing and promotion of the licensed products we sell under the CSIRO Agreement. The CSIRO Agreement requires an upfront fee, low single digit royalty payments based on a percentage of net sales revenue, and a minimum annual royalty payment. Under the CSIRO Agreement, we have the right to sublicense to manufacture for use/sale by us and to sublicense to make and sell licensed products through multiple layers, provided that such sublicensee agrees to terms consistent with the CSIRO Agreement. We may not assign or encumber any of the rights or obligations under the CSIRO Agreement without CSIRO’s written consent, unless the assignment is to the successor of our business or purchaser of our assets.

The CSIRO Agreement is effective until either terminated in accordance with the terms of the CSIRO Agreement or expiration, lapsing or cessation (including by revocation or as a result of a final declaration of invalidity or unenforceability) of the last to expire, lapse or cease of the licensed patents. We have the right to terminate the CSIRO Agreement for any reason upon six months’ notice or immediately by notice if CSIRO commits a material breach of its obligations under the CSIRO Agreement which is not remedied within 90 days of notice from us of such breach. CSIRO may immediately terminate the CSIRO Agreement by notice if we commit a material breach of our obligations under the CSIRO Agreement which is not remedied within 90 days of notice from CSIRO of such breach or if we initiate proceedings in a court to contest the validity or enforceability of any licensed patent under the CSIRO Agreement, lodge third party observations to contest the validity or enforceability of any licensed patent or otherwise supply prior art to an examiner or patent office in respect of any licensed patent or actively assists a third party to take any of such actions.

Manufacturing

We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our therapeutic candidates. We have small-scale production capabilities and generally perform early process development for our product candidates to produce quantities of our therapeutic candidates necessary to conduct preclinical studies of our investigational therapeutic candidates. We do not have and we do not currently plan to acquire or develop the facilities or capabilities to manufacture bulk drug substance or filled drug product for use in human clinical studies. We plan to rely on CMOs and third party contractors to generate formulations and produce larger scale amounts of drug substance and the drug product required for our clinical studies. We expect to rely on CMOs and third party contractors to manufacture cGMP drug substance and drug product required for our clinical studies for the foreseeable future. We also plan to contract with CMOs and third party contractors for the labeling, packaging, storage and distribution of investigational drug products. These arrangements allow us to maintain a more flexible infrastructure while focusing our expertise on researching and developing our products.

To meet our projected needs for commercial manufacturing, third parties with whom we currently work might need to increase their scale of production or we will need to secure alternate suppliers. We believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.

Research and Development

We spent approximately $4.9 million on research and development activities in each of the years ended December 31, 2014 and 2015.

Government Regulation

Pharmaceutical companies are subject to extensive regulation by national, state and local agencies such as the FDA in the United States or the EMA in Europe. The manufacture, distribution, marketing and sale of pharmaceutical products are subject to government regulation in the United States and various foreign countries. Additionally, in the United States, we must follow rules and regulations established by the FDA requiring the presentation of data demonstrating that our products are safe and efficacious and are manufactured in accordance with the cGMP regulations. If we do not comply with applicable requirements, the government may refuse to approve our marketing applications or refuse to allow us to manufacture or

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market our products, and we may be criminally prosecuted or fined. We and our manufacturers and clinical research organizations may also be subject to regulations under other federal, state and local laws, including, but not limited to, the U.S. Occupational Safety and Health Act, and import, export and customs regulations as well as the laws and regulations of other countries. The United States government has increased its enforcement activity regarding illegal marketing practices domestically and internationally. As a result, pharmaceutical companies must ensure they comply with the Foreign Corrupt Practices Act and federal healthcare fraud and abuse laws, including the False Claims Act.

These regulatory requirements impact our operations and differ from one country to another, so that securing the applicable regulatory approvals of one country does not imply the approval of another country. However, securing the approval of a more stringent body, i.e. the FDA, may facilitate receiving approval by a regulatory authority in a different country where the regulatory requirements are similar or less stringent. The approval procedures involve high costs, are manpower intensive, usually extend over many years and require highly skilled and professional resources.

FDA Approval Process

The steps required to be taken before a new drug may be marketed in the United States generally include:

completion of preclinical laboratory and animal testing;
the submission to the FDA of an IND application, which must be evaluated by the FDA before human clinical trials may commence;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use; and
submission and approval of a NDA.

Clinical studies are conducted under protocols detailing, among other things, the objectives of the study, what types of patients may enter the study, schedules of tests and procedures, drugs, dosages, and length of study, as well as the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND.

The clinical testing of a drug product candidate generally is conducted in three sequential phases prior to approval, but the phases may overlap or be combined. A fourth, or post approval, phase may include additional clinical studies. The phases are generally as follows:

Phase 1.  In Phase 1 clinical studies, the product is tested in a small number of patients with the target condition or disease or in healthy volunteers. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the product candidate in humans, side effects associated with increasing doses, and, in some cases, to gain early evidence on efficacy. The number of participants included in Phase 1 studies generally ranges from 20 to 80.

Phase 2.  For Phase 2 studies, in addition to safety, the sponsor evaluates the efficacy of the product candidate on targeted indications to determine the optimal dosage. Phase 2 studies typically are larger than Phase 1 but smaller than Phase 3 studies and may involve several hundred participants.

Phase 3.  Phase 3 studies typically involve an expanded patient population at geographically-dispersed test sites. They are performed after preliminary evidence suggesting effectiveness of the product candidate has been obtained and are designed to further evaluate clinical efficacy and safety, to establish the overall benefit-risk relationship of the product candidate and to provide an adequate basis for a potential product approval. Phase 3 studies usually involve several hundred to several thousand participants.

Phase 4.  Phase 4 clinical trials are post-marketing studies designed to collect additional safety data as well as potentially expand a product indication. Post-marketing commitments are required of, or agreed to by, a sponsor after the FDA has approved a product for marketing. These studies are used to gain additional information from the treatment of patients in the intended therapeutic indication and to verify a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA

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approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement. These clinical trials are often referred to as Phase 4 post-approval or post-marketing commitments. Failure to promptly conduct Phase 4 clinical trials could result in the inability to deliver the product into interstate commerce, misbranding charges, and civil monetary penalties.

For an orphan drug product such as the proposed urea cycle disorder therapies, the clinical development plan is significantly abbreviated due to the limited number of available patients. Orphan drug NDAs are typically based on approximately one hundred or fewer patients, rather than the thousands of patients for a non-orphan drug NDA.

Clinical trials must be conducted in accordance with the FDA’s and EMA’s good clinical practices, or GCP, requirements. The FDA/EMA may order the temporary or permanent discontinuation of a clinical study at any time or impose other sanctions if it believes that the clinical study is not being conducted in accordance with requirements or that the participants are being exposed to an unacceptable health risk. An institutional review board, or IRB, or Ethics Committee, or EC, generally must approve the clinical trial design and patient informed consent and also may halt a study, either temporarily or permanently, for failure to comply with the IRB/EC’s requirements, or may impose other conditions. Additionally, some clinical studies are overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board. This group recommends whether or not a trial may move forward at designated check points based on access to certain data from the study. The clinical study sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

As a product candidate moves through the clinical testing phases, manufacturing processes are further defined, refined, controlled and validated. The level of control and validation required by the FDA would generally increase as clinical studies progress. We and the CMOs or third-party manufacturers on which we rely for the manufacture of our product candidates and their respective components are subject to requirements that drugs be manufactured, packaged and labeled in conformity with cGMP. To comply with cGMP requirements, manufacturers must continue to spend time, money and effort to meet requirements relating to personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements.

Assuming completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA/EMA in the form of an NDA (or MAA for the EMA), requesting approval to market the product for one or more indications, together with payment of a user fee, unless waived. An NDA/MAA includes all relevant data available from pertinent nonclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the chemistry, manufacture, control and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the product candidate for its intended use to the satisfaction of the FDA/EMA.

If an NDA submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the Prescription Drug User Fee Act, or PDUFA, the FDA’s goal is to complete its initial review and respond to the applicant within ten months of submission. If the application is determined by FDA to treat a serious condition and would provide a significant improvement in safety or effectiveness, it may qualify for Priority Review, in which case the review goal may be within six months of NDA submission. An orphan drug, such as the proposed urea cycle disorder therapies, would be expected to meet the requirements of Priority Review, and thus be eligible for a six-month review period. However, PDUFA goal dates are not legal mandates and FDA response often occurs several months beyond the original PDUFA goal date. Further, the review process and the target response date under PDUFA may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the NDA. The NDA review process can, accordingly, be very lengthy. During its review of an NDA, the FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical studies is not always conclusive and the FDA and/or any advisory committee it appoints may interpret data differently than the applicant.

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After the FDA evaluates the NDA and inspects manufacturing facilities where the drug product and/or its active pharmaceutical ingredient will be produced, it will either approve commercial marketing of the drug product with prescribing information for specific indications or issue a complete response letter indicating that the application is not ready for approval and stating the conditions that must be met in order to secure approval of the NDA. If the complete response letter requires additional data and the applicant subsequently submits that data, the FDA nevertheless may ultimately decide that the NDA does not satisfy its criteria for approval.

The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategies plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-marketing testing. Such post-marketing testing may include Phase 4 clinical studies and surveillance to further assess and monitor the product’s safety and efficacy after approval. Regulatory approval of products for serious or life-threatening indications may require that participants in clinical studies be followed for long periods to determine the overall survival benefit of the drug.

If the FDA/EMA approves one of our therapeutic candidates, we will be required to comply with a number of post-approval regulatory requirements. We would be required to report, among other things, certain adverse reactions and production problems to the FDA/EMA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling for any of our products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, which imposes extensive procedural, substantive and record keeping requirements. If we seek to make certain changes to an approved product, including certain manufacturing changes, we will need FDA/EMA review and approval before the change can be implemented. For example, if we change the manufacturer of a product the FDA/EMA may require stability or other data from the new manufacturer, which will take time and is costly to generate, and the delay associated with generating this data may cause interruptions in our ability to meet commercial demand, if any. While physicians may use products for indications that have not been approved by the FDA/EMA, we may not label or promote the product for an indication that has not been approved. Securing FDA/EMA approval for new indications is similar to the process for approval of the original indication and requires, among other things, submitting data from adequate and well-controlled studies that demonstrate the product’s safety and efficacy in the new indication. Even if such studies are conducted, the FDA/EMA may not approve any change in a timely fashion, or at all.

We plan to rely, and expect to continue to rely, on third parties for the manufacture of clinical, and future commercial, quantities of our therapeutic candidates. Future FDA/EMA and local inspections may identify compliance issues at these third-party facilities that may disrupt production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA/MAA, including withdrawal or recall of the product from the market or other voluntary, FDA/EMA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Many of the foregoing could limit the commercial value of an approved product or require us to commit substantial additional resources in connection with the approval of a product. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA/EMA’s policies may change, which could delay or prevent regulatory approval of the products under development.

Orphan Drug Designation

The Orphan Drug Act of 1983, or the Orphan Drug Act, encourages manufacturers to seek approval of products intended to treat “rare diseases and conditions” with a prevalence of fewer than 200,000 patients in the United States or for which there is no reasonable expectation of recovering the development costs for the product. For products that receive Orphan Drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for the product following FDA marketing approval.

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Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under European Union regulatory systems, a company may submit an MAA either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology, provides for the grant of a single marketing authorization that is valid for all European Union member states.

Reimbursement

In the United States and other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors, including government health administrative authorities, managed care providers, private health insurers and other organizations. Each third-party payor may have its own policy regarding what products it will cover, the conditions under which it will cover such products, and how much it will pay for such products. Third-party payors are increasingly examining the medical necessity and cost effectiveness of medical products and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Third-party reimbursement adequate to enable us to realize an appropriate return on our investment in research and product development may not be available for our products. The passage of the Medicare Prescription Drug and Modernization Act of 2003, or the MMA, sets forth the requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, which may affect the marketing of our products. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market.

We expect there will continue to be a number of federal and state proposals to implement governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.

The Patient Protection and Affordable Care Act

In March 2010, President Obama signed into legislation the Patient Protection and Affordable Care Act, or the Affordable Care Act, which resulted in sweeping changes across the health care industry. The Affordable Care Act contained measures designed to promote quality and cost efficiency in health care delivery and to generate budgetary savings in the Medicare and Medicaid programs. Pharmaceuticals represent a significant portion of the cost of providing care, and have therefore been the subject of pricing negotiation, product selection and utilization review. The Affordable Care Act includes significant provisions that encourage state and federal law enforcement agencies to increase activities related to preventing, detecting and prosecuting those who commit fraud, waste and abuse in federal healthcare programs, including Medicare, Medicaid and Tricare. The Affordable Care Act continues to be implemented through regulation and government activity but is subject to possible, amendment, additional implementing regulations and interpretive guidelines. The manner in which the Affordable Care Act continues to evolve could materially affect the extent to which and the amount at which pharmaceuticals are

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reimbursed by government programs such as Medicare, Medicaid and Tricare. We cannot predict all impacts the Affordable Care Act may have on our products, but it may result in our products being chosen less frequently or the pricing being substantially lowered.

Fraud and abuse laws in the United States

A variety of U.S. federal and state laws apply to the sale, marketing and promotion of drugs that are paid for, directly or indirectly, by U.S. federal or state healthcare programs such as Medicare and Medicaid. The restrictions imposed by these laws are in addition to those imposed by the FDA, the U.S. Federal Trade Commission and corresponding state agencies. Some of these laws significantly restrict or prohibit certain types of sales, marketing and promotional activities by drug manufacturers. Violation of these laws may result in significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties and exclusion or debarment from U.S. federal and state healthcare and other programs. Many private health insurance companies also prohibit payment to entities that have been sanctioned, excluded or debarred by U.S. federal agencies.

Anti-kickback statutes in the United States

The U.S. federal anti-kickback statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending of a good or service, for which payment may be made in whole or in part under a U.S. federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that, if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in whole or in part under U.S. federal healthcare programs, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other U.S. federal healthcare programs. In addition, some kickback allegations have been claimed to violate the U.S. False Claims Act (as discussed below). The reach of the federal anti-kickback statute was broadened by the Affordable Care Act, which, among other things, amends the intent requirement of the federal anti-kickback statute. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. The Affordable Care Act further 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 U.S. False Claims Act or the Civil Monetary Penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The U.S. federal anti-kickback statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services, or OIG, has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the anti-kickback statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG or the U.S. Department of Justice.

Many states have adopted laws similar to the U.S. federal anti-kickback statute. Some of these state prohibitions are broader than the U.S. federal statute, and apply to the referral of patients and recommendations for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs. Government officials have focused certain enforcement efforts on marketing of healthcare items and services, among other activities, and have brought cases against individuals or entities with sales personnel who allegedly offered unlawful inducements to potential or existing physician customers in an attempt to procure their business.

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U.S. False Claims Act

The U.S. False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the U.S. federal government or knowingly making, or causing to be made, a false statement in order to have a false claim paid. The U.S. federal government’s interpretation of the scope of the law has in recent years grown increasingly broad. Most states also have statutes or regulations similar to the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these U.S. federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment. Several drug manufacturers have been prosecuted under the false claims laws for allegedly providing free drugs to physician customers with the expectation that the physician customers would bill U.S. federal programs for the product. In addition, several recent cases against drug manufacturers have alleged that the manufacturers improperly promoted their products for “off-label” use, outside of the scope of the FDA-approved labeling.

U.S. Health Insurance Portability and Accountability Act of 1996

The HIPAA created a new U.S. federal healthcare fraud statute that prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government-sponsored programs. Among other things, HIPAA also imposes new criminal penalties for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services, along with theft or embezzlement in connection with a healthcare benefits program and willful obstruction of a criminal investigation involving a U.S. federal healthcare offense.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates” — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business.

Compliance with Environmental Laws

Our compliance with applicable environmental requirements during the years ended December 31, 2015, 2014 and 2013 and subsequently has not had a material effect upon our capital expenditures, earnings or competitive position.

Employees

As of December 31, 2015, we had 16 total employees: 14 full-time employees, 12 of whom were engaged in full-time research and development activities and 2 of whom were engaged in general administration, and 2 part-time employees. None of our employees is represented by any collective bargaining unit. We believe that we maintain good relations with our employees.

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Properties

We currently lease office and laboratory space and storage space in Seattle, Washington, which consists of approximately 11,291 square feet and 2,896 square feet, respectively. The term of the current leases for our office and laboratory facility commenced on May 1, 2010, and extends through November 30, 2016. We plan to extend these leases for at least additional six months, but there can be no assurance that we will extend the existing lease on acceptable terms or terms equivalent to those we currently have. Rent expense for the year ended December 31, 2015 was approximately $689,000. Future aggregate minimum payments under our two leases is $787,000 in 2016.

We may require additional space and facilities as our business expands.

Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.

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MANAGEMENT

Officers and Directors

The following table sets forth the name, age and position of each of our directors and executive officers as of March 31, 2016.

     
Name   Age   Position   Served as an Officer
or Director Since
Robert W. Overell, Ph.D.   60   Director, President and Chief Executive Officer   March 2006
Steven Gillis, Ph.D. (1) (2)   62   Director, Chairman of the Board   February 2008
Richard J. Ulevitch, Ph.D. (2) (3)   72   Director   May 2014
Brian G. Atwood (1)   63   Director   February 2008
John A. Schmidt, Jr., M.D. (2) (3)   65   Director   December 2010
Paul H. Johnson, Ph.D.   73   Director   November 2007
Michelle Griffin (1) (3)   50   Director   February 2016
Michael Houston, Ph.D.   53   Chief Scientific Officer   December 2015
Shing-Yin (Helen) Tsui   45   Vice President, Finance, Secretary   December 2015

(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate Governance Committee

Each member of our board of directors is elected for a one-year term and is elected at each annual meeting of stockholders. We are party to a second amended and restated stockholder voting agreement with certain of our investors, including Dr. Johnson, Dr. Gillis, Foundation BioVenture LLC, which is an affiliate of Dr. Overell, and all of the holders of more than 5% of our capital stock other than Alexandria Equities, LLC, pursuant to which each party has agreed to vote its shares of our voting securities to elect and maintain in office Dr. Gillis, Dr. Ulevitch and Mr. Atwood, as the preferred stock designees, Dr. Overell and Dr. Johnson, as the common stock designees, and Dr. Schmidt, as the independent director, or their respective replacements selected in accordance with the voting agreement. The second amended and restated voting agreement will terminate upon the closing of this offering.

Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors and executive officers. The business experience for the past five years (and, in some instances, for prior years) of each of our executive officers and directors is as follows:

Robert W. Overell, Ph.D. has served as our president and member of our board of directors since 2006 and our chief executive officer since 2009. Prior to our first institutional financing in 2008, Dr. Overell was president of Foundation BioVentures LLC, which provided company formation and consulting services to startup companies, including us. Prior to that, Dr. Overell was a consultant, venture partner, then general partner with Frazier Healthcare Ventures from 1996 to 2005, where he participated in raising over $600 million of venture capital and invested over $60 million in early-stage biotechnology companies. Dr. Overell has served on numerous corporate boards, including Array Biopharma Inc. (NASDAQ:ARRY) from 1998 to 2002, XenoPort, Inc. (NASDAQ:XNPT), which he co-founded in 1999, from 1999 to 2005, and Chimerix, Inc. (NASDAQ: CMRX) from 2004 to 2005. Dr. Overell helped found Immunex Corporation’s gene therapy spinout, Targeted Genetics Corp., where he led product development and gene delivery programs from 1992 to 1996. Dr. Overell joined Immunex Corporation in 1984, where led programs in cell and molecular biology. He also led development of the first human immunodeficiency virus gene therapy trial in the world, which was approved by the Recombinant DNA Advisory Committee of the National Institutes of Health and the FDA in 1991. Dr. Overell obtained a B.Sc. in biological sciences from the University of Newcastle-upon-Tyne and a Ph.D. in biochemistry from the Institute of Cancer Research, University of London, United Kingdom. Dr. Overell’s experience in gene therapy and cell and molecular biology, as well as his service as our chief executive officer and his previous experience as an executive in biotechnology companies and venture experience spanning various investment stages and managing relevant risks, provides our board of directors with unique and valuable business and leadership experience. Our board of directors

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also benefits from his extensive knowledge of the biotechnology industry and from his deep understanding of our technology, opportunities and workforce.

Steven Gillis, Ph.D. has served as a chairman of our board of directors since 2008. Since 2005, Dr. Gillis has been a managing director at ARCH Venture Partners, a venture capital firm. From 1994 to 2005, Dr. Gillis served as chief executive officer and chairman of the board of directors of Corixa Corporation, which he co-founded in October 1994. Previously, Dr. Gillis served as a director, head of research and development, chief scientific officer and acting chief executive officer of Immunex Corporation, which he co-founded, from 1981 until his departure in 1994. As a former director and chairman of Trubion Pharmaceuticals, Inc., Dr. Gillis led its acquisition by Emergent BioSolutions in the fall of 2010. Dr. Gillis currently serves as a director of Shire plc (NASDAQ: SHPG), Accelerator Corporation, Oncofactor Corp., VBI Vaccines Inc. (NASDAQ: VBIV), Pulmatrix, Inc. (NASDAQ: PULM) and serves as director and chairman of VentiRX Pharmaceuticals, Inc., Theraclone Sciences, Inc. and Lycera Corp. Dr. Gillis previously served as a director at bluebird bio, Inc. from 2011 to 2015. Dr. Gillis received his B.A. in biology and English from Williams College and his Ph.D. in biological science from Dartmouth College. We believe that Dr. Gillis’s knowledge in immunology and experience in the venture capital industry, particularly with biotechnology and pharmaceutical companies, qualifies him to serve as a member of our board of directors.

Richard J. Ulevitch, Ph.D . has served as a member of our board of directors since 2014. Since 2008, Dr. Ulevitch has been a venture partner at 5AM Venture Management LLC, a venture capital firm, and from 2002 to 2008, he was chairman of the 5AM Scientific Advisory Board. From 1995 to 2008, Dr. Ulevitch served as professor and chairman of the Department of Immunology at The Scripps Research Institute in La Jolla, California, where he currently serves as professor, chairman emeritus and director of Systems Guided Forward Genetics program, which is in its third five-year cycle receiving funds from the National Institutes of Health. Since 2000, Dr. Ulevitch has been serving as a scientific advisor to Aravis Ventures, a European life science venture capital fund and, from 1995 to 2005, served as an advisor to the Lombard Odier Immunology Fund, where he evaluated numerous biotechnology companies. Dr. Ulevitch currently serves on the scientific advisory board of Arvinas Inc., Biodesy Inc. Cidara Therapeutics, Inc., Cleave Biosciences Inc., Ideaya Inc., and Igenica, Inc. Dr. Ulevitch was formerly a member of scientific advisory boards at Envoy Therapeutics, Inc. (acquired by Takeda Pharmaceutical Company Limited) and Ikaria, Inc. (acquired by Mallinckrodt public limited company). Dr. Ulevitch is also an advisor to a French investment fund funded by Institut National de la Santé et de la Recherché Médicale. Dr. Ulevitch received his A.B. in liberal arts from Washington and Jefferson College and his Ph.D. in biochemistry from the University of Pennsylvania. We believe that Dr. Ulevitch’s experience in the venture capital industry and his research in the role of the immune system in human disease qualify him to serve as a member of our board of directors.

Brian G. Atwood has served as a member of our board of directors since 2008. Since 1999, Mr. Atwood has served as managing director of Versant Ventures, a healthcare-focused venture capital firm he co-founded. Prior to co-founding Versant Ventures, Mr. Atwood spent four years at Brentwood Associates, a venture capital firm, where, as a general partner, he led investments in biotechnology, pharmaceuticals and bioinformatics. Mr. Atwood founded Glycomed, Inc. and served as its president and chief executive officer from 1993 to 1995. Mr. Atwood currently serves on the board of directors of Clovis Oncology, Inc. (NASDAQ: CLVS), Atreca, Inc., Five Prime Therapeutics, Inc. (NASDAQ: FPRX), Immune Design Corp. (NASDAQ: IMDZ), OpGen, Inc., Spark Diagnostics, Inc., and Veracyte, Inc. (NASDAQ: VCYT). Mr. Atwood was previously a member of the board of directors of Helicos Biosciences (NASDAQ: HLCS), and Pharmion Corporation, and Trius Therapeutics, Inc. (NASDAQ: TSRX) acquired in 2013, and Cadence Pharmaceuticals, Inc. (NASDAQ: CADX) acquired in 2014. Mr. Atwood received his B.S. in biological sciences from the University of California, Irvine, his M.S. in ecology from the University of California, Davis, and his M.B.A. from Harvard Business School. We believe that Mr. Atwood’s experience in the venture capital industry and serving as an executive or director of other publicly-traded and privately-held life sciences companies qualifies him to serve as a member of our board of directors.

John A. Schmidt, Jr., M.D., has served as a member of our board of directors since 2010. From 2008 to 2009, Dr. Schmidt served as the chief scientific officer of Alnylam Pharmaceuticals, Inc., and prior to that, from 2004 to 2008, he was vice president and sole U.S. member of the Sanofi-Aventis U.S. LLC’s Global Discovery Leadership Team where he was responsible for the biotherapeutics, external innovation, and China

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discovery initiatives. From 2000 to 2004, Dr. Schmidt served as vice president and head of the respiratory and rheumatoid arthritis disease group of legacy Aventis, during which time he advanced more than 15 new chemical entities into preclinical and clinical development. From 1990 to 2000, Dr. Schmidt served as senior director of immunology and rheumatology at Merck Research Laboratories. Dr. Schmidt received a B.S. in biology from St. Joseph’s University in Philadelphia and an M.D. from the University of Pennsylvania. We believe that Dr. Schmidt’s extensive experience in biopharmaceutical companies conducting drug development qualifies him to serve as a member of our board of directors.

Paul H. Johnson, Ph.D., has served as a member of our board of directors since 2007. From 2007 to 2015, Dr. Johnson served as our chief scientific officer. From 2003 to 2007, Dr. Johnson was senior vice president, research and development, and chief scientific officer of Nastech Pharmaceutical Company, Inc. From 2000 to 2003, Dr. Johnson served as vice president, research and development, and chief scientific officer of EpiGenx Pharmaceuticals, Inc. Since 2014, Dr. Johnson has been executive vice president and chief scientific officer of Next Frontier Biosciences. Dr. Johnson received a B.S. in molecular biology from the State University of New York, Buffalo and a Ph.D. in biochemistry from Roswell Park Cancer Institute (SUNY). We believe that Dr. Johnson’s extensive experience advising biopharmaceutical companies overseeing drug research and development and his prior service as our chief scientific officer qualifies him to serve as a member of our board of directors.

Michelle Griffin, has served as a member of our board of directors since February 2016. Ms. Griffin currently provides consulting services to biotechnology companies and boards of directors through her firm, Pacific Biotechnology Consulting Group. Ms. Griffin served as a member of the board of directors for Polynoma LLC from 2012 to 2014. Ms. Griffin served as executive vice president, operations, and as chief financial officer at OncoGenex Pharmaceuticals Inc. from January 2011 to March 2013. Prior to that, Ms. Griffin served as a member of the board of directors of OncoGenex Pharmaceuticals Inc. from May 2004 to January 2011. Ms. Griffin served as acting chief executive, senior vice president and chief operating officer at Trubion Pharmaceuticals, Inc., a biopharmaceutical company, from February 2006 until its acquisition in October 2010 by Emergent BioSolutions, Inc. From August 2005 to January 2006, Ms. Griffin served as senior vice president and chief financial officer of Dendreon Corporation, a biotechnology company. From March 1995 to July 2005, she was employed by Corixa Corporation, a biotechnology company, and served as its chief financial officer from 1997 until 2005 when Corixa Corporation was acquired by GlaxoSmithKline plc. Prior to that, Ms. Griffin held several finance and strategic planning positions at The Boeing Company. She received a post-graduate certificate in accounting and an M.B.A. from Seattle University and a B.S. in statistics and marketing from George Mason University and has passed the certified public accountant exam. We believe that Ms. Griffin’s extensive experience serving on the boards of directors and as chief financial officer of numerous biopharmaceutical companies qualifies her to serve as a member of our board of directors.

Michael Houston, Ph.D., was appointed as the chief scientific officer in December 2015. Dr. Houston joined us as vice president, therapeutics development, in January 2014. From 2012 to 2013, Dr. Houston provided consulting services at Solid-Phase Consulting, focused on peptide and oligonucleotide-based research and development activities as well as due diligence services for venture capital firms. From 2009 to 2012, Dr. Houston served as vice president of chemistry and formulations for Marina Biotech, Inc. (OTCQB: MRNA), where he led a team developing novel amino acid-based lipids and peptides developing nanoparticle-based formulations to deliver siRNAs and miRNAs. Prior to that, Dr. Houston served as vice president of preclinical chemistry and chemistry, manufacturing and control for Anchor Therapeutics, Inc. (previously Ascent Therapeutics, Inc.) developing chemistry, analytical methods and formulations for the pepducin peptide technology. From 2008 to 2009, Dr. Houston served as vice president, chemistry & formulations at MDRNA, Inc., overseeing drug product processes and managing preclinical development. From 2004 to 2008, Dr. Houston served at Nastech Pharmaceutical Company Inc. in various leadership positions including senior director of chemistry and formulations. Prior to that, Dr. Houston has also served at Cytovax Biotechnologies, Inc. as director of chemistry and senior scientist, focusing on the development of peptide-protein conjugate vaccines. Dr. Houston received a B.Sc. in chemistry and a Ph.D. in bio-organic chemistry from the University of Waterloo, Ontario, Canada, and completed his post-doctoral fellowships in protein engineering at the Protein Engineering Network of Centres of Excellence at the University of Alberta.

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Shing-Yin (Helen) Tsui , has served as our vice president, finance since December 2015, and as secretary and principal accounting officer since February 2016. Prior to joining us, Ms. Tsui served in various accounting positions at Dendreon Corporation, a biotechnology company, including serving as vice president, corporate controller from 2014 to 2015, as senior director, corporate controller from 2013 to 2014, as senior director, accounting operations and enterprise applications from 2011 to 2013 and as corporate controller from 1999 to 2011. At Dendreon Corporation, Ms. Tsui managed the accounting department, including preparing publicly-filed documents in connection with the initial public offering and secondary public offerings by Dendreon Corporation and implementation of Sarbanes-Oxley Act compliance program. Ms. Tsui has over 20 years of financial management experience in Securities and Exchange Commission reporting, conducting mergers and acquisitions due diligence and accounting operations. Ms. Tsui holds a B.A. in business administration from the University of Washington and has passed the certified public accountant exam.

Upon the completion of this offering, we expect our common stock will be listed on The NASDAQ Capital Market. Under the rules of The NASDAQ Stock Market, independent directors must comprise a majority of a listed company’s board of directors within 12 months after the completion of an initial public offering. In addition, the rules of The NASDAQ Stock Market require that (i) on the date of the completion of this offering, at least one member of our audit, compensation and nominating and corporate governance committees be independent, (ii) within 90 days after the date of the completion of our initial public offering, a majority of the members of such committees be independent and (iii) within one year after the date of the completion of our initial public offering, all the members of such committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under the rules of The NASDAQ Stock Market, a director will only qualify as an “independent director” if, in the opinion of that company’s 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 to be 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.

Our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. 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 Drs. Gillis, Ulevitch and Schmidt, Mr. Atwood and Ms. Griffin, or five of our seven directors, do not have 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 the rules of The NASDAQ Stock Market.

Our board of directors also determined that (i) Ms. Griffin, Dr. Gillis and Mr. Atwood, who compose our audit committee, (ii) Dr. Gillis, Dr. Schmidt and Dr. Ulevitch, who compose our compensation committee, and (iii) Ms. Griffin, Dr. Ulevitch and Dr. Schmidt, who compose our nominating and corporate governance committee, each satisfy the independence standards for those committees established by the applicable rules and regulations of the Securities and Exchange Commission and The NASDAQ Stock Market. In making this determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. We intend to comply with all size and independence requirements for committees within the applicable time periods.

Committees of the Board of Directors

The standing committees of our board of directors consist of an audit committee, a compensation committee and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business in their discretion. The composition and functions of the audit committee, compensation committee and nominating and corporate governance committee are described below. Members serve on committees until their respective successors are duly elected and qualified or until their resignation or until otherwise determined by our board of directors.

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Audit Committee

Our audit committee consists of Ms. Griffin, Dr. Gillis and Mr. Atwood. Our board of directors has determined that Ms. Griffin, Dr. Gillis and Mr. Atwood are independent under the NASDAQ listing standards and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. Dr. Gillis and Mr. Atwood are affiliated with ARCH Venture Fund VII, L.P. and Versant Venture Funds, respectively, both of which we expect to beneficially own more than 10% of our common stock following this offering. Therefore, we may not be able to rely upon the safe harbor position of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, which provides that a person will not be deemed to be an affiliate of a company if he or she is not the beneficial owner, directly or indirectly, of more than 10% of a class of voting equity securities of that company. Notwithstanding these holdings, our board of directors has made an affirmative determination that each of Dr. Gillis and Mr. Atwood is an independent director under the NASDAQ listing standards and Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. The chair of our audit committee is Ms. Griffin. Our board of directors has determined that Ms. Griffin is an “audit committee financial expert” within the meaning of the Securities and Exchange Commission regulations. Our board of directors also determined that each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board of directors examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. The functions of this committee include:

selecting a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
helping to ensure the independence and performance of the independent registered public accounting firm;
discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results;
developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
reviewing our policies on risk assessment and risk management;
reviewing related party transactions;
overseeing our corporate governance guidelines and reporting;
obtaining and reviewing a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues when required by applicable law; and
approving (or, as permitted, pre-approving) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm.

Compensation Committee

Our compensation committee consists of Dr. Gillis, Dr. Schmidt and Dr. Ulevitch. Our board of directors has determined that each of Dr. Gillis, Dr. Schmidt and Dr. Ulevitch is independent under the NASDAQ listing standards, is a “non-employee director” as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and is an “outside director” as that term is defined in Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or Section 162(m). The chair of our compensation committee is Dr. Gillis. The functions of the compensation committee include:

reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers;
reviewing and recommending that our board of directors approve the compensation of our directors;
reviewing and approving, or recommending that our board of directors approve, the terms of compensatory arrangements with our executive officers;

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administering our stock and equity incentive plans;
selecting independent compensation consultants and assessing conflict of interest compensation advisers;
reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans; and
reviewing and establishing general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Ms. Griffin, Dr. Ulevitch and Dr. Schmidt. Our board of directors has determined that each of Ms. Griffin, Dr. Ulevitch and Dr. Schmidt is independent under the NASDAQ listing standards and applicable Securities and Exchange Commission rules and regulations. The chair of our compensation committee is Dr. Schmidt. The functions of the nominating and governance committee include:

identifying and recommending candidates for membership on our board of directors;
evaluating nominees recommended by stockholders for membership on our board of directors;
reviewing and recommending the composition of our committees;
overseeing our code of ethics and business conduct; and
making recommendations to our board of directors concerning governance matters.

The nominating and corporate governance committee also annually reviews the nominating and corporate governance committee charter and the committee’s performance.

Compensation Committee Interlocks and Insider Participation

None of our executive officers has served as a member of a compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as one of our directors.

Certain Relationships

There are no family relationships among our directors and executive officers. To our knowledge, there have been no material legal proceedings as described in Item 401(f) of Regulation S-K that are material to an evaluation of the ability or integrity of any of our directors or executive officers (in the last ten years) or our control persons (in the last year).

Code of Ethics

We have adopted a code of business conduct and ethics that applies to all of our officers, directors and employees. The code of business conduct and ethics addresses, among other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, our funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of the code of business conduct and ethics, employee misconduct, improper conflicts of interest or other violations. We will provide a copy of our code of ethics without charge upon written request to PhaseRx, Inc., Attention: Secretary, 410 W. Harrison Street, Suite 300, Seattle, Washington 98119. If we amend or grant a waiver of one or more of the provisions of our code of business conduct and ethics, we intend to satisfy the requirements under Item 5.05 of Form 8-K regarding the disclosure of amendments to, or waivers from, provisions of our code of business conduct and ethics that apply to our principal executive, financial and accounting officers by posting the required information on our website. The information contained in, or that can be accessed through, our website is not incorporated into and is not a part of this prospectus.

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning the total compensation received by, or earned by, our named executive officers, Robert W. Overell, Ph.D., our president and chief executive officer and a member of our board of directors, and Michael Houston, Ph.D., our chief scientific officer during the last fiscal year. No other executive officer had compensation of greater than $100,000 for the last fiscal year.

       
Name and Principal Position   Year   Salary
($)
  Non-Equity
Incentive Plan
Compensation
($) (1)
  Total
Robert W. Overell, Ph. D.     2015     $ 324,150     $ 22,755     $ 346,905  
Michael Houston, Ph. D.     2015     $ 222,375     $ 11,770     $ 234,145  

(1) Amounts shown represent annual performance-based bonuses. For more information, see “— Narrative Disclosure Regarding Summary Compensation Table — Management Bonus Awards”.

Narrative Disclosure Regarding Summary Compensation Table

Employment Agreements

We have entered into agreements with each of our named executive officers. A description of each of these agreements follows.

Robert W. Overell, Ph.D. On August 17, 2009, we entered into an amended and restated employment offer letter with Dr. Overell with respect to his employment as our president and chief executive officer, which was amended on March 13, 2016. Dr. Overell’s amended and restated employment offer letter, as amended, has no specific term and provides that Dr. Overell is an at-will employee. Dr. Overell’s current annual base salary is $338,068. Following the consummation of this offering, Dr. Overell’s annual base salary will be $360,250. We may terminate Dr. Overell’s employment at any time, for any reason or for no reason, with or without cause, upon thirty days advance written notice. Dr. Overell may resign his employment at any time upon thirty days advance written notice to us.

Dr. Overell is also entitled to receive bonus and equity compensation as additional consideration. Pursuant to Dr. Overell’s amended and restated employment offer letter, if we meet certain annual corporate objectives, Dr. Overell will be entitled to receive a cash bonus payment equal in value to up to 25% of his annual salary; provided, however, that our board of directors may grant Dr. Overell options to purchase our common stock in lieu of up to one-half of any such cash bonus payment, in its sole discretion. Dr. Overell is also eligible to receive performance-based cash bonuses as described below under “— Management Bonus Awards”.

In addition, Dr. Overell is a participant in the PhaseRx, Inc. Management Retention Plan pursuant to an Amended and Restated Participation Agreement between us and Dr. Overell, dated February 11, 2016, pursuant to which Dr. Overell has an individual percentage of 23%. See “— Narrative Disclosure Regarding Summary Compensation Table — PhaseRx, Inc. Amended and Restated Management Retention Plan”.

Michael Houston, Ph.D. On December 17, 2013, we entered into an employment offer letter with Dr. Houston with respect to his employment with us, which employment offer letter was amended on August 15, 2014. Dr. Houston’s employment offer letter, as amended, has no specific term and provides that Dr. Houston is an at-will employee. Dr. Houston’s current annual base salary is $258,940. Following the consummation of this offering, Dr. Houston’s annual base salary will be $275,000.

In addition, Dr. Houston is a participant in the PhaseRx, Inc. Management Retention Plan pursuant to an Amended and Restated Participation Agreement between us and Dr. Houston, dated February 11, 2016, pursuant to which Dr. Houston has an individual percentage of 15%. See “— Narrative Disclosure Regarding Summary Compensation Table — PhaseRx, Inc. Amended and Restated Management Retention Plan”.

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Management Bonus Awards

Certain members of our management are eligible to receive performance-based cash bonuses, which are designed to provide appropriate incentives to our executives to achieve defined annual corporate goals. The annual performance-based bonus our executives are eligible to receive is based on the extent to which we achieve the corporate goals that our board of directors establishes each year.

On December 5, 2014, our board of directors approved the terms and conditions of the 2015 management bonus plan, or the 2015 bonus plan, for certain members of our management. Pursuant to the 2015 bonus plan, Dr. Overell was eligible to receive a target bonus in the amount of 35% of his base salary, and Dr. Houston was eligible to receive a target bonus in the amount of 25% of his base salary. Our board approved 20% of the target bonuses under the 2015 bonus plan based on the status of our 2015 corporate goals. The actual amount of the performance-based cash bonuses awarded to Dr. Overell and Dr. Houston for fiscal 2015 performance is set forth above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation”.

On December 4, 2015, our board of directors approved the terms and conditions of the 2016 management plan, or the 2016 bonus plan, for certain members of our management, which was amended by our board of directors on February 8, 2016 and on February 25, 2016. Pursuant to the 2016 bonus plan, as amended, Dr. Overell will be eligible to receive a target bonus in the amount of 40% of his base salary, and Dr. Houston will be eligible to receive a target bonus in the amount of 30% of his base salary. In addition, up to 150% of the target bonuses amount may be paid if we achieve certain additional 2016 corporate goals that were approved by our board of directors.

Retirement, Health, Welfare and Additional Benefits

All of our named executive officers are eligible to participate in our employee benefit plans and programs, including medical and dental benefits and life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans. We also maintain a 401(k) retirement savings plan, or the 401(k) plan, that provides eligible U.S. employees, including all of our named executive officers, with an opportunity to save for retirement on a tax advantaged basis, subject to limits imposed by the Internal Revenue Code. We have the ability to make discretionary contributions to our 401(k) plan but have not done so to date.

PhaseRx, Inc. Amended and Restated Management Retention Plan

On April 3, 2014, our board of directors approved and adopted the PhaseRx, Inc. Amended and Restated Management Retention Plan, or the retention plan. The purpose of the retention plan is to establish a bonus pool payable upon the occurrence of a “liquidity event” (as defined below) to selected key service providers. We intend to terminate the retention plan immediately prior to the closing of this offering.

Allocations and Distributions .  Subject to the terms of the retention plan, upon each closing of a transaction constituting a liquidity event, an acquisition pool shall be established equal to an aggregate of 10% of the net proceeds. The acquisition pool shall be allocated to individuals designated as participants under the retention plan, and each such participant’s allocable share of an acquisition pool under the retention plan will be equal to the product of (x) the acquisition pool multiplied by (y) such participant’s individual percentage as set forth in a participation agreement. If the conditions for distribution set forth in the retention plan are satisfied, each participant shall be entitled to receive such participant’s allocable share of an acquisition pool at the closing of the applicable liquidity event. If a participant is not a service provider to us or one of our subsidiaries at the time of closing, the participant’s unpaid allocation shall be distributed to our stockholders in the same manner as the other proceeds resulting from the liquidity event.

Liquidity Events .  For purposes of the retention plan, “liquidity event” means (i) our liquidation, dissolution or winding up, (ii) a change of control or (iii) a strategic alliance consummated on or before December 31, 2016. For purposes of the foregoing, “change of control” means (A) the acquisition by any one person, or more than one person acting as a group, that is or becomes the owner, directly or indirectly, of 50% or more of the total voting power represented by our then outstanding securities, or (B) a change in the ownership of a substantial portion of our assets which occurs on the date that any person, or more than one person acting as a group, acquires assets from us that have a total gross fair market value equal to more than

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50% of the total fair market value of all of our assets immediately prior to such acquisition or acquisitions, and “strategic alliance” means any transaction whereby we enter into an agreement in which all or a portion of the intellectual property and commercialization rights or assets of our polymer delivery platform or future products emerging from the polymer delivery platform, are optioned, licensed, transferred or sold to another party in exchange for upfront payments, purchases of our securities, milestone payments, reimbursement payments for FTEs or other similar purchases or payments.

Administration .  The retention plan is interpreted and administered by our board of directors. The board may delegate some or all of its powers and responsibilities under the retention plan either to a committee of the board or to one or more of our officers. The board at any time, and from time to time, prior to the closing of a liquidity event, may amend or terminate the retention plan; provided that if there are any participants at such time, the retention plan may not be terminated and provisions related to the calculation of an acquisition pool may not be amended without the prior consent of participants who represent at least a majority of the individual percentages of the persons, if any, who are then participants in the retention plan (taken as a whole). The retention plan may not be amended or terminated following the closing of a liquidity event without the consent of each participant, except as may be required by any applicable law.

2006 Stock Plan

The PhaseRx, Inc. 2006 Stock Plan, as amended and restated on June 13, 2014, as subsequently amended, or the 2006 Plan was adopted by our board of directors on March 9, 2006 and approved by our stockholders on April 10, 2006. The 2006 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and any parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options and stock purchase rights to our employees, directors and consultants and any parent and subsidiary corporations’ employees and consultants. As of December 31, 2015, options to purchase 4,788,646 shares of common stock, or      shares following the reverse stock split, were outstanding under the 2006 Plan, and 263,042 shares, or      shares following the reverse stock split, were available for future grant. We amended the 2006 Plan on February 8, 2016, to increase the number of shares of our common stock reserved under the 2006 Plan by an additional 2,503,832 shares, or     shares following the reverse stock split.

Immediately prior to the consummation of this offering, the 2006 Plan will cease to be available for future issuances of awards; instead, we will grant awards under our 2016 Plan. The terms of the 2006 Plan will remain in effect for outstanding awards granted thereunder.

2016 Awards .  On February 8, 2016, we granted options to purchase shares of our common stock under the 2006 Plan to certain of our employees and directors. The options have an exercise price of $0.17 per share, the fair market value of our common stock at the time of the grant as determined by an independent appraiser. Our board of directors authorized the foregoing grants in order to retain and incentivize our executive officers and directors to continue to serve us following our initial public offering. Certain of our named executive officers and directors were granted options as follows:

 
Name   Shares Subject
to Options
Robert W. Overell, Ph.D. (1)     908,164  
Michael Houston, Ph.D. (1)     558,710  
Steven Gillis, Ph.D. (1)     100,000  
John A. Schmidt, Jr., M.D. (1)     60,000  
Michelle Griffin (2)     150,000  

(1) The options vest in 48 equal monthly installments, commencing upon the consummation of this offering, such that all of the options are fully vested on the four-year anniversary of the consummation of this offering.
(2) The options vest in 48 equal installments on each monthly anniversary of the date of grant, such that all of the options are fully vested on the four-year anniversary of the date of grant.

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2016 Long-Term Incentive Plan

On February 8, 2016, our stockholders approved the 2016 Plan, which was adopted by our board of directors on February 8, 2016. The 2016 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem, and which may be paid in cash, shares of our common stock, or a combination of cash and shares of our common stock. We have reserved a total of 1,400,000 post-reverse stock split shares of our common stock for awards under the 2016 Plan, provided that, such aggregate number of shares reserved for awards will automatically increase on January 1 of each year, in an amount equal to 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The maximum number of shares of common stock that may be delivered pursuant to incentive stock options under the 2016 Plan is 1,400,000 post-reverse stock split shares and the maximum number of shares of common stock with respect to which stock options or stock appreciation rights may be granted to an executive officer during any calendar year is 600,000 post-reverse stock split shares of common stock.

The purpose of the 2016 Plan is to provide an incentive to attract and retain the services of key employees, key contractors, and outside directors whose services are considered valuable, to encourage a sense of proprietorship and to stimulate active interest of such persons in our development and financial success. The 2016 Plan is intended to serve as an “umbrella” plan for us and our subsidiaries worldwide. Therefore, if so required, appendices may be added to the 2016 Plan in order to accommodate local regulations in foreign countries that do not correspond to the scope of the 2016 Plan.

The 2016 Plan will become effective immediately prior to the consummation of this offering. Unless terminated earlier by the board of directors, the 2016 Plan will expire on the tenth anniversary of its effective date. No award may be made under the 2016 Plan after its expiration date, but awards made prior thereto may extend beyond that date.

2016 Awards .  On February 8, 2016, our board of directors authorized the grant of options to purchase shares of our common stock under the 2016 Plan to certain of our employees and directors following the consummation of this offering, pursuant to the terms of the 2016 Plan and subject to compliance with all applicable federal and state securities laws, in order to retain and incentivize our executive officers and directors to continue to serve us following our initial public offering. The options will vest in equal installments on each monthly anniversary of the date of grant, such that all of the options are fully vested on the four-year anniversary of the date of grant. Certain of our named executive officers and directors will be granted options as follows:

 
Name   Post-reverse
stock split
Shares Subject
to Options
Robert W. Overell, Ph.D.     196,311  
Michael Houston, Ph.D.     52,267  
Steven Gillis, Ph.D.     31,023  
John A. Schmidt, Jr., M.D.     22,374  
Michelle Griffin     13,631  
Brian Atwood     28,203  
Richard Ulevitch, Ph.D.     28,203  
Paul A. Johnson, Ph.D.     28,203  

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Outstanding Equity Awards at Fiscal Year End

The following table summarizes the total outstanding equity awards as of December 31, 2015, for each named executive officer.

         
    Option Awards (1)
Name   Date of Grant   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (3)
Unexercisable
  Option
Exercise
Price
($)
  Option
Expiration
date
Robert W. Overell, Ph. D.     6/13/2014 (2)       193,500       322,500     $ 0.01       6/13/2024  
    9/18/2009 (3)       687,500           $ 0.22       9/18/2019  
Michael Houston, Ph.D.     6/13/2014 (4)       136,277       227,128     $ 0.01       6/13/2024  
    1/28/2014 (5)       150,000       150,000     $ 0.22       1/28/2024  

(1) All of the option awards were granted under the 2006 Stock Plan, the terms of which plan are described above under “— Narrative Disclosure Regarding Summary Compensation Table — 2006 Stock Plan”.
(2) One forty-eighth of the shares subject to the option vested on July 13, 2014, and one forty-eighth of the shares vest monthly thereafter, subject to continued service to us.
(3) One forty-eighth of the shares subject to the option vested on September 17, 2009, and one forty-eighth of the shares vest monthly thereafter, subject to continued service to us.
(4) One forty-eighth of the shares subject to the option vested on July 13, 2014, and one forty-eighth of the shares vest monthly thereafter, subject to continued service to us.
(5) One fourth of the shares subject to the option vested on January 1, 2015, and one forty-eighth of the shares vest monthly thereafter, subject to continued service to us.

Potential Payments upon Termination or Change-in-Control

Our agreements with our named executive officers provide for certain change in control and severance payments, which require us to make specific payments and benefits in connection with the termination of such named executive officers’ employment under certain circumstances.

If we terminate Dr. Overell’s employment without “cause”, or he resigns for “good reason” (each as defined in Dr. Overell’s amended and restated employment offer letter, as amended), Dr. Overell will be entitled to receive, subject to his executing and not revoking a separation agreement in a form agreeable to us, a lump sum severance payment equal to six months of his then-applicable base salary and healthcare benefits.

If we terminate Dr. Houston’s employment without “cause”, or if he resigns for “good reason” (each as defined in Dr. Houston’s employment offer letter, as amended), Dr. Houston will be entitled to receive, subject to his executing and not revoking a separation agreement in a form acceptable to us, a severance payment equal to six months of his base salary at the time of termination. Such severance payment shall be paid in equal semi-monthly installments during the six-month period immediately following the date on which Dr. Houston’s employment was terminated.

Director Compensation

The following table shows the compensation earned by persons who served on our board of directors during the fiscal year ended December 31, 2015, who are not one of our named executive officers.

       
Name   Fees Earned or
Paid in Cash
($)
  Option
Awards
($)
  All Other
Compensation
($) (1)
  Total
Steven Gillis, Ph.D.   $     $ (2)     $     $  
Richard J. Ulevitch, Ph.D.   $     $     $     $  
Brian Atwood   $     $     $     $  
John A. Schmidt, Jr., MD.   $ 10,000     $      (3)     $ 60,000     $ 70,000  
Paul H. Johnson, Ph.D.   $ 10,000     $      (4)     $ 20,000     $ 30,000  

(1) Amounts represent payments for consulting services. For more information, see “— Agreements with our Directors” below.

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(2) As of December 31, 2015, Dr. Gillis had outstanding options to purchase up to 300,000 shares of our common stock.
(3) As of December 31, 2015, Dr. Schmidt had outstanding options to purchase up to 127,639 shares of our common stock.
(4) As of December 31, 2015, Dr. Johnson had outstanding options to purchase up to 137,639 shares of our common stock.

In February 2016, our board of directors approved compensation for our non-employee director compensation for the fiscal year ending December 31, 2016 to become effective upon the consummation of this offering. The following table summarizes the anticipated annual cash compensation to our non-employee directors for the fiscal year ending December 31, 2016:

Cash Compensation

 
Position   Cash retainer
amount*
Member of Board of Directors   $ 30,000  
Chairman of the Board of Directors   $ 20,000  
Audit Committee Chair   $ 14,000  
Compensation Committee Chair   $ 9,000  
Nominating and Governance Committee Chair   $ 6,000  
Audit Committee Member   $ 5,000  
Compensation Committee Member   $ 4,250  
Nominating and Governance Committee Member   $ 2,500  

* Board chair and committee chair or member fees are in addition to the payment for serving as a member of the board of directors.

Equity Compensation

For the fiscal year ending December 31, 2016, each non-employee director will receive an annual equity grant equal to 0.12% of outstanding shares of common stock as of the grant date, which will vest annually in equal amounts for serving on our board of directors. Upon initial election as a member of our board of directors, each non-employee director will receive an equity grant equal to 0.23% of outstanding shares of common stock as of the grant date, which will vest monthly in equal amounts for four years. Upon initial election as a chairman of our board of directors, such non-employee director will receive an equity grant equal to 0.33% of outstanding shares of common stock as of the grant date, which will vest monthly in equal amounts for four years. Following the consummation of this offering, the exercise price of these equity grants will be equal to the 10 trading day volume weighted average price of our common stock following the date of grant. These equity awards will be reviewed annually by our compensation committee and are subject to change following such review. On February 8, 2016, our board of directors authorized the grant of options to our non-employee directors, pursuant to the terms of the 2016 Plan and subject to compliance with all applicable federal and state securities laws, such that following the consummation of this offering, our non-employee directors will have received in the aggregate equity grants equal to the amounts set forth above for the initial election as a member of our board of directors or chairman of our board of directors, as applicable. See “— 2016 Long-Term Incentive Plan — 2016 Awards” above.

Each member of our board of directors will be indemnified for his actions associated with being a director to the fullest extent permitted under Delaware law.

In addition, we have entered, and intend to continue to enter, into indemnification agreements with each of our executive officers and directors. These indemnification agreements provide, among other things, the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under Delaware law.

Agreements with our Directors

Steven Gillis, Ph.D.  On March 26, 2008, we entered into a chairman agreement with Dr. Gillis with respect to his serving as chairman of our board of directors and providing certain consulting services to us, which was amended on August 17, 2009, and further amended on February 11, 2016 and on March 13, 2016.

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Pursuant to the chairman agreement, as amended, Dr. Gillis serves as chairman of our board of directors, attends board meetings in person whenever possible, and meets with management from time to time and provides expert strategic business and research and development advice. As compensation, in accordance with the terms of the chairman agreement, on March 26, 2008, Dr. Gillis received an initial option grant to purchase 40,000 shares of our common stock, which has fully vested, at an exercise price of $0.10 per share. In addition, in accordance with the terms of the chairman agreement, on September 18, 2009, following the closing of our Series A preferred stock financing, Dr. Gillis received option grants to purchase in the aggregate an additional 160,000 shares of our common stock, which have fully vested, at an exercise price of $0.22 per share. Dr. Gillis is not entitled to any additional compensation under the chairman agreement, however, we will reimburse Dr. Gillis for all reasonable travel and out-of-pocket expenses incurred in performing his services under the chairman agreement. Pursuant to the chairman agreement, and among other items, Dr. Gillis has agreed to a non-competition covenant during the term of the chairman agreement and for one year thereafter. Dr. Gillis has also agreed to abide by certain confidentiality and non-disclosure provisions. Dr. Gillis’s chairman agreement may be terminated by us or by Dr. Gillis upon thirty days advance written notice. We amended Dr. Gillis’s chairman agreement on February 11, 2016 in order to automatically terminate the agreement immediately prior to the consummation of this offering.

In addition, Dr. Gillis is a participant in the PhaseRx, Inc. Management Retention Plan pursuant to an Amended and Restated Participation Agreement between us and Dr. Gillis, dated February 11, 2016, pursuant to which Dr. Gillis has an individual percentage of 4%. See “— Narrative Disclosure Regarding Summary Compensation Table — PhaseRx, Inc. Amended and Restated Management Retention Plan”.

John A. Schmidt, Jr., M.D.  On November 1, 2010, we entered into a consulting agreement with Dr. Schmidt with respect to his serving as a member of our board of directors and providing certain consulting services to us. As amended effective April 1, 2012, Dr. Schmidt’s consulting agreement provides for payments of $10,000 annually for serving as a member of our board of directors, and $60,000 annually for his providing certain consulting services. In addition, we will reimburse Dr. Schmidt for all reasonable, documented out-of-pocket expenses incurred in performing his services under the consulting agreement. Dr. Schmidt’s consulting agreement may be terminated by us or by Dr. Schmidt upon thirty days advance written notice. We amended Dr. Schmidt’s consulting agreement on February 10, 2016 in order to remove the provisions relating to his serving as a member of our board of directors immediately prior to the consummation of this offering.

In addition, Dr. Schmidt is a participant in the PhaseRx, Inc. Management Retention Plan pursuant to an Amended and Restated Participation Agreement between us and Dr. Schmidt, dated February 11, 2016, pursuant to which Dr. Schmidt has an individual percentage of 4%. See “— Narrative Disclosure Regarding Summary Compensation Table — PhaseRx, Inc. Amended and Restated Management Retention Plan”.

Paul H. Johnson, Ph.D.  On July 2, 2013, we entered into a consulting agreement with Dr. Johnson with respect to his serving as a member of our board of directors and providing certain consulting services to us on a part-time basis as our chief scientific officer, which consulting agreement was amended effective January 2, 2014. Dr. Johnson’s consulting agreement, as amended, provides for payments of $10,000 annually for serving as a member of our board of directors, and $20,000 annually for his providing certain consulting services. In addition, we will reimburse Dr. Johnson for all reasonable, documented out-of-pocket expenses incurred in performing his services under the agreement. Dr. Johnson’s consulting agreement may be terminated by us or by Dr. Johnson upon thirty days advance written notice. We amended Dr. Johnson’s consulting agreement on February 10, 2016 in order to remove the provisions relating to his serving as a member of our board of directors immediately prior to the consummation of this offering.

In addition, Dr. Johnson is a participant in the PhaseRx, Inc. Management Retention Plan pursuant to an Amended and Restated Participation Agreement between us and Dr. Johnson, dated February 11, 2016, pursuant to which Dr. Johnson has an individual percentage of 4%. See “— Narrative Disclosure Regarding Summary Compensation Table — PhaseRx, Inc. Amended and Restated Management Retention Plan”.

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Equity Compensation Plan Information

The table below sets forth certain information as of December 31, 2015 regarding the shares of our common stock available for grant or granted under stock option plans and other compensation arrangements that (i) were adopted by our stockholders and (ii) were not adopted by our stockholders.

     
Plan Category   Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
  Weighted average
exercise price of
outstanding options,
warrants, and rights
  Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in common (a))
     (a)   (b)   (c)
Equity Compensation plans approved by security holders     4,788,646     $ 0.09       263,042  
Equity Compensation plans not approved by security holders                  

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Other than compensation agreements and other arrangements which are described as required under “Executive Compensation” and the transactions described below, since January 1, 2014, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or the average of our total assets at year end for the last two completed fiscal years and in which any director, executive officer, holder of 5% or more of any class of our capital stock, or any member of their immediate family had or will have a direct or indirect material interest. Our audit committee is responsible for approving all future transactions between us and our officers, directors and principal stockholders and their affiliates.

Convertible Note Financings and Preferred Stock Financing

Convertible Note Financings

In April, June, August and October 2015, in four separate closings, we issued and sold to investors, including beneficial owners of more than 5% of our capital stock, convertible promissory notes in the aggregate principal amount of $3.7 million, together with seven-year warrants to purchase shares of the same class and series of capital stock into which the convertible notes convert. The convertible notes carry interest at a rate of 8% per annum. The convertible notes are payable upon demand of the holders of a majority of the applicable series of convertible notes, except that such demand may not be made with respect to the convertible notes issued in October 2015 until March 1, 2016. The convertible notes are also payable upon the occurrence of certain liquidation or financing events set forth in such convertible notes. The repayment of the convertible notes is subject to acceleration upon the occurrence of certain customary events of default contained in the convertible notes. Immediately prior to the consummation of a qualified offering under the terms of our outstanding loan and security agreement, these convertible notes and unpaid accrued interest thereon will be converted into, and the related warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus.

The investors in these notes and warrants included the following holders of more than 5% of our capital stock. The following table presents the aggregate principal amount of notes issued to these related parties and the related warrant coverage amount.

   
Participant   Aggregate
Principal Amount
of Notes
  Warrant
Coverage
Amount
ARCH Venture Fund VII, L.P.   $ 2,225,000.00     $ 333,760.00  
Versant Venture Capital III, L.P.   $ 1,118,396.25     $ 167,759.43  
Versant Side Fund III, L.P.   $ 6,603.75     $ 990.57  

Dr. Gillis is a managing director at ARCH Venture Partners and owns an interest in ARCH Venture Partners VII, L.P., or ARCH Partners VII, which is the sole general partner of ARCH Venture Fund VII, L.P. Mr. Atwood is a managing director of Versant Ventures and is a managing member of and owns an interest in Versant Ventures III, LLC, which is the general partner of each of Versant Venture Capital III, L.P and Versant Side Fund III, L.P., or collectively, Versant Venture Funds. Dr. Ulevitch is a venture partner at 5AM Venture Management, LLC and a member of and owns an interest in 5AM Partners II LLC, the general partner of each of 5AM Ventures II, LP and 5AM Co-Investors II, LP, or collectively, 5AM Ventures.

Under the note and warrant purchase agreement entered into in connection with our October 2015 issuance of notes and warrants, we agreed, upon the approval of the investors holding more than 50% of the aggregate outstanding principal amount of the notes issued pursuant to such agreement, to issue and sell to certain investors additional notes having an aggregate principal amount of $600,000, together with seven-year warrants, in each case having the same terms as described above. The investors in these additional notes and warrants include ARCH Venture Fund VII, L.P, to which an aggregate principal amount of $550,000 of notes is issuable, together with warrant coverage amount of $82,500.

Series A-1 Preferred Stock Financing

In partial consideration of our obligations under the development and option agreement, or the development agreement, with Synageva, described below, and pursuant to the terms of the development

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agreement and the related Series A-1 preferred stock purchase agreement, or the stock purchase agreement, dated April 9, 2014 between us and an affiliate of Synageva, on April 9, 2014 and October 23, 2014, in two separate closings, we issued to an affiliate of Synageva an aggregate of 5,500,000 shares of our Series A-1 preferred stock (which shall convert into      shares of common stock in connection with this offering and giving effect to the reverse stock split) for aggregate cash proceeds of $5.5 million. Effective immediately prior to the pricing of this offering, the Series A-1 preferred stock will be converted into fully paid and non-assessable shares or our common stock in accordance with the terms of our third amended and restated certificate of incorporation, as amended. After the closing of this offering, no Series A-1 preferred stock will remain outstanding.

Development and Option Agreement with Synageva BioPharma Corp.

On April 4, 2014, we entered into an exclusive development and option agreement, or development agreement, with Synageva, pursuant to which we agreed to conduct certain development activities in connection with the development of our mRNA and polymer products. Under the development agreement, Synageva had an option to acquire us through a merger of a wholly-owned subsidiary of Synageva with and into us. In partial consideration of our obligations under the development agreement, Synageva paid us a non-refundable upfront fee in the aggregate amount of $1.5 million. In addition, on April 9, 2014 and October 23, 2014, in two separate closings, we issued to an affiliate of Synageva an aggregate of 5,500,000 shares of our Series A-1 preferred stock for aggregate cash proceeds of $5.5 million, as described more fully above under “— Series A-1 Preferred Stock Financing”. The development agreement with Synageva, including its option to acquire us, has expired in accordance with its terms.

Stockholder Voting Agreement

In connection with our entry into the development agreement with Synageva, we entered into stockholder voting agreements with Synageva and certain of our investors, including Foundation BioVentures LLC, which is an affiliate of Dr. Overell, and all of the holders of more than 5% of our capital stock other than Alexandria Equities, LLC, whereby such investors, among other things, agreed to vote their shares of our capital stock in favor of the merger with Synageva, and granted to Synageva an option to acquire all of our capital stock held by such investor. The stockholder voting agreements with Synageva have expired in accordance with their terms.

Investor Agreements

We are party to a second amended and restated investors’ rights agreement, an amended and restated right of first refusal and co-sale agreement, and a second amended and restated stockholder voting agreement, with certain of our investors, including Dr. Johnson, Dr. Gillis, Foundation BioVentures LLC, which is an affiliate of Dr. Overell, and all of the holders of more than 5% of our capital stock other than Alexandria Equities, LLC. The rights under the amended and restated right of first refusal and co-sale agreement and the second amended and restated stockholder voting agreement will terminate upon the closing of this offering.

The second amended and restated investors’ rights agreement, among other things, provides that certain holders of our capital stock have the right to demand that we file a registration statement or request that their shares of our capital stock be included on a registration statement that we are otherwise filing. See the section titled “Description of Capital Stock — Registration Rights” for additional information regarding these registration rights.

Escrow Agreement

On June 28, 2013, we entered into an Escrow, Sale and Winding Up Agreement, or the escrow agreement, with certain of our investors, or the escrow agreement investors, including ARCH Venture Fund VII, L.P., Versant Venture Capital III, L.P. and 5AM Ventures II, LP, whereby the escrow agreement investors agreed to set aside an aggregate of $1.6 million, or the set-aside funds. If we have not consummated either a change of control or a qualified financing (each as defined in the escrow agreement) prior to a determination date, pursuant to the escrow agreement, each escrow agreement investor shall vote their shares of our capital stock to wind down and dissolve us, and the set-aside funds shall be delivered to us as reasonably necessary to fund the winding up process. The escrow agreement was amended on March 10,

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2014, and amended further on April 4, 2014, to extend the determination date to the later of (i) the date on which Synageva’s option to acquire us by merger is terminated pursuant to the terms thereof and (ii) a number of days following such option termination date equal to (A) the amount of cash on hand divided by (B) our average daily cash burn rate, net of any cash actually received from our investors or partners. The escrow agreement will be terminated prior to the completion of this offering.

Subordination Agreement

On December 21, 2015, we entered into a loan and security agreement with certain investors, which was subsequently amended on April 6, 2016, pursuant to which these investors made term loans to us in the aggregate principal amount of $4.0 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Loan and Security Agreement.” As contemplated by the loan and security agreement, on December 21, 2015, we entered into a subordination agreement with Titan Multi-Strategy Fund I, LTD., as representative for the lenders under the loan and security agreement, 5AM Ventures, ARCH Venture Fund VII, L.P., and Versant Venture Funds, whereby we, 5AM Ventures, ARCH Venture Fund VII, L.P. and Versant Venture Funds agreed that the payment of any indebtedness, liabilities or obligations, owed by us to 5AM Ventures, ARCH Venture Fund VII, L.P. or Versant Venture Funds, is expressly subordinated to our obligations to the lenders under the loan and security agreement until all such obligations are indefeasibly paid in full or satisfied pursuant to their terms.

Indemnification Agreements

We have entered into indemnification agreements with each of our current directors and executive officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.

Review, Approval or Ratification of Transactions with Related Parties

We have adopted a formal written policy that our executive officers, directors, nominee for director, beneficial owner of more than 5% of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us, in which the amount involved exceeds $120,000, without the prior review and approval of our audit committee, which consists of Ms. Griffin, Dr. Gillis and Mr. Atwood. In approving or rejecting any such proposal, our audit committee will consider all of the relevant facts and circumstances of the related party transaction and the related party’s relationship and interest in the transaction.

All of the transactions described above were entered into prior to the adoption of this policy and establishment of our audit committee. We did not have a formal written policy or procedure for the review and approval or ratification of the transactions described above with related persons; however, our practice has been to have all related-party transactions reviewed and approved by a majority of the disinterested members of our board of directors, including the transactions described above. Prior to approving such a transaction, the material facts as to a director’s or officer’s relationship or interest as to the agreement or transaction were disclosed to our board of directors. Our board of directors took this information into account when evaluating the transaction and in determining whether such transaction was fair to us and in the best interest of all of our stockholders.

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PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock as of March 31, 2016 by:

each person, or group of affiliated persons, whom we know to beneficially own more than 5% of our common stock;
each of our named executive officers;
each of our directors; and
all of our executive officers and directors as a group.

The percentage ownership information shown in the column labeled “Percentage of Shares Outstanding” as of March 31, 2016 is based upon 5,699,377 shares of common stock outstanding as of March 31, 2016, or      shares of common stock that are expected to be outstanding immediately following the reverse stock split.

The percentage ownership information shown in the column labeled “Percentage of Shares Outstanding” after the offering assumes that there is no exercise of the underwriter’s over-allotment option and is based upon      shares of common stock to be outstanding immediately after the offering, including:

the sale of      shares of common stock in this offering;
the conversion of $12.6 million of convertible notes and related accrued interest into Series A preferred stock and then into our common stock in accordance with the terms of such notes and, with respect to Series A preferred stock, our third amended and restated certificate of incorporation, as amended;
the conversion of $3.6 million of convertible notes and related accrued interest into our common stock in accordance with the terms of such notes;
the conversion of $4.0 million principal amount of term loans together with all accrued and unpaid interest thereon into common stock at a conversion price equal to 80% of the initial public offering price in this offering in accordance with the terms of such notes;
the conversion of 25,716,583 outstanding shares of preferred stock under the terms of our third amended and restated certificate of incorporation, as amended;
the exercise of warrants to purchase 2,452,242 shares of preferred stock at an exercise price of $0.01 per share and the conversion of the preferred stock issuable upon exercise of such warrants into common stock under the terms of our third amended and restated certification of incorporation, as amended;
the 1-for-      reverse stock split of our outstanding shares of common stock, occurring immediately prior to the consummation of this offering; and
the sale of an aggregate of      shares of common stock by 5AM Ventures, ARCH Venture Fund VII, L.P., and Versant Venture Funds, to Titan Multi-Strategy Fund I, LTD. and certain its designees at a nominal purchase price in connection with the December 2015 bridge loan, closing concurrently with this offering.

We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants or upon conversion of a security that are either exercisable or convertible on or before May 30, 2016, which is 60 days after March 31, 2016. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

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Except as otherwise noted below, the address for persons listed in the table is c/o PhaseRx, Inc., 410 W. Harrison Street, Suite 300, Seattle, Washington 98119.

         
  As of March 31, 2016   After the Offering,
as adjusted (1)
Name of Beneficial Owner   Number of Shares
Beneficially Owned (2)
  Percentage of
Shares
Outstanding (2)
  Number of
Shares
Beneficially
Owned (2)
  Percentage of
Shares
Outstanding (2)
Executive Officers and Directors:
                                            
Robert W. Overell, Ph.D.     2,020,196       (3)       29.81 %                    
Steven Gillis, Ph.D.     17,958,315       (4)       77.34 %                    
Richard J. Ulevitch, Ph.D.     9,488,943       (5)       64.33 %                    
Brian Atwood     11,317,089       (6)       67.00 %                    
John A. Schmidt, Jr., M.D.     97,619       (7)       1.68 %                    
Paul H. Johnson, Ph.D.     856,229       (8)       14.84 %                    
Michelle Griffin     9,375       (9)                        
Michael Houston, Ph.D.     384,051       (10)       6.31 %                    
All Executive Officers and Directors as a Group (9 persons)     42,131,817       (3)(4)(5)(6)(7)(8)(9)(10)       93.42 %                    
5% Stockholders
                                            
5AM Ventures     9,488,943       (11)       64.33 %                    
ARCH Venture Fund VII, L.P.     17,655,398       (12)       77.04 %                    
Versant Venture Funds     11,317,089       (13)       67.00 %                    
Savoy Therapeutics Corp.     5,500,000       (14)       49.11 %                    
Alexandria Equities, LLC     1,839,717       (15)       24.40 %                    

* denotes less than 1%
(1) Assumes that (i) immediately prior to the consummation of this offering,      shares of common stock are issued in connection with the conversion of 19,404,163 shares of Series A preferred stock, which are issuable upon the conversion of the convertible promissory notes having an aggregate principal amount of $12,615,000, (ii) immediately prior to the consummation of this offering,      shares of common stock are issued in connection with the conversion of the convertible promissory notes having an aggregate principal amount of $3.6 million, (iii) immediately prior to the consummation of this offering,      shares of common stock are issued in connection with the exercise of certain outstanding warrants to purchase      shares of preferred stock at an exercise price of $0.01, (iv) immediately prior to the consummation of this offering,      shares of common stock are issued in connection with the conversion of 20,216,583 shares of Series A preferred stock outstanding as of March 31, 2016 (not including shares of Series A preferred stock issuable upon conversion of the convertible promissory notes in (i) above), (v) immediately prior to the consummation of this offering,      shares of common stock are issued in connection with the conversion of 5,500,000 shares of Series A-1 preferred stock, (vi) immediately prior to the consummation of this offering, the 1-for-      reverse stock split of our outstanding shares of common stock is effected, (vii) concurrently with the offering,      post-reverse stock split shares of common stock are issued in connection with the conversion of December 2015 bridge loan and (viii) concurrently with the offering, the sale of      post-reverse stock split shares of common stock by 5AM Ventures, ARCH Venture Fund VII, L.P. and Versant Venture Funds to Titan Multi-Strategy Fund I, LTD. and certain of its designees at a nominal purchase price.
(2) Beneficial ownership as reported in the above table has been determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, and is not necessarily indicative of beneficial ownership for any other purpose. The number of shares of common stock shown as beneficially owned includes shares of common stock issuable upon (i) the exercise of stock options that will become exercisable within sixty (60) days of March 31, 2016, (ii) the conversion of the convertible promissory notes into shares of our common stock, (iii) the exercise of warrants that will

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become exercisable within sixty (60) days of March 31, 2016 and (iv) the conversion of shares of our preferred stock into shares of our common stock. Shares of common stock issuable pursuant to the foregoing methods are deemed outstanding for purposes of calculating the percentage of beneficial ownership of the person or entity holding such securities. Accordingly, the total percentages of beneficial ownership are in excess of one hundred percent (100%).
(3) Includes (i) 943,623 shares (or      shares after giving effect to the reverse stock split) of common stock held of record by Foundation BioVentures LLC, (ii) 85,063 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Foundation BioVentures LLC upon the conversion of 85,063 shares of Series A preferred stock, and (iii) 991,510 shares (or      shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016 held of record in his name. Dr. Overell is the sole member of Foundation BioVentures LLC and in such capacity holds voting and dispositive power over the shares and is deemed to beneficially own shares held by Foundation BioVentures LLC.
(4) Includes 80,000 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Dr. Gillis upon the conversion of 80,000 shares of Series A preferred stock and 222,917 shares (or      shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016, held of record in his name. Also includes the following shares which are also reported on this table as being beneficially owned by ARCH Venture Fund VII, L.P.: (i) 437,500 shares (or      shares after giving effect to the reverse stock split) of common stock; (ii) 10,587,967 (or     shares after giving effect to the reverse stock split and antidilution adjustments) shares of common stock which may be acquired by ARCH Venture Fund VII, L.P. upon the conversion of convertible promissory notes in aggregate principal amount of $8,925,000; and (iii) 6,629,931 shares (or     shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by ARCH Venture Fund VII, L.P. upon the conversion of 6,629,931 shares of Series A preferred stock. The sole general partner of ARCH Venture Fund VII, L.P. is ARCH Partners VII. The sole general partner of ARCH Partners VII is ARCH Venture Partners VII, LLC, or ARCH VII LLC. Each of the managing directors of ARCH VII LLC, Robert T. Nelsen, Keith Crandell and Clinton Bybee, may be deemed to have voting and dispositive power over the shares and may be deemed to beneficially own shares held by ARCH Venture Fund VII, L.P. Dr. Gillis owns an interest in ARCH Partners VII but does not have voting or dispositive control over the shares held by ARCH Venture Fund VII, L.P. Each of ARCH Partners VII, Robert T. Nelsen, Keith Crandell, Clinton Bybee and Dr. Gillis disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein, and this disclosure shall not be deemed an admission that ARCH Partners VII, Robert T. Nelsen, Keith Crandell, Clinton Bybee or Dr. Gillis are the beneficial owners of such securities for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or any other purpose.
(5) Includes the following shares which are also reported on this table as being beneficially owned by 5AM Ventures: (i) 437,500 shares (or     shares after giving effect to the reverse stock split) of common stock; (ii) 2,421,512 shares (or     shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by 5AM Ventures upon the conversion of convertible promissory notes in aggregate principal amount of $1.9 million; and (iii) 6,629,931 shares (or     shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by 5AM Ventures upon the conversion of 6,629,931 shares of Series A preferred stock. 5AM Partners II LLC is the general partner of each of 5AM Ventures II, LP and 5AM Co-Investors II, LP. Andrew J. Schwab, John Diekman and Scott M. Rocklage are the managing members of 5AM Partners II LLC and are deemed to have voting and dispositive power over the shares and may be deemed to beneficially own shares held by 5AM Ventures. Dr. Ulevitch is a member of and owns an interest in 5AM Partners II LLC. Accordingly, Mr. Schwab, Dr. Diekman, Mr. Rocklage and Dr. Ulevitch may be deemed to beneficially own the securities held by 5AM Ventures. Mr. Schwab, Dr. Diekman, Mr. Rocklage and Dr. Ulevitch each disclaims beneficial ownership of these securities and this disclosure shall not be deemed an admission that Mr. Schwab, Dr. Diekman, Mr. Rocklage and Dr. Ulevitch is the beneficial owner of such securities for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or any other purpose.

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(6) Includes the following shares which are also reported on this table as being beneficially owned by Versant Venture Funds: (i) 125,000 shares (or     shares after giving effect to the reverse stock split) of common stock; (ii) 5,154,967 shares (or     shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Versant Venture Funds upon the conversion of convertible promissory notes in aggregate principal amount of $4,325,000; and (iii) 6,037,122 shares (or     shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Versant Venture Funds upon the conversion of 6,037,122 shares of Series A preferred stock. Versant Ventures III, LLC is the general partner of Versant Venture Funds and has voting and dispositive control over securities held by Versant Venture Funds. Mr. Atwood, Samuel D. Colella, Ross Jaffe, M.D., William J. Link, Barbara N. Lubash, Donald M. Milder, Bradley J. Bolzon, Charles M. Warden, Robin L. Praeger and Rebecca R. Robertson are the managing directors of Versant Ventures III, LLC and are deemed to have voting and dispositive power over the shares and may be deemed to beneficially own shares held by Versant Venture Funds. Mr. Atwood is a managing member of and owns an interest in Versant Ventures III, LLC. Accordingly, Mr. Atwood may be deemed to beneficially own the securities held by Versant Venture Funds. Each of Mr. Atwood, Samuel D. Colella, Ross Jaffe, M.D., William J. Link, Barbara N. Lubash, Donald M. Milder, Bradley J. Bolzon, Charles M. Warden, Robin L. Praeger and Rebecca R. Robertson disclaims beneficial ownership of these securities except to the extent of their pecuniary interest therein and this disclosure shall not be deemed an admission that any of Mr. Atwood, Samuel D. Colella, Ross Jaffe, M.D., William J. Link, Barbara N. Lubash, Donald M. Milder, Bradley J. Bolzon, Charles M. Warden, Robin L. Praeger and Rebecca R. Robertson is the beneficial owner of such securities for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or any other purpose.
(7) Comprises of 97,619 shares (or     shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016, held of record in his name.
(8) Includes 786,353 shares (or     shares after giving effect to the reverse stock split) of common stock and 69,876 shares (or     shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016, held of record in his name.
(9) Comprises of 9,375 shares (or     shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016, held of record in her name.
(10) Comprises of 384,051 shares (or      shares after giving effect to the reverse stock split) of common stock underlying stock options currently exercisable or exercisable within 60 days as of March 31, 2016, held of record in his name.
(11) Includes (i) 437,500 shares (or      shares after giving effect to the reverse stock split) of common stock; (ii) 2,421,512 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by 5AM Ventures upon the conversion of convertible promissory notes in aggregate principal amount of $1.9 million; and (iii) 6,629,931 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by 5AM Ventures upon the conversion of 6,629,931 shares of Series A preferred stock. 5AM Ventures’ address is 2200 Sand Hill Road, Suite 110, Menlo Park, California 94025.
(12) Includes (i) 437,500 shares (or      shares after giving effect to the reverse stock split) of common stock; (ii) 10,587,967 shares (or      shares after giving effect to the reverse stock split) of common stock which may be acquired by ARCH Venture Fund VII, L.P. upon the conversion of convertible promissory notes in aggregate principal amount of $8,925,000; and (iii) 6,629,931 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by ARCH Venture Fund VII, L.P. upon the conversion of 6,629,931 shares of Series A preferred stock. ARCH Venture Fund VII, L.P.’s address is 8725 W. Higgins Rd., Suite 290, Chicago, Illinois 60631.
(13) Includes (i) 125,000 shares (or      shares after giving effect to the reverse stock split) of common stock; (ii) 5,154,967 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Versant Venture Funds upon the conversion of convertible promissory notes in aggregate principal amount of $4,325,000; and (iii) 6,037,122 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common

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stock which may be acquired by Versant Venture Funds upon the conversion of 6,037,122 shares of Series A preferred stock. Versant Venture Funds’ address is One Sansome Street, Suite 3630, San Francisco, California 94104.
(14) Includes the 5,500,000 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Savoy Therapeutics Corp. upon the conversion of 5,500,000 shares of Series A-1 Preferred Stock. Savoy Therapeutics Corp. is a wholly-owned subsidiary of Alexion Pharmaceuticals, Inc. Alexion Pharmaceuticals, Inc. is a public company. Alexion Pharmaceuticals, Inc.’s address is 100 College Street, New Haven, Connecticut 06510.
(15) Includes the following shares which are also reported on this table as being beneficially owned by Alexandria Equities, LLC, or Alexandria: (i) 1,239,717 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Alexandria upon the conversion of convertible promissory notes in aggregate principal amount of $1,065,000, and (ii) 600,000 shares (or      shares after giving effect to the reverse stock split and antidilution adjustments) of common stock which may be acquired by Alexandria upon the conversion of 600,000 shares of Series A preferred stock. The managing member of Alexandria is Alexandria Real Estate Equities, Inc. Joel S. Marcus is the chairman, chief executive officer and founder of Alexandria Real Estate Equities, Inc., and as an officer of Alexandria Real Estate Equities, Inc., Mr. Marcus may be deemed to have voting and dispositive power over the shares held by Alexandria. Mr. Marcus disclaims beneficial ownership of such shares, except to the extent of any pecuniary interest therein, and this disclosure shall not be deemed an admission that Mr. Marcus is the beneficial owners of such securities for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or any other purpose. Alexandria’s address is 385 E. Colorado Blvd., Suite 299, Pasadena, California 91101.

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DESCRIPTION OF CAPITAL STOCK

General

The following descriptions of our capital stock and certain provisions of our fourth amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the fourth amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon completion of this offering. Copies of these documents will be filed with the Securities and Exchange Commission as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure that will occur upon the completion of this offering and Delaware law.

Upon the completion of this offering, and after giving effect to the reverse stock split, our fourth amended and restated certificate of incorporation will provide for a single class of common stock. In addition, our fourth amended and restated certificate of incorporation will authorize shares of undesignated preferred stock, the rights, preferences and privileges of which may be designated from time to time by our board of directors.

Upon the completion of this offering, our authorized capital stock will consist of 55,000,000 shares, all with a par value of $0.0001 per share, of which:

50,000,000 shares will be designated as common stock; and
5,000,000 shares will be designated as preferred stock.

As of March 31, 2016, we had outstanding 5,699,377 shares of common stock, or      shares after giving effect to the reverse stock split, held of record by 17 stockholders. As of March 31, 2016, we had outstanding 20,216,583 shares of Series A preferred stock, held of record by 15 stockholders, all of which will convert into      shares of common stock, or      shares after giving effect to the reverse stock split, immediately prior to the consummation of this offering. As of March 31, 2016, we had outstanding 5,500,000 shares of Series A-1 Preferred Stock, held of record by 1 stockholder, all of which will convert into      shares of common stock, or      shares after giving effect to the reverse stock split, immediately prior to the consummation of this offering. As of March 31, 2016, we also had outstanding options to acquire 7,334,551 shares of common stock, or      shares after giving effect to the reverse stock split, held by employees, directors and consultants.

After the completion of the offering and giving effect to the 1-for-      reverse stock split, we will have outstanding      post-reverse stock split shares of common stock and no shares of preferred stock.

Common Stock

Dividend Rights

Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. See “Dividend Policy.”

Voting Rights

Except as required by law or matters relating solely to the terms of preferred stock, each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. Holders of shares of our common stock shall have no cumulative voting rights. Except in respect of matters relating to the election and removal of directors on our board of directors and as otherwise provided in our fourth amended and restated certificate of incorporation or required by law, all matters to be voted on by our stockholders must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter. In the case of election of directors, all matters to be voted on by our stockholders must be approved by a plurality of the voting power of the shares present in person or by proxy at the meeting and entitled to vote thereon.

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Liquidation

In the event of the liquidation, dissolution or winding up of our company, holders of our common stock are entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate in the future.

Preferred Stock

Upon the completion of this offering, no shares of our preferred stock will be outstanding. Pursuant to the amended and restated certificate of incorporation, we are authorized to issue up to 5,000,000 shares of preferred stock. Our fourth amended and restated certificate of incorporation authorizes our board, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. Our board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. Additionally, the issuance of preferred stock may decrease the market price of our common stock. We currently have no plans to issue any shares of preferred stock.

Options

As of March 31, 2016, we had options to purchase 7,334,551 shares of our common stock outstanding pursuant to the 2006 Plan with exercise prices ranging from $0.0001908 to $0.25 per share, with an approximate weighted average exercise price of $0.12 per share. After giving effect to the reverse stock split, we will have options to purchase      post-reverse stock split shares of our common stock outstanding pursuant to the 2006 Plan with exercise prices ranging from $     to $     per post-reverse stock split share, with an approximate weighted average exercise price of $     per post-reverse stock split share.

Warrants

As of March 31, 2016, we had outstanding warrants to purchase 3,614,761 shares of preferred stock convertible into shares of common stock issued in connection with certain convertible note financings, of which warrants to purchase 2,452,242 shares of preferred stock having an exercise price of $0.01 will be exercised immediately prior to the consummation of this offering into      shares of common stock, or           shares of common stock after giving effect to the reverse stock split. As of March 31, 2016, we had outstanding warrants to purchase 1,049,999 shares of preferred stock having an exercise price of $1.00 per share, and these additional warrants will terminate upon the consummation of this offering.

As of March 31, 2016, we had outstanding warrants to purchase 112,520 shares of Series A preferred stock with an exercise price of $1.00 per share, issued to a former lender. Immediately prior to the consummation of this offering, this warrant will become a warrant to purchase      shares of our common stock at a total price equal to that payable upon the exercise of the warrant in full, which, after giving effect to the reverse stock split, will become warrants to purchase      shares of common stock at an exercise price of $     per share.

Registration Rights

We are party to a second amended and restated investors’ rights agreement, dated as of November 17, 2014, pursuant to which certain holders of our common stock, including Dr. Johnson, Dr. Gillis, Foundation BioVentures LLC, which is an affiliate of Dr. Overell, and all of the holders of more than 5% of our capital stock other than Alexandria Equities, LLC, are entitled to the registration rights set forth below with respect to registration of the resale of such shares of common stock under the Securities Act of 1933, as amended. The

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registration rights set forth in the second amended and restated investors’ rights agreement will expire on the earlier of (i) such date, on or after the closing of this offering, on which all shares of registrable securities may immediately be sold under Rule 144 of the Securities Act of 1933, as amended, during any 90 day period, (ii) four years after the closing of this offering and (iii) upon termination of the agreement. We will pay the registration expenses (other than underwriting discounts, sales commissions, stock transfer taxes and fees and disbursements of counsel for any such holder of registrable securities other than one special counsel for the holders) of the holders of the shares registered pursuant to the registrations described below. In an underwritten offering, the underwriters may, subject to specified conditions, limit the number of shares such holders may include.

Demand Registration Rights

At any time beginning 180 days after the public offering date set forth on the cover page of this prospectus, upon the written request of the holders of the registrable securities who in the aggregate hold not less than 20% of the voting power of the outstanding registrable securities that we file a registration statement under the Securities Act of 1933, as amended, covering the registration of the registrable securities, we will be obligated to notify all holders of registrable securities of such request and to use our commercially reasonable efforts to register all registrable securities that holders may request to be registered. We are not required to effect more than two registration statements which are declared or ordered effective and pursuant to which securities have been sold and withdrawn registrations. If we determine that it would be materially detrimental to us and our stockholders to effect such a demand registration, we have the right to defer such registration, not more than twice in any 12-month period, for a period of up to 60 days.

Piggyback Registration Rights

If we propose to register any of our securities under the Securities Act of 1933, as amended, holders of registration rights will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. The underwriters of any underwritten offering may, subject to specified conditions, limit the number of shares having registration rights to be included in the registration statement, but not below 25% of the total value of securities included in such registration statement, subject to certain exceptions.

S-3 Registration Rights

At any time beginning 180 days after the public offering date set forth on the cover page of this prospectus, we are obligated to use our commercially reasonable efforts to qualify for registration on Form S-3. After we become eligible to file a registration statement on Form S-3, holders of registrable securities will have the right to demand that we register the offer and sale of their shares on a registration statement on Form S-3, so long as the request covers securities the anticipated aggregate price to the public of at least $1 million, subject to specified exceptions, conditions and limitations. However, we will not be required to effect a registration on Form S-3 if we have effected one such registration within the 12-month period preceding the date of the request. Additionally, if we determine that it would be materially detrimental to us and our stockholders to effect such a registration, we have the right to defer such registration, not more than twice in any 12-month period, for a period of up to 60 days.

Loan and Security Agreement

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. Interest accrues on the term loans at the rate of 5% per annum. The maturity date of the term loans is December 21, 2016, unless earlier converted into equity or otherwise repaid. The repayment of the term loans is subject to acceleration upon the occurrence of certain customary events of default contained in the loan and security agreement. As of March 31, 2016, the aggregate outstanding principal amount of the term loans, plus all accrued and previously unpaid interest thereon, was approximately $4.1 million. The entire outstanding principal amount of term

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loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Among other things, a qualified offering under the loan and security agreement requires a firm commitment underwritten initial public offering of our common stock not later than June 5, 2016 at a pre-offering valuation of at least $24 million (exclusive of the term loans and their subsequent conversion) and which results in gross proceeds to us of at least $16.9 million. We expect this offering to constitute a qualified offering under the terms of the loan and security agreement, and therefore, upon the closing of this offering, we will issue an aggregate of      shares of common stock to the accredited investors under the loan and security agreement, based on an assumed initial public offering price of $    , which is the midpoint of the price range set forth on the cover page of this prospectus.

Registration Rights Agreement

As contemplated by the loan and security agreement, on February 29, 2016, we entered into a registration rights agreement with the investors in the December 2015 financing, pursuant to which we agreed to use our reasonable best efforts to register the resale of the shares of common stock issuable upon the conversion of our term loans concurrently with the registration of this initial public offering and to keep the related registration statement continuously effective until the earlier of the date that is one year from the date such registration statement is declared effective or all of the shares issuable upon the conversion of our term loans have been sold thereunder or pursuant to Rule 144 or may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for us to be in compliance with the current public information requirement under Rule 144. In the event we are unable to register all such shares in the registration statement contemplated by the registration rights agreement, we agreed to use our commercially reasonable efforts to file amendments to the initial registration statement to cover any such unregistered shares. We agreed to pay all fees and expenses related to the filing of such registration statements.

Convertible Notes

As of March 31, 2016, we have an aggregate amount of convertible notes, plus accrued and unpaid interest thereon, of approximately $19.4 million. The convertible notes carry interest at a rate of 8% per annum. The convertible notes are payable upon demand of the holders of a majority of the applicable series of convertible notes, except that such demand may not be made with respect to the convertible notes issued in October 2015 until March 1, 2016. The convertible notes are also payable upon the occurrence of certain liquidation or financing events set forth in such convertible notes. The repayment of the convertible notes is subject to acceleration upon the occurrence of certain customary events of default contained in the convertible notes. We also issued to purchasers of our convertible notes seven-year warrants to purchase shares of the same class and series of capital stock into which the convertible notes convert. Immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement, the convertible notes and unpaid accrued interest thereon will be converted into, and certain of the warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus.

Anti-Takeover Effects of Our Fourth Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Our fourth amended and restated certificate of incorporation and amended and restated bylaws contain certain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, could discourage takeovers, coercive or otherwise. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.

Authorized but Unissued Capital Stock

We have authorized but unissued shares of preferred stock and common stock, and our board of directors may authorize the issuance of one or more series of preferred stock without stockholder approval. These

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shares could be used by our board of directors to make it more difficult or to discourage an attempt to obtain control of us through a merger, tender offer, proxy contest or otherwise.

Limits on Stockholder Action by Majority Written Consent or Call a Special Meeting

Our fourth amended and restated certificate of incorporation will provide that our stockholders will not be able to elect or remove directors by majority written consent. This limit on the stockholder action to elect or remove directors by majority written consent may lengthen the amount of time required to take stockholder actions. As a result, the holders of a majority of our capital stock would not be able to elect or remove directors without holding a meeting of stockholders called in accordance with the bylaws.

In addition, our amended and restated bylaws will provide that special meetings of the stockholders may be called only by the affirmative vote of a majority of the whole board, chairperson of the board, the chief executive officer or our board of directors. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of the board of directors. These may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed, and may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain control of our company.

Limitation on Liability and Indemnification Matters

Our fourth amended and restated certificate of incorporation, which will be in effect upon the completion of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

any breach of the director’s duty of loyalty to us or our stockholders;
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or
any transaction from which the director derived an improper personal benefit.

Our fourth amended and restated certificate of incorporation and amended and restated bylaws to be in effect upon the completion of this offering provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also will provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our fourth amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative

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litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

Choice of Forum

Our fourth amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action or proceeding asserting a breach of fiduciary duty owed by any director or officer to us or our stockholders, any action or proceeding asserting a claim against us arising pursuant to the Delaware General Corporation Law or our fourth amended and restated certificate of incorporation or amended and restated bylaws or any action or proceeding asserting a claim against us that is governed by the internal affairs doctrine. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could rule that these types of provisions to be inapplicable or unenforceable.

Listing

We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PZRX”.

Transfer Agent and Registrar

Action Stock Transfer Corporation will serve as our transfer agent and registrar. Its address is 2469 Fort Union Blvd #214, Cottonwood Heights, Utah 84121, and its telephone number is (801) 274-1088.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our capital stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. Although we have applied to have our common stock listed on The NASDAQ Capital Market, we cannot assure you that there will be an active public market for our common stock. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity-related capital at a time and price we deem appropriate. Unless noted otherwise, all information presented in this section “Shares Eligible for Future Sale” assumes the 1-for-      reverse stock split of our outstanding shares of common stock has occurred.

Sales of Restricted Shares

Upon the closing of this offering,      shares of common stock will be outstanding, assuming the underwriter does not exercise their over-allotment option and no outstanding options have been exercised. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act of 1933, as amended.

     shares of common stock held by existing stockholders will be deemed “restricted securities” as such term is defined under Rule 144. The restricted securities were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act of 1933, as amended or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act of 1933, as amended, which rules are summarized below.

As a result of the lock-up agreements described below and the provisions of Rule 144 and Rule 701 under the Securities Act of 1933, as amended:

approximately      shares of our outstanding shares of common stock will be available for sale in the public market upon the expiration of certain lock-up agreements, beginning 12 months after the closing of this offering and when permitted under Rule 144 or Rule 701, provided that, after 180 days following this offering, the lock-up restrictions will automatically terminate upon satisfaction of certain conditions in the lock-up agreement; and
approximately      of our outstanding shares of common stock will be available for sale in the public market upon the expiration of certain lock-up agreements, beginning 180 days after the closing of this offering and when permitted under Rule 144 or Rule 701.

These lock-up agreements are more fully described below under “— Lock-up Agreements” and in section titled “Underwriting — Lock-up Agreements”.

Rule 144

In general, under Rule 144 as currently in effect, once we have been a reporting company subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.

Once we have been a reporting company subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for 90 days, a person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities

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within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

one percent of the then outstanding shares of our common stock, which will equal approximately      shares immediately after this offering assuming the underwriter does not exercise its over-allotment option; and
the average weekly trading volume of our common stock reported through NASDAQ during the four calendar weeks preceding the filing of notice of the sale.

Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.

Rule 701

Employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written compensatory agreement in accordance with Rule 701 before the effective date of the registration statement are entitled to sell such shares 90 days after the effective date of the registration statement in reliance on Rule 144 without having to comply with the holding period requirement of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144. The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.

However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under the section titled “Underwriting” included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

Lock-up Agreements

Upon the closing of this offering,

approximately      shares of our outstanding shares of common stock will be beneficially owned by certain existing stockholders who are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the stockholder’s shares of common stock for a period of 12 months after the closing of the initial public offering without the prior written consent of Titan Multi-Strategy Fund I, LTD., one of the lenders from the bridge loan financing we received in December 2015; provided that, after 180 days following this offering, the foregoing restrictions will automatically terminate if for 20 consecutive trading days on each such trading day (x) the closing price of our common stock is at least 150% of the initial public offering price for our common stock and (y) the trading volume of our common stock is not less than 100,000 shares; provided further that, Titan Multi-Strategy Fund I, LTD. may unilaterally waive any term of the lock-up agreement (“Category 1”);
approximately      shares of our outstanding shares of common stock will be beneficially owned by certain existing stockholders and option holders who are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the stockholder’s shares of common stock for a period of 12 months after the closing of the initial public offering without our prior written consent, which restriction will terminate in accordance with the same terms as Category 1; provided further that, we may unilaterally waive any term of the lock-up agreement (“Category 2”);
approximately      shares of our outstanding shares of common stock will be beneficially owned by certain investors, who will purchase shares of our common stock from certain insiders at a nominal purchase price and are subject to lock-up agreements, each of which, subject to limited exceptions, restricts transfer of the investor’s shares of common stock for a period of 180 days following this offering without our prior written consent; provided that, we may unilaterally waive any term of the lock-up agreement; and

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approximately      shares of our outstanding shares of common stock held by us and our directors and executive officers, of which approximately      shares are included in Category 1 and Category 2, will be restricted from resale for a period of 180 days following this offering pursuant to a lock-up agreement without the prior written consent of Laidlaw & Company (UK) Ltd.; provided that, Laidlaw & Company (UK) Ltd. may unilaterally waive any term of the lock-up agreement.

Registration Statements

As explained in the Explanatory Note to the registration statement of which this prospectus forms a part, the registration statement of which this prospectus forms a part also contains the Selling Stockholder Prospectus to be used in connection with the potential resale by certain selling stockholders of up to an aggregate of      shares of our common stock issuable upon the conversion of our term loans, together with all accrued and unpaid interest thereon, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering, concurrently with the registration of this initial public offering. These shares of common stock are being registered to permit public resale of the shares, and the selling stockholders may offer the shares for resale from time to time pursuant to the Selling Stockholder Prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, or pursuant to another effective registration statement covering those shares.

As soon as practicable after the completion of this offering, we intend to file a Form S-8 registration statement under the Securities Act of 1933, as amended, to register shares of our common stock issued or reserved for issuance under our 2016 Plan and agreements. This registration statement will become effective immediately upon filing, and shares covered by this registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described above and Rule 144 limitations applicable to affiliates.

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CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES FOR NON-U.S. HOLDERS

The following is a general discussion of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock to a non-U.S. holder. For the purpose of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not for U.S. federal income tax purposes any of the following:

an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any state or the District of Columbia;
an estate whose income is subject to U.S. federal income tax regardless of its source; or
a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) that was in existence on August 20, 1996, was treated as a U.S. person on the previous day and has made a valid election to continue to be treated as a U.S. person.

If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Accordingly, partnerships that hold our common stock and partners in such partnerships should consult their own tax advisors regarding the tax treatment of holding our common stock.

This discussion assumes that a non-U.S. holder will hold our common stock issued pursuant to this offering as a capital asset (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation or any aspects of estate and gift, state, local or non-U.S. taxation, nor does it consider any U.S. federal income tax considerations that may be relevant to non-U.S. holders which may be subject to special treatment under U.S. federal income tax laws, including, without limitation, entities treated as a partnership for U.S. federal income tax purposes, U.S. expatriates, controlled foreign corporations, passive foreign investment companies, insurance companies, tax-exempt or governmental organizations, dealers in securities or currency, banks or other financial institutions and investors that hold our common stock as part of a hedge, straddle or conversion transaction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.

Each prospective investor should consult with its own tax advisor regarding the application of the U.S. federal income tax laws to its particular situation as well as any tax consequences arising under U.S. estate and gift laws and under the laws of any state, local or foreign taxing jurisdiction or under any applicable tax treaty.

Dividends

We do not expect to declare or pay any dividends on our common stock in the foreseeable future. If we do pay dividends on our common stock, those payments (other than certain stock dividends) will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder’s adjusted tax basis in its common stock, but not below zero, and then will be treated as gain from the sale of the common stock (see “— Gain on Disposition of Common Stock”).

Any dividend paid out of earnings and profits to a non-U.S. holder of our common stock generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder generally must provide us with an Internal Revenue Service, or IRS, Form W-8BEN or W-8BEN-E certifying qualification for the reduced rate.

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Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder will be exempt from such withholding tax. To obtain this exemption, the non-holder must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, will be subject to U.S. federal income tax on a net income basis at the same graduated U.S. tax rates generally applicable to U.S. persons, net of certain deductions and credits, subject to any applicable tax treaty providing otherwise. In addition to the income tax described above, dividends received by corporate non-U.S. holders that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

In certain circumstances, amounts received by a non-U.S. holder upon the redemption of our common stock may be treated as a distribution in the nature of a dividend with respect to the common stock, rather than as a payment in exchange for the common stock. In these circumstances, the redemption payment would be included in gross income as a dividend to the extent that such payment is made out of our earnings and profits (as described above). The determination of whether a redemption of common stock will be treated as a distribution, rather than as a payment in exchange for the common stock, will depend on whether and to what extent the redemption reduces the non-U.S. holder’s ownership in us. The rules applicable to redemptions are complex, and each non-U.S. holder should consult its own tax advisor to determine the consequences of a redemption to it.

Gain on Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

the gain is effectively connected with a U.S. trade or business of the non-U.S. holder and, if required by an applicable tax treaty, is attributable to a U.S. permanent establishment maintained by such non-U.S. holder;
the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met; or
our common stock constitutes a U.S. real property interest by reason of our status as a U.S. real property holding corporation, or a USRPHC.

Unless an applicable tax treaty provides otherwise, gain described in the first bullet point above will be subject to U.S. federal income tax on a net income tax basis at the same graduated U.S. tax rates generally applicable to U.S. persons. A branch profits tax may apply to certain of such gains.

Gain described in the second bullet point above (which may be offset by U.S. source capital losses, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses) generally will be subject to a flat 30% U.S. federal income tax.

With respect to the final bullet point above, we believe that we currently are not, and do not expect to become for the foreseeable future, a USRPHC.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of dividends paid to each non-U.S. holder, and the amount, if any, of tax withheld with respect to those dividends. A similar report is sent to each non-U.S. holder. These information reporting requirements apply even if withholding was not required. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.

Payments of dividends to a non-U.S. holder may be subject to backup withholding (currently at a rate of 28%) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN, W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding also may apply if we have actual knowledge, or reason to know, that the beneficial owner is a U.S. person that is not an exempt recipient.

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Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our common stock effected outside the United States by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting will apply to those payments if the broker does not have documentary evidence that the holder is a non-U.S. holder, an exemption is not otherwise established and the broker has certain relationships with the United States.

Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our common stock effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (currently at a rate of 28%) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN, W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, information reporting and backup withholding also may apply if the broker has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.

Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

Foreign Account Tax Compliance Act

Pursuant to Sections 1471 to 1474 of the Code and the Treasury regulations promulgated thereunder, or FATCA, dividends paid in respect of our common stock and, after December 31, 2018, gross proceeds from the sale or other disposition of our common stock held by or through certain foreign financial institutions (as specially defined for purposes of these rules, including investment funds), will be subject to withholding at a rate of 30%, unless (1) such institution enters into an agreement with the Treasury to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments or (2) such institution otherwise qualifies for an exemption from these rules.

An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. Accordingly, the entity through which our common stock is held will affect the determination of whether such withholding is required. Payments of dividends in respect of common stock to non-U.S. holders other than foreign financial institutions could be affected by this withholding if such non-U.S. holders are subject to the FATCA information reporting requirements and fail to comply with them or if non-U.S. holders hold common stock through a non-U.S. person (e.g., a foreign bank or broker) that fails to comply with these requirements (even if payments to the non-U.S. holder would not otherwise have been subject to FATCA withholding). Payments of gross proceeds from a sale or other disposition of common stock after December 31, 2018 could also be subject to FATCA withholding.

We will not pay any additional amounts to non-U.S. holders in respect of any amounts withheld. Non-U.S. holders are encouraged to consult their tax advisors regarding the possible implications of FATCA on their investment in our common stock.

THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

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UNDERWRITING

Laidlaw & Company (UK) Ltd. is acting as the sole bookrunner and underwriter of the offering. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriter, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us, the number of shares of common stock set forth opposite its name below.

 
Underwriter   Number of Shares
Laidlaw & Company (UK) Ltd.         
Total               

Subject to the terms and conditions set forth in the underwriting agreement, the underwriter has agreed to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. The obligations of the underwriter may be terminated upon the occurrence of certain events specified in the underwriting agreement. The underwriter is not obligated to purchase the shares of common stock covered by the underwriter’s over-allotment option described below.

The underwriter is offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions contained in the underwriting agreement, such as the receipt by the underwriter of officer’s certificates and legal opinions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The underwriter proposes to offer directly to the public the shares purchased pursuant to the underwriting agreement at the initial public offering price set forth on the cover page of this prospectus and to certain securities dealers at the initial public offering price less a concession not in excess of $     per share for shares that are sold to our current stockholders and their affiliates and $     per share for shares that are sold to all other investors. After the offering, the underwriter may change the offering price and other selling terms. The following table shows the per share and total underwriting discount to be paid to the underwriter by us assuming an initial public offering price to the public of $     per share, the midpoint of the price range set forth on the cover page of this prospectus. Such amounts are shown assuming both no exercise and full exercise of the underwriter’s option to purchase additional shares.

     
  Per Share   Total Without Over-Allotment Option   Total With
Over-Allotment Option
Public offering price   $              $              $           
Underwriting discounts and commissions for shares sold to current stockholders and their affiliates                           
Underwriting discounts and commissions for shares sold to all other investors                  
Non-accountable expense allowance                           
Proceeds, before expenses, to us   $     $     $  

We have agreed to pay a non-accountable expense allowance to the underwriter equal to 1.0% of the gross proceeds received by us in this offering. We have also agreed to pay the expenses relating to the offering, including, but not limited to, (1) all filing fees relating to the registration of the shares of common stock to be sold in this offering with the Securities and Exchange Commission, (2) all actual filing fees associated with the review of this offering by the Financial Industry Regulatory Authority, Inc., or FINRA, (3) all fees and expenses relating to the listing of our shares of common stock on The NASDAQ Capital Market, (4) all actual fees, expenses and disbursements relating to background checks of our officers and directors, (5) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of the shares of common stock being offered by this prospectus under state securities laws, or “blue sky” laws, or under the securities laws of foreign jurisdictions as reasonably designated by the underwriter, (6) all actual fees, expenses and disbursements relating to the registration, qualification or exemption of our shares of common stock under the securities laws of such foreign jurisdictions as the underwriter may reasonably

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designate, (7) the costs of all mailing and printing of the underwriting documents, registration statements, prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final prospectuses as the underwriter may reasonably deem necessary, (8) the costs of preparing, printing and delivering certificates representing the shares of common stock sold in this offering, (9) the fees and expenses of the transfer agent for the common stock, (10) stock transfer and/or stamp taxes, if any, payable upon the transfer of securities from us to the underwriter, (11) the fees and expenses of our accountants, (12) the legal fees and expenses and fees and expenses of any of our other agents and representatives incurred as a result of this offering, and (13) all fees and expenses of the underwriter, including, without limitation, its legal fees and expenses, all such fees not to exceed $l00,000 in the aggregate. The expenses of the offering, not including the underwriting discount, are estimated at approximately $     and are payable by us. We have paid an expense deposit of $25,000 to the underwriter, which will be applied against accountable expenses that will be paid by us to the underwriter in connection with this offering, which advance will be refunded to us to the extent not actually incurred by the underwriter in the event this offering is terminated.

Option to Purchase Additional Shares

We have granted an option to the underwriter, exercisable for 30 days after the date of this prospectus, to purchase up to      additional shares at the public offering price, less the underwriting discount. If the underwriter exercises all or part of this option, it will be obligated, subject to conditions contained in the underwriting agreement, to purchase additional shares covered by the option at the public offering price, less the underwriting discount.

Right of First Offer

Provided that this offering results in gross proceeds to us of at least $7.5 million, the underwriter shall have a right of first offer, for a period of one (1) year after the date this offering is completed, to act as (A) lead or managing underwriter, exclusive placement agent, exclusive financial advisor or in any other similar capacity, on the underwriter’s customary terms and conditions, in the event we retain or otherwise use (or seek to retain or use) the services of an investment bank to pursue a registered, underwritten public offering of securities (in addition to this offering) or a private placement of equity or convertible debt securities (each, a “Subject Transaction”) if the aggregate gross proceeds for such Subject Transaction is expected to be less than or equal to $25 million or (B) a co-manager, lead manager, placement agent or in any other similar capacity, on the underwriter’s customary terms and conditions, in the event we retain or otherwise use (or seek to retain or use) the services of an investment bank to pursue a Subject Transaction if the aggregate gross proceeds for such Subject Transaction is expected to be in excess of $25 million.

Determination of Offering Price

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between the underwriter and us. In determining the initial public offering price of our common stock, the underwriter will consider, among other things:

the prospects for our company and the industry in which we operate;
our financial information;
financial and operating information and market valuations of publicly traded companies engaged in activities similar to ours;
the prevailing conditions of U.S. securities markets at the time of this offering;
the recent market prices of, and the demand for, publicly traded shares of generally comparable companies;
our past and present financial and operating performance; and
other factors deemed relevant by us and the underwriter.

Neither we nor the underwriter can assure investors that an active trading market will develop for our common shares, or that the shares will trade in the public market at or above the initial public offering price.

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Lock-Up Agreements

We and all of our directors and executive officers, have agreed that, for a period of 180 days after the date of this prospectus, or the lock-up period, subject to certain limited exceptions described below, we and they will not, directly or indirectly, without the prior written consent of the underwriter, (1) offer, sell, pledge or otherwise transfer or dispose of any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the Securities and Exchange Commission and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or other securities, in cash or otherwise, or publicly announce an intention to do either of the foregoing, (3) engage in any short selling of any shares of common stock, or (4) make any demand for or exercise any right with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any of our other securities.

These lock-up restrictions will not apply to: (1) bona fide gifts, as long as such donee agrees to be bound by the terms of the lock-up agreement, (2) transfers pursuant to a valid domestic order or divorce decree or settlement or by will, other testamentary document or intestate succession upon the death of the holder, as long as such transferee agrees to be bound by the terms of the lock-up agreement, (3) transfers to any family member or any trust for the direct or indirect benefit of the holder or the immediate family of the holder, so long as such transferee agrees to be bound by the terms of the lock-up agreement and so long as any such transfer does not involve a disposition for value, (4) transfers as part of a transfer or distribution by the holder to its stockholders, members, partners, beneficiaries or other equity holders, so long as the holder is a corporation, limited liability company, partnership, trust or other business, and so long as such transferee agrees to be bound by the terms of the lock-up agreement and any such transfer or distribution does not involve a disposition for value, (5) transfers to us pursuant to the vesting of or exercise by the holder of any equity incentive awards issued pursuant to our stock option or incentive plans as disclosed in this prospectus, on a “cashless” or “net exercise” basis, so long as the shares of our common stock received upon such exercise will remain subject to the restrictions set forth in the lock-up agreement, (6) transfers to us pursuant to any contractual arrangement that provides for the repurchase of the holder’s shares of our common stock or such other securities by us or in connection with the termination of the holder’s employment or other service relationship with us, or (7) transfers pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of our capital stock involving a change in control of our company.

The underwriter may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release common stock and other securities from lock-up agreements, the underwriter will consider, among other factors, the holder’s reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.

At least three business days before the effectiveness of any release or waiver of any of the restrictions described above with respect to any of our officers or directors, the underwriter will notify us of the impending release or waiver and we have agreed to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver.

Indemnification

We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments that the underwriter may be required to make for these liabilities.

NASDAQ Listing

We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PZRX.” No assurance can be given that such listing will be approved.

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Stabilization, Short Positions and Penalty Bids

The underwriter may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934, as amended:

Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
A short position involves a sale by the underwriter of shares in excess of the number of shares the underwriter is obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriter in excess of the number of shares it is obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriter may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriter is concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriter to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The NASDAQ Capital Market or otherwise and, if commenced, may be discontinued at any time.

Neither we nor the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Distribution

A prospectus in electronic format may be made available on the websites maintained by the underwriter or selling group members, if any, participating in the offering. The underwriter may agree to allocate a number of shares of common stock to selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriter and selling group members that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriter’s websites and any information contained in any other website maintained by the underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part.

Other Relationships

From time to time, the underwriter and its affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with the underwriter for any further services.

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Placement Agent and Advisor

In connection with this offering, to the extent it qualifies a qualified public offering, we have agreed to issue Palladium Capital Advisors, LLC, as consideration for serving as a non-exclusive advisor, the lesser of (i) 112,000 post-split shares of our common stock or (ii) such number of shares of our common stock equal to 1% of our outstanding common stock following this offering, as calculated on a fully diluted basis. These shares of common stock shall be subject to a 180-day lock up agreement in substantially the same form as any lock-up agreement signed by our officers and directors.

Offer Restrictions Outside the United States

Other than in the United States, no action has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (as defined below), or the Relevant Member States, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, our securities will not be offered to the public in that Relevant Member State prior to the publication of a prospectus in relation to the securities that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities may be made to the public in that Relevant Member State at any time:

to any legal entity that is a qualified investor as defined in the Prospectus Directive;
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined below), 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the manager for any such offer; or
in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3(2) of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of common shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the common shares to be offered so as to enable an investor to decide to purchase or subscribe the common shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State. The expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

We have not authorized, and do not authorize the making of, any offer of shares through any financial intermediary on our behalf, other than offers made by the underwriter with a view to the final placement of the shares as contemplated by this prospectus. Accordingly, no purchaser of the securities, other than the underwriter, is authorized to make any further offer of the shares on our or the underwriter’s behalf.

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United Kingdom

Our securities may not be offered or sold and will not be offered or sold to any persons in the United Kingdom other than persons whose ordinary activities involve acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses and in compliance with all applicable provisions of the Financial Services and Markets Act 2000, or FSMA, with respect to anything done in relation to our securities in, from or otherwise involving the United Kingdom.

In addition, each underwriter:

has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to us; and
has complied with, and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

Australia

No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia, or the Corporations Act) in relation to the securities has been or will be lodged with the Australian Securities & Investments Commission, or the ASIC. This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:

(1) you confirm and warrant that you are either:

(a) a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;

(b) a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;

(c) a person associated with us under section 708(12) of the Corporations Act; or

(d) a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act, any offer made to you under this document is void and incapable of acceptance; and

(2) you warrant and agree that you will not offer any of the securities for resale in Australia within 12 months of those securities being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.

Hong Kong

The securities may not be offered or sold in Hong Kong by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (2) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

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Japan

The securities offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (2) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
º where no consideration is or will be given for the transfer; or
º where the transfer is by operation of law.

Switzerland

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to the offering, us, or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the

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Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares.

Canada

Resale Restrictions

The distribution of our securities in Canada is being made only in the provinces of Ontario, Quebec, Alberta, British Columbia and Manitoba on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.

Representations of Purchasers

By purchasing securities in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:

the purchaser is entitled under applicable provincial securities laws to purchase the securities without the benefit of a prospectus qualified under those securities laws as it is an “accredited investor” as defined under National Instrument 45-106 — Prospectus and Registration Exemptions;
the purchaser is a “Canadian permitted client” as defined in National Instrument 31-103 —  Registration Requirements and Exemptions, or as otherwise interpreted and applied by the Canadian Securities Administrators;
where required by law, the purchaser is purchasing as principal and not as agent;
the purchaser has reviewed the text above under “— Resale Restrictions”; and
the purchaser acknowledges and consents to the provision of specified information concerning the purchase of the securities to the regulatory authority that by law is entitled to collect the information, including certain personal information. For purchasers in Ontario, questions about such indirect collection of personal information should be directed to Administrative Support Clerk, Ontario Securities Commission, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8 or on (416) 593-3684.

Rights of Action — Ontario Purchasers

Under Ontario securities legislation, certain purchasers who purchase any securities offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the securities, for rescission against us in the event that this prospectus contain a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the securities. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the securities. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the securities were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

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Abandoned Private Placement

In December 2015, in connection with discussions of our possible initial public offering, we engaged in discussions with four existing investors and two additional funds affiliated with such existing investors who constitute our principal stockholders concerning a possible private placement of our common stock concurrent with the initial public offering.

On March 22, 2016, we and the four existing investors and two additional funds affiliated with such existing investors who constitute our principal stockholders entered into that certain securities purchase agreement, which was subsequently amended on April 6, 2016, pursuant to which the investors and affiliated funds agreed to purchase an aggregate amount of $9.4 million shares of our common stock at the initial public offering price upon consummation of a qualified offering, as defined in that certain loan and security agreement, dated as of December 21, 2015, among us and 17 investors, as amended to date. Securities in the private placement were only offered to persons who were accredited investors, and the private placement was intended to be completed in reliance upon Rule 506 of Regulation D.

On April 14 2016, we abandoned the private placement and formally terminated the securities purchase agreement for the private placement, and all offering activity in connection therewith was terminated. No securities were sold in the abandoned private placement, and all offers to buy or indications of interest given in the private placement discussions were rejected pursuant to the termination of the securities purchase agreement. This prospectus supersedes any offering materials used in the abandoned private placement.

LEGAL MATTERS

The validity of the shares offered by this prospectus will be passed upon for us by Haynes and Boone, LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriter by Sichenzia Ross Friedman Ference LLP, New York, New York.

EXPERTS

Peterson Sullivan LLP, our independent registered public accounting firm, has audited our balance sheets as of December 31, 2014 and 2015, and the related statements of operations, changes in stockholders deficit and cash flows for each of the two years in the period ended December 31, 2015, as set forth in their report, which report expresses an unqualified opinion and includes an explanatory paragraph relating to our ability to continue as a going concern. We have included our financial statements in this prospectus and in this registration statement in reliance on the report of Peterson Sullivan LLP given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or other documents are summaries of the material terms of that contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference room facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials can be obtained from the Public Reference Room of the Securities and Exchange Commission at prescribed rates, or accessed at the Securities and Exchange Commission’s website at www.sec.gov . Please call the Securities and Exchange Commission at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the Securities and Exchange Commission’s website is http://www.sec.gov .

Upon the completion of the offering, we will be required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission pursuant to the Securities

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Exchange Act of 1934, as amended. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission available, free of charge, through our website at     , as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the Securities and Exchange Commission. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the Securities and Exchange Commission, or you can review these documents on the Securities and Exchange Commission’s website, as described above. In addition, we will provide electronic or paper copies of our filings free of charge upon request.

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PhaseRx, Inc.
 
Index to Financial Statements

 
  Page
Report of Independent Registered Public Accounting Firm     F-2  
Balance Sheets     F-3  
Statements of Operations     F-4  
Statements of Stockholders’ Deficit     F-5  
Statements of Cash Flows     F-6  
Notes to Financial Statements     F-7  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
PhaseRx, Inc.
Seattle, Washington

We have audited the accompanying balance sheets of PhaseRx, Inc. (“the Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. 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 audit 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. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PhaseRx, Inc. at December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring operating losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ PETERSON SULLIVAN LLP


Seattle, Washington

February 12, 2016

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PhaseRx, Inc.
 
Balance Sheets
(In thousands, except share and per share amounts)

     
  December 31,   Pro Forma
Stockholders’
Equity at
December 31,
2015 (unaudited)
  2014   2015
Assets
                          
Current assets
                          
Cash and cash equivalents   $ 2,031     $ 3,290           
Prepaids and other current assets     175       388        
Total current assets     2,206       3,678           
Property and equipment, net     453       236        
Total assets   $ 2,659     $ 3,914        
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
                          
Current liabilities
                          
Accounts payable   $ 197     $ 396           
Accrued liabilities     435       445           
Accrued interest     2,055       3,199           
Convertible notes, net of debt discount     12,540       19,841           
Deferred contract revenue     375                 
Deferred rent     193       47        
Total current liabilities     15,795       23,928           
Preferred stock warrant liability     2,695       3,163        
Total liabilities     18,490       27,091        
Commitments and contingencies (Note 11)
                          
Redeemable convertible preferred stock
                          
Series A, $0.0001 par value, 37,300,000 and 45,100,000 shares authorized at December 31, 2014 and 2015, respectively; 20,216,583 shares issued and outstanding at December 31, 2014 and 2015; no shares issued and outstanding pro forma as of December 31, 2015 (unaudited); aggregate liquidation preference of $20,217 at December 31, 2014 and 2015     20,205       20,212           
Series A-1, $0.0001 par value, 10,500,000 shares authorized at December 31, 2014 and 2015, respectively; 5,500,000 shares issued and outstanding at December 31, 2014 and 2015; no shares issued and outstanding pro forma as of December 31, 2015 (unaudited); aggregate liquidation preference of $5,500 at December 31, 2014 and 2015     5,500       5,500           
Stockholders’ deficit
                          
Common stock; $0.0001 par value; 57,800,000 and 65,600,000 shares authorized at December 31, 2014 and 2015; 4,659,450 and 5,678,408 shares issued and outstanding at December 31, 2014 and 2015;      issued and outstanding pro forma as of December 31, 2015 (unaudited)     2       2           
Additional paid-in capital     428       452           
Accumulated deficit     (41,966 )       (49,343 )           
Total stockholders’ deficit     (41,536 )       (48,889 )           
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit   $ 2,659     $ 3,914     $        

 
 
See Notes to Financial Statements

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PhaseRx, Inc.
 
Statements of Operations
(In thousands, except per share amounts)

   
  Years Ended December 31,
     2014   2015
Revenue   $ 1,200     $ 375  
Operating expenses
                 
Research and development     4,860       4,883  
General and administrative     1,931       1,299  
Total operating expenses     6,791       6,182  
Loss from operations     (5,591 )       (5,807 )  
Interest expense     (1,367 )       (1,649 )  
Other income (loss), net     109       79  
Total other income (expense)     (1,258 )       (1,570 )  
Net loss   $ (6,849 )     $ (7,377 )  
Basic and diluted net loss per share   $ (1.47 )     $ (1.33 )  
Shares used in computation of basic and diluted net loss per share     4,656       5,526  
Pro forma basic and diluted net loss per share   $          $       
Shares used in computation of pro forma basic and diluted net loss per share                  

 
 
See Notes to Financial Statements

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Statements of Stockholders’ Deficit
(In thousands, except share amounts)

         
  Common Stock   Additional
Paid-in
Capital
  Accumulated
Deficit
  Total
Stockholders’
Deficit
     Shares   Amount
Balance, January 1, 2014     4,643,723     $ 2     $ 405     $ (35,117 )     $ (34,710 )  
Stock-based compensation                 30             30  
Exercise of stock options     15,727                          
Accretion of Series A preferred stock                 (7 )             (7 )  
Net loss                       (6,849 )       (6,849 )  
Balance, December 31, 2014     4,659,450       2       428       (41,966 )       (41,536 )  
Exercise of stock options     18,958                          
Exercise of common stock warrants     1,000,000             10             10  
Stock-based compensation                 21             21  
Accretion of Series A preferred stock                 (7 )             (7 )  
Net loss                       (7,377 )       (7,377 )  
Balance, December 31, 2015     5,678,408     $ 2     $ 452     $ (49,343 )     $ (48,889 )  

 
 
See Notes to Financial Statements

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Statements of Cash Flows
(In thousands)

   
  Years Ended December 31,
     2014   2015
Operating activities
                 
Net loss   $ (6,849 )     $ (7,377 )  
Adjustments to reconcile net loss to net cash used in operating activities
                 
Depreciation and amortization     512       331  
Amortization of debt discount     282       505  
Stock-based compensation     30       21  
Noncash interest expense     1,003       1,144  
Deferred contract revenue     375       (375 )  
Revaluation of preferred stock warrant liability     (109 )       (79 )  
Changes in operating assets and liabilities
                 
Prepaids and other current assets     (99 )       (213 )  
Accounts payable     (22 )       199  
Accrued liabilities     230       10  
Deferred rent     (214 )       (146 )  
Net cash used in operating activities     (4,861 )       (5,980 )  
Investing activities
                 
Purchases of property and equipment     (53 )       (114 )  
Net cash used in investing activities     (53 )       (114 )  
Financing activities
                 
Proceeds from issuance of convertible notes           7,675  
Proceeds from issuance of redeemable convertible preferred stock     5,500        
Principal payments on credit facility     (232 )        
Debt issue costs           (332 )  
Proceeds from exercise of common stock warrants           10  
Net cash provided by financing activities     5,268       7,353  
Net increase in cash and cash equivalents     354       1,259  
Cash and cash equivalents
                 
Beginning of year     1,677       2,031  
End of year   $ 2,031     $ 3,290  
Supplemental information
                 
Accretion of Series A preferred stock   $ 7     $ 7  

 
 
See Notes to Financial Statements

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

1. Organization

PhaseRx, Inc. (referred to as the “Company,” “we,” “us,” or “our”) was incorporated in the State of Delaware on March 9, 2006 and is located in Seattle, Washington. We are a preclinical biopharmaceutical company developing a portfolio of products for the treatment of inherited enzyme deficiencies in the liver using intracellular enzyme replacement therapy, or i-ERT. We are not aware of any other i-ERT currently being marketed for inherited enzyme deficiencies in the liver, and believe that the commercial potential for i-ERT is untapped and analogous to the large and growing $4 billion market for conventional enzyme replacement therapy, or ERT, which includes drugs such as Cerezyme®. Our i-ERT approach is enabled by our proprietary messenger RNA, or mRNA, technology platform, which allows synthesis of the missing enzyme inside the cell. Our initial product portfolio targets the three urea cycle disorders ornithine transcarbamylase deficiency, or OTCD, argininosuccinate lyase deficiency, or ASL deficiency, and argininosuccinate synthetase deficiency, or ASS1 deficiency. We have preclinical proof of concept with an approvable endpoint in one urea cycle disorder, and expect to obtain human clinical safety and efficacy data in urea cycle disorder patients for our first program in 2018. To our knowledge, there are no ERT products on the market to treat these diseases, because the urea cycle reaction occurs inside the cell and is inaccessible to the administered enzyme. In contrast, we expect delivery of the missing enzyme using i-ERT with our Hybrid mRNA Technology to be a promising approach to treat these patients. Beyond the urea cycle disorders, we believe there are a significant number of inherited disorders of metabolism in the liver that are candidates for our therapeutic approach, and that that proof of concept for the treatment of one inherited liver disorder with our Hybrid mRNA Technology can be adapted to develop mRNA therapeutics for the treatment of other inherited liver disorders using our platform.

Our activities since inception have consisted principally of performing research and development activities and raising capital. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before we achieve sustainable revenues and profit from operations.

As of December 31, 2015, we had an accumulated deficit of $49.3 million. Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees. If required funding is not available, we may be required to modify or abandon some of the Company’s business plan, which management believes would result in reduction of expenditures but may delay achieving certain business goals.

2. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, fair value measurements, financing activities, accruals and other contingencies. The value of our underlying common stock is determined by the board of directors relied in part upon the report of third party valuation specialists and input from our management.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

Unaudited Pro Forma Balance Sheet Information

On February 8, 2016, our board of directors authorized the management of the Company to file a registration statement with the Securities and Exchange Commission (“SEC”) for the Company to sell shares of its common stock to the public. If the contemplated offering is completed, the following will take place:

The mandatory conversion of $12.6 million convertible notes and related accrued interest into Series A preferred stock and then into our common stock in accordance with the terms of such notes and, with respect to Series A preferred stock, our third amended and restated certificate of incorporation, as amended.
The mandatory conversion of $3.6 million convertible notes and related accrued interest into our common stock in accordance with the terms of such notes.
The mandatory conversion of $4.0 million principal amount of term loans together with all accrued and unpaid interest thereon into common stock at a conversion price equal to 80% of the initial public offering price in this offering in accordance with the terms of such notes.
The mandatory conversion of 25,716,583 outstanding shares of preferred stock under the terms of our third amended and restated certificate of incorporation, as amended.
The exercise of warrants to purchase 2,452,242 shares of preferred stock and the conversion of the preferred stock issuable upon exercise of such warrants at an exercise price of $0.01 per share.

The unaudited pro forma balance sheet information at December 31, 2015 gives effect to the conversion of all outstanding convertible notes, term loans, preferred stock and the exercise of certain warrants as if it occurred on December 31, 2015.

Net Loss Per Share and Unaudited Pro Forma Net Loss Per Share

The computation of basic and diluted net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the year, and excludes all outstanding stock options, warrants, preferred stock, as well as shares issuable upon conversion of the convertible notes and term loans from the calculation of diluted net loss per common share, as all such securities are antidilutive to the computation for all the periods presented.

The calculations for the unaudited pro forma basic and diluted net loss per share assume the conversion of all outstanding shares of redeemable convertible preferred stock, convertible notes and term loans into shares of common stock and the exercise of certain warrants as if the conversions had occurred at the beginning of the period or issuance date of the convertible preferred stock, notes and warrants, if later.

Revenue Recognition

Non-refundable, upfront payments received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for contract research services, the costs of laboratory supplies, equipment and facilities, license fees and other external costs. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash deposits are all in financial institutions in the United States of America. We maintain cash in accounts which are in excess of federally insured limits.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized using the straight-line method over the following estimated useful lives:

 
Computer equipment and software     2 – 3 years  
Office equipment and furniture     5 – 7 years  
Laboratory Equipment     5 years  

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

Fair Value of Financial Instruments

We establish the fair value of our assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We established a fair value hierarchy based on the inputs used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3 Unobservable inputs in which little or no market data exists, therefore determined using estimates and assumptions developed by us, which reflect those that a market participant would use.

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to their relative short maturities. The carrying value of our 8% convertible notes payable approximates fair value because the interest rate is reflective of the rate we could obtain on debt with similar terms and conditions. The carrying value of the 5% term loans was approximately $3.7 million as of December 31, 2015. See Note 5 — Convertible Notes Payable and Other Credit Facility for further discussion. We estimate the fair value of the preferred stock warrant liability using Level 3 inputs.

We may apply the fair value option to any eligible financial assets or liabilities, which permits an instrument by instrument irrevocable election to account for selected financial assets and liabilities at fair value. To date, we have not applied this election.

Derivative Financial Instruments

We evaluate our financial instruments such as convertible preferred stock and convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. At each reporting date, we review our convertible securities to determine their classification is appropriate.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

Deferred Financing Costs

We defer costs related to the issuance of debt and include them on the accompanying balance sheets as a deduction from the debt liability. Deferred financing costs are amortized over the term of the related loan and are included as a component of interest expense on the accompanying statements of operations.

Warrant Liabilities

Warrants to purchase our redeemable convertible preferred stock are classified as liabilities and are recorded at their estimated fair value. We use the Black-Scholes option pricing model to evaluate the fair value of the warrants. In each reporting period, any change in the fair value of the warrants are recorded as expense in the case of an increase in fair value and income in the case of a decrease in fair value.

Redeemable Convertible Preferred Stock

We initially record redeemable convertible preferred stock that may be redeemed at the option of the holder or based upon the occurrence of events not under our control outside of stockholders’ deficit at the value of the proceeds received, net of issuance costs. The difference between the original carrying value and the redemption value is accreted at each reporting period on a straight line basis so that the carrying value equals the redemption value on the redemption date. In the absence of retained earnings, these accretion charges are recorded against additional paid-in capital, if any, and then to accumulated deficit.

Stock-Based Compensation

We expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. We use the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date. We recognize stock-based compensation, net of estimated forfeitures, on the accelerated method as expense over the requisite service period. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to volatility, expected option term and fair value of our common stock. Measurement of stock-based compensation for options granted to nonemployees is subject to periodic adjustment as the underlying equity instruments vest.

Income Taxes

We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.

We utilize a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

Concentration of Risk

We are exposed to credit risk from our deposits of cash and cash equivalents in excess of amounts insured by the Federal Deposit Insurance Corporation. We have not experienced any losses on our deposits of cash and cash equivalents since inception. As of December 31, 2015, $3.0 million in cash and cash equivalents was uninsured.

Segment Reporting

Operating segments are defined as components of an enterprise engaging in business activities from which it may earn revenues and incur expenses, for which discrete financial information is available and

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

2. Summary of Significant Accounting Policies  – (continued)

whose operating results are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We view our operations and manage our business in one operating segment and all of our operations are in the United States.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs guidance to simplify the presentation of debt issuance costs. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction for the debt liability as opposed to recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. This is similar to the presentation of debt discounts or premiums. This ASU requires retrospective application which is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We have adopted this guidance. The adoption of this guidance did not have a material impact on our financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU is effective for public entities for annual periods beginning after December 15, 2017. In June 2015, the FASB deferred for one year the effective date of the new revenue standard, with an option that would permit companies to adopt the standard as early as the original effective date. Early adoption prior to the original effective date is not permitted. We are evaluating the impact this standard may have on our revenue recognition, but do not expect that the adoption will have a material impact on our financial statements.

In June 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810 Consolidation . These updates remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This standard is effective for annual reporting periods beginning after December 15, 2014. We have early adopted this standard in the presentation of our 2014 financial statements.

In August 2014 the FASB issued ASU 2014-15 , Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. For all entities, the ASU is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. We are evaluating the impact of this standard but do not expect that the adoption will have a material impact on our financial statements.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

3. Property and Equipment

Property and equipment consisted of the following (in thousands):

   
  December 31,
     2014   2015
Computer and office equipment   $ 244     $ 244  
Laboratory equipment     1,993       2,107  
Leasehold improvements     881       881  
       3,118       3,232  
Less: Accumulated depreciation and amortization     (2,665 )       (2,996 )  
     $ 453     $ 236  

Depreciation and amortization expenses were $512,000 and $331,000 in the years ended December 31, 2014 and 2015, respectively.

4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

   
  December 31,
     2014   2015
Compensation and benefits   $ 298     $ 209  
Other accrued liabilities     137       236  
     $ 435     $ 445  

5. Convertible Notes Payable and Other Credit Facility

Convertible notes payable consisted of the following (in thousands):

   
  December 31,
     2014   2015
8% convertible notes payable on or after February 1,2013 (1)   $ 3,600     $ 3,600  
8% convertible notes payable on or after July 2, 2013 (1)     1,600       1,600  
8% convertible notes payable on or after June 10, 2013 (1)     3,000       3,000  
8% convertible notes payable on or after December 28, 2013 (1)     1,400       1,400  
8% convertible notes payable on or after March 19, 2014 (1)     1,400       1,400  
8% convertible notes payable on or after June 4, 2014 (1)     1,540       1,540  
8% convertible notes payable on or after October 29, 2015 (1)              825  
8% convertible notes payable on or after December 17, 2015 (1)              1,650  
8% convertible notes payable on or after March 31, 2016 (1)              1,200  
5% convertible notes payable on December 21, 2016 (2)              4,000  
Aggregate principal of convertible notes payable     12,540       20,215  
Debt discount and deferred debt issuance costs           (374 )  
Convertible notes payable, net   $ 12,540     $ 19,841  

1. In April, June, August and October 2015, we issued and sold to investors, including beneficial owners of more than 5% of our capital stock, convertible promissory notes, in the aggregate principal amount of $3.7 million. In the years prior to 2014, we issued and sold to investors, including beneficial owners of more than 5% of our capital stock, convertible promissory notes, in the aggregate principal amount of $12.5 million. The notes carry interest at a rate of 8% per annum. We also issued seven-year warrants to purchase shares of the same class and series of capital stock into which the notes convert. The accrued interest payable on convertible notes payable totaled $2.1 million and $3.2 million as of December 31,

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

5. Convertible Notes Payable and Other Credit Facility  – (continued)

2014 and 2015, respectively. Immediately prior to the consummation of a qualified offering under the terms of the loan and security agreement described in footnote (2) below, the convertible notes and unpaid accrued interest thereon will be converted into, and certain of the warrants will be exercised for, shares of our common stock as described elsewhere in this prospectus.
2. On December 21, 2015, we entered into a loan and security agreement with 17 investors, pursuant to which these investors made term loans to us in the aggregate principal amount of $4.0 million. Interest accrues on the term loans at the rate of 5% per annum. The maturity date of the term loans is December 21, 2016, unless earlier converted into equity or otherwise repaid. The entire outstanding principal amount of the term loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Our planned initial public offering is expected to constitute a qualified offering. The term loans are collateralized by all of our tangible assets. We are subject to affirmative and negative covenants.

The fair value of the warrants were recorded as debt discount and warrant liabilities upon issuance of the convertible notes on the balance sheets because the warrants are exercisable into redeemable Series A preferred stock. The debt discount is amortized to interest expense over the term of the notes. The fair value of the warrant liabilities are re-measured at each reporting period using the Black-Scholes option pricing model. Any increase in fair value is recorded as expense and any decrease in the fair value is recorded as income in the statement of operations. The warrant liabilities were $2.7 million and $3.2 million as of December 31, 2014 and 2015, respectively.

We incurred debt issuance costs of $332,000 related to these notes and term loans in 2015 which will be amortized to interest expense over the term of the notes and term loans. We recognized interest expense of $1.4 million and $1.6 million in the years ended December 31, 2014 and 2015, respectively related to these convertible notes and term loans.

In December 2010, the Company executed a credit facility with a lender. Under the terms of the credit facility, we were entitled to borrow up to $2.0 million from December 2010 through July 1, 2011, with a stated interest rate of 8.25%. Borrowings under the credit facility were secured by the Company’s property and equipment. The Company repaid the credit facility in full in 2014.

6. Fair Value Measurements

The warrants exercisable into Series A preferred stock were issued in connection with the issuance of convertible notes. We determined the fair value of warrants using the Black-Scholes option pricing model with the following assumptions (level 3 inputs): no dividend yield; expected life ranging from 3.1 to 7.0 years; risk-free interest rates ranging from 1.3% to 2.1%; and volatility rates ranging from 84.0% to 97.7%. The value of our underlying preferred stock is assumed to be equal to Series A preferred stock liquidation preference of $1.00 per share.

The changes in the balances of the Level 3 preferred stock warrant liability measured at fair value for the years ended December 31, 2014 and 2015 were as follows (in thousands):

 
  Warrant
Liability
Balance, January 1, 2014   $ 2,804  
Change in fair value     (109 )  
Balance, December 31, 2014     2,695  
Additional warrants issued     547  
Change in fair value     (79 )  
Balance, December 31, 2015   $ 3,163  

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit

Redeemable Convertible Preferred Stock

In partial consideration of our obligations under the development and option agreement, or the development agreement, with Synageva BioPharma Corp., (“Synageva”) and pursuant to the terms of the development agreement and the related Series A-1 preferred stock purchase agreement, or the stock purchase agreement, dated April 9, 2014 between us and an affiliate of Synageva, on April 9, 2014 and October 23, 2014, in two separate closings, we issued to an affiliate of Synageva an aggregate of 5,500,000 shares of our Series A-1 preferred stock for aggregate cash proceeds of $5.5 million.

We had 20,216,583 shares of Series A Preferred Stock, held of record by 15 stockholders and 5,500,000 shares of Series A-1 Preferred Stock, held of record by one stockholder, outstanding as of December 31, 2015. All of the Series A and Series A-1 Preferred Stock convert into common stock immediately prior to the pricing of our planned initial public offering.

The convertible preferred stock has the following characteristics:

The preferred stock is convertible at the option of the holder at any time into common stock on a one-for-one basis at an initial conversion rate of $1.00 per share, subject to adjustments for antidilution. Each share of the preferred stock automatically converts into common stock at the effective conversion rate upon the closing of an initial public offering in which the offering price is at least $7.00 per share and the aggregate offering proceeds exceeds $35.0 million.

The preferred stock is subject to a noncumulative dividend, if and when declared, at a rate of $0.06 per share and a liquidation preference of $1.00 per share, adjusted for antidilution. No dividends have been declared through December 31, 2015. At any time after February 22, 2018 (“Redemption Date”), the preferred stock is redeemable for an aggregate of $25.7 million if more than 50% of the holders elect such redemption. The difference between the original net proceeds and the redemption value of the Series A preferred stock will be accreted on a straight line basis over the period between the original issuance date and the Redemption Date. Accordingly, the Company recorded accretion of $7,000 in each of the years ended December 31, 2014 and 2015.

The Series A preferred stock carries voting rights equivalent to common stock. The Series A-1 preferred stock is entitled to the number of votes equal to  1/10 th the number of shares of common stock.

Upon the completion of our planned initial public offering, no shares of our preferred stock will be outstanding. Pursuant to our amended and restated certificate of incorporation, we are authorized to issue shares of preferred stock. Our amended and restated certificate of incorporation authorizes our board, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions.

Warrants

In February 2015, we received $10,000 total proceeds when certain warrant holders exercised common stock warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.01 per share.

As of December 31, 2015, we had outstanding warrants to purchase 3,614,761 shares of preferred stock convertible into shares of common stock issued in connection with certain convertible note financings. Warrants to purchase 1,049,999 shares of preferred stock have an exercise price of $1.00 and warrants to purchase 2,452,242 shares of preferred stock have an exercise price of $0.01. As of December 31, 2015, we had outstanding warrants to purchase 112,520 shares of Series A Preferred Stock with an exercise price of $1.00, issued to a former lender.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit  – (continued)

Immediately prior to the pricing of our planned initial public offering, the $0.01 warrant will be exercised to purchase shares of our common stock at a total price equal to that payable upon the exercise of the warrant in full.

The following table summarizes the number of shares of common stock issuable following the exercise of the warrants to purchase preferred stock and the subsequent conversion of the shares of preferred stock into common stock immediately prior to the pricing of the contemplated initial public offering:

     
Date of issue   Shares of Common
Stock Issuable from
Warrants Outstanding
as of December 31,
2015
  Exercise
Price
  Expiration
date
12/1/2010     112,520     $ 1.00       12/1/2020  
2/1/2012     1,049,999       1.00       2/1/2019  
7/2/2012     800,000       0.01       7/2/2019  
12/10/2012     224,998       0.01       12/10/2019  
4/9/2013     224,998       0.01       4/9/2020  
6/28/2013     75,000       0.01       6/28/2020  
7/16/2013     135,000       0.01       7/16/2020  
9/19/2013     210,000       0.01       9/19/2020  
12/4/2013     230,999       0.01       12/4/2020  
4/29/2015     123,749       0.01       4/29/2022  
6/17/2015     123,749       0.01       6/17/2022  
8/4/2015     123,749       0.01       8/4/2022  
10/1/2015     180,000       0.01       10/1/2022  
       3,614,761              

Common Stock

The voting, dividend and liquidation rights of holders of shares of common stock are subject to and qualified by the rights, powers and preferences of the holders of shares of convertible preferred stock.

We have reserved for future issuance the following number of shares of common stock as of December 31, 2014 and 2015:

   
  December 31,
     2014   2015
Stock options outstanding     4,756,646       4,788,646  
Stock options available for grant     314,000       263,042  
Exercise of common stock warrants     1,000,000        
Exercise of Series A preferred stock warrants     3,063,514       3,614,761  
Convertible notes payable     14,594,842       19,407,898  
Issuance of Series A preferred stock     20,216,583       20,216,583  
Issuance of Series A.1 preferred stock     5,500,000       5,500,000  
       49,445,585       53,790,930  

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit  – (continued)

Stock Option Plans

2006 Stock Plan

Our 2006 Stock Plan was adopted by our board of directors and approved by our stockholders in April 2006. Our 2006 Stock Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees, and for the grant of nonstatutory stock options and stock purchase rights to our employees, directors and consultants. We will not grant any additional awards under our 2006 Stock Plan after our 2016 Stock Plan becomes effective. However, our 2006 Stock Plan will continue to govern the terms and conditions of outstanding awards granted thereunder.

As of December 31, 2015, under the 2006 Stock Plan, options to purchase 4,788,646 shares of common stock were outstanding, and 263,042 shares were available for future grant. We amended and restated the 2006 Stock Plan and increased the share reserve under our 2006 Stock Plan on June 13, 2014 by an additional 2,082,685 shares from 3,004,688 to an aggregate of 5,087,373 total shares of our common stock reserved for issuance pursuant to our 2006 Stock Plan.

2016 Long-Term Incentive Plan

On February 8, 2016, our board of directors approved the 2016 Long-Term Incentive Plan, which we refer to as the 2016 Plan. The 2016 Plan provides for the granting of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and for the granting of nonqualified stock options, restricted stock, stock appreciation rights, restricted stock units, performance awards, dividend equivalent rights, and other awards to our employees, directors and consultants.

The 2016 Plan will become effective immediately prior to the consummation of this offering. Unless terminated earlier by the board of directors, the 2016 Plan will expire on the tenth anniversary of its effective date. No award may be made under the 2016 Plan after its expiration date, but awards made prior thereto may extend beyond that date.

Stock-Based Compensation

We granted incentive stock options to employees and members of the board of directors for their services on the board of directors and nonqualified stock options to nonemployee consultants for their consulting services. Options either vest in 48 equal installments on each monthly anniversary or 25% on the first year anniversary and  1/48 th equal installments on each monthly anniversary of the date of grant, such that options are fully vested on the four-year anniversary of the date of grant. For stock options granted to employees, members of the board of directors, and nonemployee consultants, we estimate the grant date fair value of each option award using the Black-Scholes option pricing model. We recognize stock-based compensation, net of estimated forfeitures, on the accelerated method as expense over the requisite service period. Measurement of stock-based compensation for options granted to nonemployees is subject to periodic adjustment as the underlying equity instruments vest.

We recorded employee stock-based compensation expense of $30,000 and $21,000 for the years ended December 31, 2014 and 2015. At December 31, 2015, the total unrecognized compensation cost of $19,000 will be recognized over the weighted-average remaining service period of approximately 2.4 years.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit  – (continued)

Stock-based compensation expense has been included in the Statement of Operations as follows:

   
  Years Ended December 31,
     2014   2015
     (In thousands)
Research and development   $ 23     $ 17  
General and administrative     7       4  
     $ 30     $ 21  

A summary of our employee and nonemployee stock option activity and related information follows:

       
  2014   2015
     Options   Weighted-
Average
Exercise Price
  Options   Weighted-
Average
Exercise Price
Outstanding at January 1     2,016,188     $ 0.1921       4,756,646     $ 0.0925  
Options granted     2,936,185     $ 0.0315       230,000     $ 0.0100  
Options exercised     (15,727 )     $ 0.0002       (18,958 )     $ 0.0100  
Options forfeited     (180,000 )     $ 0.2200       (179,042 )     $ 0.0593  
Outstanding at December 31     4,756,646     $ 0.0925       4,788,646     $ 0.0901  
Exercisable at December 31     2,105,984     $ 0.1621       2,809,280     $ 0.1312  
Weighted-average fair value of options granted during the period         $ 0.0203           $ 0.0074  

The following table summarizes information about our options outstanding at December 31, 2015:

         
    Outstanding   Exercisable
     Exercise Prices   Number of
Options
  Weighted-Average
Remaining
Contractual Life
(years)
  Number
Exercisable
  Weighted-Average
Remaining
Contractual Life
(years)
     $ 0.0002       31,454       0.86       31,454       0.86  
     $ 0.0019       62,907       1.50       62,907       1.50  
     $ 0.0038       21,100       2.08       21,100       2.08  
     $ 0.0100       2,960,685       8.04       1,187,736       7.19  
     $ 0.2200       1,627,500       5.06       1,421,083       4.65  
     $ 0.2500       85,000       3.44       85,000       3.44  
             4,788,646       6.78       2,809,280       5.55  

The fair value of the stock options are estimated at the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions for the years ended December 31:

   
  2014   2015
Weighted average estimated fair value per share   $ 0.0203     $ 0.0074  
Weighted average assumptions:
                 
Dividend yields            
Expected term (years)     6.0       6.9  
Risk free interest rate     2.5 %       1.6 %  
Volatility     89.6 %       89.6 %  

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit  – (continued)

The risk-free interest rates used in the Black-Scholes option pricing model are based on the implied yield currently available in United States Treasury securities at maturity with an equivalent term. We have limited stock option exercise information. Accordingly, the expected term of stock options granted was calculated using the simplified method, which represents the average of the contractual term of the stock option and the weighted-average vesting period of the stock option. We have not declared or paid any dividends and do not currently expect to do so in the foreseeable future. The value of our underlying common stock is determined by the board of directors relied in part upon the report of third party valuation specialists and input from our management. Expected volatility is based on an average volatility of stock prices for a group of similar publicly traded companies. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model.

8. Income Taxes

As of December 31, 2015, we had a gross operating loss carryforward for federal income tax purposes of approximately $30.9 million, portions of which will begin to expire in 2028. Utilization of some of the federal operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. We have federal credits of approximately $1.0 million which will begin to expire in 2028. These tax credits are subject to the same limitations discussed above. Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal taxes are as follows:

   
  December 31,
     2014   2015
     (in thousands)
Deferred tax assets:
                 
Net operating loss carryforward   $ 9,282     $ 10,816  
Capitalized research and development expenses     3,428       3,969  
Research and other credits     833       1,021  
Other     325       284  
       13,868       16,090  
Less: Valuation allowance     (13,868 )       (16,090 )  
Total deferred tax assets   $     $  

The income tax provision (benefit) related to continuing operations differs from the amounts computed by applying the statutory income tax rate of 35% to pretax loss as follows:

   
  Years Ended December 31,
     2014   2015
     (in thousands)
U.S. Federal provision (benefit)
                 
Loss before provision for income taxes   $ (6,849 )     $ (7,377 )  
At statutory rate of 35%   $ (2,397 )     $ (2,582 )  
Change in valuation allowance     2,163       2,222  
Tax credits     (190 )       (188 )  
Stock based compensation     11       7  
Nondeductible expenses     413       541  
Total   $     $  

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

9. Net Loss Per Share and Pro Forma Net Loss Per Share (unaudited)

The computation of basic and diluted net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the year, and excludes all outstanding stock options, warrants, preferred stock, as well as shares issuable upon conversion of the convertible notes and term loans from the calculation of diluted net loss per common share, as all such securities are anti-dilutive to the computation for all the periods presented. Shares excluded from the computation of diluted net loss per common share were 49,131,585 and 53,527,888 for the years ended December 31, 2014 and 2015, respectively. These shares did not include shares issuable upon conversion of the $4.0 million term loans as the number of shares was not determinable as of December 31, 2015.

The following table presents the calculation of basic and diluted net loss per share:

   
  Years Ended December 31,
     2014   2015
     (in thousands, except per
share amounts)
Net Loss   $ (6,849 )     $ (7,377 )  
Weighted average shares used in computation of basic and diluted net loss per share     4,656       5,526  
Basic and diluted net loss per share   $ (1.47 )     $ (1.33 )  

The calculations for the unaudited pro forma basic and diluted net loss per share assume the conversion of all outstanding shares of redeemable convertible preferred stock, convertible notes and term loans into shares of common stock and the exercise of certain warrants immediately prior to the closing of our planned initial public offering, as if the conversions had occurred at the beginning of the period or issuance date of the convertible preferred stock, notes and warrants, if later.

The following table presents the calculation of pro forma basic and diluted net loss per share (unaudited):

   
  Years Ended December 31,
     2014   2015
     (in thousands, except per
share amounts)
Net Loss   $           $        
Weighted average shares used in computation of proforma basic and diluted net loss per share                  
Pro forma basic and diluted net loss per share                  

10. Significant Agreement

On April 4, 2014, we entered into an exclusive development and option agreement, or development agreement, with Synageva BioPharma Corp., or Synageva, pursuant to which we agreed to conduct certain development activities in connection with the development of our mRNA and polymer products. Under the development agreement, Synageva had an option to acquire us through a merger of a wholly-owned subsidiary of Synageva with and into us. In partial consideration of our obligations under the development agreement, Synageva paid us a non-refundable upfront fee in the aggregate amount of $1.5 million. In addition, on April 9, 2014 and October 23, 2014, in two separate closings, we issued to an affiliate of Synageva an aggregate of 5,500,000 shares of our Series A-1 preferred stock for aggregate cash proceeds of $5.5 million as described more fully above under Note 7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit. The development agreement with Synageva has expired in accordance with its terms. We recognized $375,000 and $1.1 million of revenue during the years ended December 31, 2014 and December 31, 2015, respectively, under the agreement.

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TABLE OF CONTENTS

PhaseRx, Inc.
 
Notes to Financial Statements

11. Commitments and Contingencies

In February 2010, we entered into two lease agreements for approximately 14,200 square feet of office, research and development facilities, which became effective in May 2010. The landlord of the facilities is an investor in the Company. Each lease was for a 65 month term, with a five-year renewal option. Both of the lease agreements included reduced rental payments in the initial years of the 65 month term. In September 2015, we entered agreements to extend the leases to August 2016. We calculated the total rent due over the lease term and are recording equal monthly rent expense over the term. Differences between the recorded rent expense and actual rent paid each month result in an increase or decrease to deferred rent. We also received incentives from the landlord totaling $605,000 to fund certain tenant improvements. These improvements were capitalized as leasehold improvements, with a corresponding credit recorded to deferred rent. The deferred rent balance is being reduced in equal monthly installments over the lease term as a reduction to rent expense. If we do not elect the five-year renewal option or enter into a new lease for alternate space with the landlord or an entity controlled by the landlord, on or before February 29, 2016, the lease requires us to pay the landlord an amount equal to the unamortized portion of the tenant improvements (amortizing over a 10 year period at 8% interest) of $335,000 at December 31, 2015.

Rent expense totaled $575,000 and $689,000 for the years ended December 31, 2014 and 2015, respectively.

Future minimum lease payments due under our two leases, including amounts due for common area maintenance, is $572,000 as of December 31, 2015.

12. Employee Benefit Plan

We have a 401(k) plan for employees who meet eligibility requirements. Eligible employees may contribute from 1% up to the maximum permitted by Internal Revenue Service limitations in 1% increments. Our contributions to the plans are discretionary as determined by the Board of Directors. There were no employer contributions in 2014 and 2015.

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Through and including            , 2016, (the 25 th day after the date of this prospectus), all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 
 
 

       Shares

 
 
 
 

[GRAPHIC MISSING]

 
 
 

Common Stock

 
 
 
 
 


P R O S P E C T U S

 

 
 
 
 
 

Laidlaw & Company (UK) Ltd.

 
 
 

          , 2016

 

 


 
 

TABLE OF CONTENTS

[Alternate Page for Selling Stockholder Prospectus]

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED APRIL 18, 2016

      Shares

[GRAPHIC MISSING]

Common Stock



 

This prospectus relates to the offer for sale of      shares of common stock, par value $0.0001 per share, by the existing holders of the securities named in this prospectus, referred to as selling stockholders throughout this prospectus. We will not receive any of the proceeds from the sale of common shares by the selling stockholders named in this prospectus.

The distribution of securities offered hereby may be effected in one or more transactions that may take place on The NASDAQ Capital Market, including ordinary brokers’ transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the selling stockholders. No sales of the shares covered by this prospectus shall occur until the shares of common stock sold in our initial public offering begin trading on The NASDAQ Capital Market. Currently, there is no public market for our common stock. We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PZRX”

The selling stockholders and intermediaries through whom such securities are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended, with respect to the securities offered hereby, and any profits realized or commissions received may be deemed underwriting compensation. We have agreed to indemnify the selling stockholders against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

On            , 2016, a registration statement under the Securities Act of 1933, as amended, with respect to our initial public offering underwritten by Laidlaw & Company (UK) Ltd., as the underwriter, of $     of our common stock (or      shares of common stock assuming a $     per share initial public offering price) was declared effective by the Securities and Exchange Commission. We received approximately $     in net proceeds from the offering (assuming no exercise of the underwriter’s over-allotment option) after payment of underwriting discounts and commissions and estimated expenses of the offering.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 12 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 

The date of this prospectus is            , 2016.


 
 

TABLE OF CONTENTS

[Alternate Page for Selling Stockholder Prospectus]
 
SHARES REGISTERED FOR RESALE

Overview

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. Interest accrues on the term loans at the rate of 5% per annum. The maturity date is December 21, 2016, unless the term loans are earlier converted into equity or otherwise prepaid. The repayment of the term loans is subject to acceleration upon the occurrence of certain customary events of default contained in the loan and security agreement. As of March 31, 2016, the aggregate outstanding principal amount of the term loans, plus all accrued and unpaid interest thereon, was approximately $4.1 million. The entire outstanding principal amount of the term loans together with all accrued and unpaid interest thereon will automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. We agreed to use our reasonable best efforts to consummate a qualified offering on or prior to June 5, 2016. Among other things, a qualified offering under the loan and security agreement requires a firm commitment underwritten initial public offering of our common stock not later than June 5, 2016 at a pre-offering valuation of at least $24 million (exclusive of the term loans and their subsequent conversion) and which results in gross proceeds to us of at least $16.9 million. We expect the initial public offering underwritten by Laidlaw & Company (UK) Ltd., as the underwriter, of $     of our common stock (or      shares of common stock assuming a $     per share initial public offering price) will constitutes a qualified offering under the terms of the loan and security agreement.

As part of this prospectus, we are registering      shares of common stock issuable upon the automatic conversion of the outstanding $4.0 million principal amount of term loans together with all accrued and unpaid interest thereon upon the closing of the initial public offering, or the conversion shares, for resale. The conversion shares are being registered to permit public sales of such shares, and the selling stockholders may offer the conversion shares for resale from time to time pursuant to this prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their conversion shares in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, or pursuant to another effective registration statement covering the conversion shares.

Registration Rights

As contemplated by the loan and security agreement, on February 29, 2016, we entered into a registration rights agreement with the investors in the December 2015 financing, pursuant to which we agreed to use our reasonable best efforts to register the resale of the shares of common stock issuable upon the conversion of our term loans concurrently with the registration of this initial public offering and to keep the related registration statement continuously effective until the earlier of the date that is one year from the date such registration statement is declared effective or all of the shares issuable upon the conversion of our term loans have been sold thereunder or pursuant to Rule 144 or may be sold pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for us to be in compliance with the current public information requirement under Rule 144. In the event we are unable to register all such shares in the registration statement contemplated by the registration rights agreement, we agreed to use our commercially reasonable efforts to file amendments to the initial registration statement to cover any such unregistered shares. We agreed to pay all fees and expenses related to the filing of such registration statements.

SS-1


 
 

TABLE OF CONTENTS

[Alternate Page for Selling Stockholder Prospectus]
 
USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the conversion shares by the selling stockholders named in this prospectus. All proceeds from the sale of the conversion shares will be paid directly to the selling stockholders.

SS-2


 
 

TABLE OF CONTENTS

[Alternate Page for Selling Stockholder Prospectus]
 
SELLING STOCKHOLDERS

An aggregate of up to      shares of our common stock are currently being offered under this prospectus by certain stockholders who were investors in the December 2015 bridge loan financing. Pursuant to the loan and security agreement entered into in connection with the December 2015 bridge loan financing, as amended to date, $4.0 million principal amount of term loans, together with all accrued and unpaid interest thereon, will be converted into shares of our common stock at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering.

The following table sets forth certain information with respect to each selling stockholder for whom we are registering conversion shares for resale to the public. The selling stockholders have not had a material relationship with us within the past three years other than as described in the footnotes to the table below or as a result of their acquisition of our shares or other securities. To our knowledge, subject to community property laws where applicable, each person named in the table has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name. None of the selling stockholders are broker-dealers or affiliates of broker-dealers, unless otherwise noted.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. The percentage of shares beneficially owned after the offering is based on      shares of common stock to be outstanding after this offering, including      shares of common stock sold in our initial public offering and      conversion shares. With respect to the conversion shares, there exist contractual provisions limiting conversion and exercise to the extent such conversion would cause such selling stockholder, together with its affiliates or members of a “group,” to beneficially own a number of shares of common stock which would exceed, at the written election of such selling stockholder, either 4.99% or 9.99% of our then outstanding shares of common stock following such conversion. The shares and percentage ownership of our outstanding shares indicated in the table below do not give effect to these limitations.

       
  Number of
Shares of
Common Stock
Beneficially
Owned (1)
  Shares Being
Offered (1)
  Common Stock Beneficially
Owned After Offering
Selling Stockholder   Number of
Shares
Outstanding
  Percent of
Shares
Riding the Bull, LLC (2)          (3)                             
Alpha Capital Anstalt (4)          (5)                             
Titan Multi-Strategy Fund I, LTD. (6)          (7)                             
Chesed Found Ltd. (8)          (9)                             
Fame Associates (10)          (11)                             
H & M Machine Co. (12)          (13)                             
Kuykendall Associates, LLC Retirement Trust (14)          (15)                             
Muller, Israel          (16)                             
Robert S. Colman Trust UDT 3/13/85 (17)          (18)                             
Hoch, Joseph          (19)                             
Point Capital, Inc. (20)          (21)                             
Belsky, Mordechaiˆ          (22)                             
2004 Leon Scharf Irrevocable Trust Corp (23)          (24)                             
Mizrachi, Max          (25)                             
Richardson, Erick          (26)                             
Gross, Chaim          (27)                             
Arjang, Jacob Maziar          (28)                             

* Less than 1%
ˆ Except as indicated by a ˆ, no selling stockholder is a broker dealer or an affiliate of a broker-dealer.

SS-3


 
 

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(1) Estimate based on an assumed initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of the Public Offering Prospectus, and an assumed conversion price of $     per share, which is 80% of the assumed initial public price, pursuant to the loan and security agreement entered into in connection with the December 2015 bridge loan financing, as amended, and assuming such conversion occurs on            , 2016. Each selling stockholder may sell all shares received upon such conversion pursuant to this prospectus.
(2) Mark E. Groussman as the manager has sole voting and dispositive power over the securities held for the account of this selling stockholder.
(3) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $1,050,000.
(4) Konrad Ackermann as director has voting and dispositive power over the securities held for the account of this selling stockholder.
(5) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $500,000.
(6) Jonathan Honig as manager has voting and dispositive power over the securities held for the account of this selling stockholder.
(7) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $500,000
(8) Menachem Goldshmid as the director has voting and dispositive power over the securities held for the account of this selling stockholder.
(9) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $400,000
(10) Abraham H. Fruchthandler as the general partner has voting and dispositive power over the securities held for the account of this selling stockholder.
(11) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $250,000
(12) Herschel Parnes has voting and dispositive power over the securities held for the account of this selling stockholder.
(13) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $250,000
(14) Frederick T. Kuykendall III, as the trustee, has sole voting and dispositive power over the securities held for the account of this selling stockholder.
(15) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $250,000
(16) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $150,000
(17) Robert S. Colman, as the trustee, has sole voting and dispositive power over the securities held for the account of this selling stockholder.
(18) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $150,000
(19) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $100,000
(20) Eric Weisblum, as the president, has sole voting and dispositive power over the securities held for the account of this selling stockholder.
(21) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $100,000
(22) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $100,000
(23) Willy Beer, as the Investment Trustee, has sole voting and dispositive power over the securities held for the account of this selling stockholder.
(24) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $50,000

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(25) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $50,000
(26) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $44,000
(27) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $30,000
(28) Comprised of      conversion shares which may be acquired by this selling stockholder upon the conversion of a term loan in the principal amount of $26,000

Each of the selling stockholders that is an affiliate of a broker-dealer has represented to us that it purchased the shares offered by this prospectus in the ordinary course of business and, at the time of purchase of those shares, did not have any agreements, understandings or other plans, directly or indirectly, with any person to distribute those shares.

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[Alternate Page for Selling Stockholder Prospectus]
 
PLAN OF DISTRIBUTION

Each selling stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on The NASDAQ Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling securities:

ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;
block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
in transactions through broker dealers that agree with the selling stockholders to sell a specified number of such securities at a stipulated price per security;
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
a combination of any such methods of sale; or
any other method permitted pursuant to applicable law.

The selling stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

Broker dealers engaged by the selling stockholders may arrange for other broker dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling stockholders (or, if any broker dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The selling stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

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We are required to pay certain fees and expenses incurred by us incident to the registration of the securities. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of 1933, as amended.

Because selling stockholders may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of the Securities Act of 1933, as amended including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended may be sold under Rule 144 rather than under this prospectus. The selling stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the selling stockholders.

We agreed to keep this prospectus effective until the earliest of (i) one (1) year from the date the Registration Statement is declared effective by the Commission, (ii) the date on which the securities may be resold by the selling stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information under Rule 144 under the Securities Act of 1933, as amended or any other rule of similar effect or (iii) the date on which all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as amended).

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[Alternate Page for Selling Stockholder Prospectus]
 
LEGAL MATTERS

The validity of the shares offered by this prospectus will be passed upon for us by Haynes and Boone, LLP, New York, New York.

EXPERTS

Peterson Sullivan LLP, our independent registered public accounting firm, has audited our balance sheets as of December 31, 2014 and 2015, and the related statements of operations, changes in stockholders deficit and cash flows for each of the two years in the period ended December 31, 2015, as set forth in their report, which report expresses an unqualified opinion and includes an explanatory paragraph relating to our ability to continue as a going concern. We have included our financial statements in this prospectus and in this registration statement in reliance on the report of Peterson Sullivan LLP given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act of 1933, as amended, with respect to the shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to the contents of any contract, agreement or other documents are summaries of the material terms of that contract, agreement or other document. With respect to each of these contracts, agreements or other documents filed as an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference room facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington D.C. 20549. Copies of these materials can be obtained from the Public Reference Room of the Securities and Exchange Commission at prescribed rates, or accessed at the Securities and Exchange Commission’s website at www.sec.gov . Please call the Securities and Exchange Commission at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the Securities and Exchange Commission’s website is http://www.sec.gov .

Upon the completion of the offering, we will be required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission available, free of charge, through our website at      , as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the Securities and Exchange Commission. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus. You may read and copy any reports, statements or other information on file at the public reference rooms. You can also request copies of these documents, for a copying fee, by writing to the Securities and Exchange Commission, or you can review these documents on the Securities and Exchange Commission’s website, as described above. In addition, we will provide electronic or paper copies of our filings free of charge upon request.

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[Alternate Page for Selling Stockholder Prospectus]

Through and including            , 2016, (the 25 th day after the date of this prospectus), all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 
 
 

      Shares

 
 
 
 

[GRAPHIC MISSING]

 
 
 
 

Common Stock

 
 
 
 
 


P R O S P E C T U S

 

 
 
 
 
 
 
 
 

           , 2016

 

 


 
 

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Part II
 
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. All amounts are estimated except the Securities and Exchange Commission registration fee, the FINRA filing fee and the NASDAQ listing fee.

 
Securities and exchange Commission Registration Fee   $           
FINRA Filing Fee*         
NASDAQ listing fee*         
Accountants’ fees and expenses*         
Legal fees and expenses*         
Printing and engraving expenses*         
Transfer agent and registrar fees*         
Directors’ and Officers’ Liability Insurance Premiums*         
Miscellaneous*         
Total*   $       

* To be provided by amendment

ITEM 14. Indemnification of Directors and Officers

On completion of this offering, our fourth amended and restated certificate of incorporation will contain provisions that eliminate, to the maximum extent permitted by the General Corporation Law of the State of Delaware, the personal liability of our directors and executive officers for monetary damages for breach of their fiduciary duties as directors or officers. Our fourth amended and restated certificate of incorporation and amended and restated bylaws will provide that we must indemnify our directors and executive officers and may indemnify our employees and other agents to the fullest extent permitted by the General Corporation Law of the State of Delaware.

Sections 145 and 102(b)(7) of the General Corporation Law of the State of Delaware provide that a corporation may indemnify any person made a party to an action by reason of the fact that he or she was a director, executive officer, employee or agent of the corporation or is or was serving at the request of a corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action if he or she acted 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, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful, except that, in the case of an action by or in right of the corporation, no indemnification may generally be made in respect of any claim as to which such person is adjudged to be liable to the corporation.

We have entered into indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our fourth amended and restated certificate of incorporation and amended and restated bylaws, and intend to enter into indemnification agreements with any new directors and executive officers in the future.

We have purchased and currently intend to maintain insurance on behalf of each and any person who is or was our director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification by the underwriter of us and our executive officers and directors, and by us of the underwriter, for certain liabilities, including liabilities arising under the Securities Act of 1933, as amended.

See also the undertakings set out in response to Item 17 herein.

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ITEM 15. Recent Sales of Unregistered Securities

In the three years preceding the filing of this registration statement, we have issued and sold the following securities that were not registered under the Securities Act of 1933, as amended:

On April 9, 2013, we issued to six accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $1.5 million, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $225,000 to purchase shares of our capital stock, for aggregate cash proceeds of $1,500,015.01. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On June 28, 2013 and July 16, 2013, in two separate closings, we issued to an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) a convertible promissory note having a principal amount of $1.4 million, plus a seven-year warrant having an aggregate warrant coverage amount (as defined in such warrant) of $210,000 to purchase shares of our capital stock, for aggregate cash proceeds of $1,400,014.00. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On September 19, 2013, we issued to two accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $1.4 million, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $210,000 to purchase shares of our capital stock, for aggregate cash proceeds of $1,400,014.00. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On November 27, 2013, Michael DeClue exercised options to purchase 1,000 shares of common stock at an exercise price of $0.22 per share. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving a public offering.

On December 4, 2013, we issued to four accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $1,540,000, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $231,000 to purchase shares of our capital stock, for aggregate cash proceeds of $1,540,015.41. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On March 27, 2014, Nicholas M. Dean exercised options to purchase 15,727 shares of common stock at an exercise price of $0.00019 per share. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving a public offering.

On April 9, 2014 and October 23, 2014, in two separate closings, we issued to Savoy Therapeutics Corp., an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) an aggregate of 5,500,000 shares of our Series A-1 Preferred Stock for aggregate cash proceeds of $5.5 million. The securities

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sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

In February 2015, five accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) exercised warrants to purchase a total of 1,000,000 shares of common stock at an exercise price of $0.01 per share. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving a public offering.

On April 29, 2015, we issued to four accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $825,000, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $123,750 to purchase shares of our capital stock, for aggregate cash proceeds of $825,008.25. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On June 17, 2015 and August 4, 2015, in two separate closings, we issued to four accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $1.65 million, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $247,500 to purchase shares of our capital stock, for aggregate cash proceeds of $1,650,016.50. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On October 1, 2015, we issued to two accredited investors (as defined by Rule 501 under the Securities Act of 1933, as amended) convertible promissory notes having an aggregate principal amount of $1.2 million, plus seven-year warrants having an aggregate warrant coverage amount (as defined in such warrants) of $180,000 to purchase shares of our capital stock, for aggregate cash proceeds of $1,200,012.00. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On October 30, 2015, Maher Qabar exercised options to purchase 18,958 shares of common stock at an exercise price of $0.01 per share. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving a public offering.

On December 11, 2015, we issued a promissory note to Titan Multi-Strategy Fund I, LTD. in exchange for $500,000. On December 21, 2015, we entered into a loan and security agreement with 17 investors, which was subsequently amended on April 6, 2016, pursuant to which Titan Multi-Strategy Fund I, LTD. converted its note and certain investors made new term loans to us in the aggregate principal amount of $4.0 million. The term loans closed on December 21, 2015, and we received from the escrow agent net proceeds of approximately $3.2 million, after deducting certain fees and expenses. The entire outstanding principal amount of term loans together with all accrued and unpaid interest thereon shall automatically convert into shares of our common stock upon the closing of a qualified offering and compliance with all components of the qualified offering as set forth in the loan and security agreement, at a conversion price equal to 80% of the price shares of common stock are sold in the qualified offering. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered

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and sold in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(a)(2) and Regulation D (Rule 506) under the Securities Act of 1933, as amended.

On March 8, 2016, Geoffrey Davis, a consultant, exercised options to purchase 20,969 shares of common stock at an exercise price of $0.0038 per share. The securities sold in this offering were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving a public offering.

ITEM 16. Exhibits and Financial Statement Schedules

(a) Exhibits

See the Exhibit Index immediately following the signature page included in this registration statement.

(b) Financial Statement Schedules.

See “Index to Financial Statements” which is located on page F- 1 of this prospectus.

ITEM 17. Undertakings

(A) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increases or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i) If the registrant is relying on Rule 430B:

(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by

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section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

(6) To provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(B) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the

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securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(C) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on April 18, 2016.

PhaseRx, Inc.

By: /s/ Robert W. Overell, Ph.D.

Name: Robert W. Overell, Ph.D.
Title:  Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Robert W. Overell, Ph.D. with full power to act alone and without the others, his true and lawful attorney-in-fact, with full power of substitution, and with the authority to execute in the name of each such person, any and all amendments (including without limitation, post-effective amendments) to this registration statement, to sign any and all additional registration statements relating to the same offering of securities as this registration statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file such registration statements with the Securities and Exchange Commission, together with any exhibits thereto and other documents therewith, necessary or advisable to enable the registrant to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such other changes in the registration statement as the aforesaid attorney-in-fact executing the same deems appropriate.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

   
Signature   Title   Date
/s/ Robert W. Overell

Robert W. Overell, Ph.D.
  Chief Executive Officer, President and Director (principal executive officer and principal financial officer)   April 18, 2016
/s/ Shing-Yin Tsui

Shing-Yin (Helen) Tsui
  Vice President, Finance and Secretary
(principal accounting officer)
  April 18, 2016
/s/ Steven Gillis

Steven Gillis, Ph.D.
  Director, Chairman of the Board   April 18, 2016
/s/ Richard J. Ulevitch

Richard J. Ulevitch, Ph.D.
  Director   April 18, 2016
/s/ Brian G. Atwood

Brian G. Atwood
  Director   April 18, 2016
/s/ John A. Schmidt

John A. Schmidt, Jr., M.D.
  Director   April 18, 2016
/s/ Paul H. Johnson

Paul H. Johnson, Ph.D.
  Director   April 18, 2016
/s/ Michelle Griffin

Michelle Griffin
  Director   April 18, 2016


 
 

TABLE OF CONTENTS

EXHIBIT INDEX

 
Exhibit No.   Description of Exhibit
 1.1*   Form of Underwriting Agreement
 3.1   Third Amended and Restated Certificate of Incorporation, as amended, as presently in effect
 3.2   Amended and Restated Bylaws, as presently in effect
 3.3*   Fourth Amended and Restated Certificate of Incorporation, to be in effect upon completion of this offering
 3.4   Form of Amended and Restated Bylaws, to be in effect upon completion of this offering
 4.1*   Form of Common Stock Certificate
 4.2   PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement, dated November 17, 2014, by and among PhaseRx, Inc. by and among PhaseRx, Inc., Series A Investors listed on Exhibit A thereto, Series A-1 Investor listed on Exhibit A-1 thereto and the Founders listed on Exhibit B thereto
 4.3   Registration Rights Agreement, dated February 29, 2016, among PhaseRx, Inc. and each of the several lenders signatory thereto
 5.1*   Form of Opinion of Haynes and Boone, LLP
10.1†   Second Amended and Restated Exclusive Patent License Agreement, dated February 9, 2016, by and between PhaseRx, Inc. and the University of Washington
10.2†   Amended and Restated RAFT Non-Exclusive License Agreement, dated as of on January 22, 2016, by and between Commonwealth Scientific and Industrial Research Organisation and PhaseRx, Inc.
10.3    Lease Agreement, dated February 9, 2010, between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 Elliott, Seattle, Washington
10.4    First Amendment to Lease Agreement, dated October 1, 2014, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 Elliott, Seattle, Washington
10.5    Second Amendment to Lease, dated May 21, 2015, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 Elliott, Seattle, Washington
10.6    Third Amendment to Lease, dated September 8, 2015, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 Elliott, Seattle, Washington
10.7    Lease Agreement, dated February 9, 2010, between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.8    First Amendment to Lease, dated July 1, 2010, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.9    Second Amendment to Lease, dated April 4, 2011, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.10   Third Amendment to Lease, dated October 1, 2014, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.11   Fourth Amendment to Lease, dated May 21, 2015, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.12   Fifth Amendment to Lease, dated September 8, 2015, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.13∞   Form of Indemnification Agreement
10.14∞   PhaseRx, Inc. 2006 Stock Plan, as amended and restated on June 13, 2014
10.15∞   First Amendment to the PhaseRx, Inc. 2006 Stock Plan, dated as of February 8, 2016
10.16∞   Form of Stock Option Agreement under the PhaseRx, Inc. 2006 Stock Plan
10.17∞   Form of PhaseRx, Inc. 2016 Long-Term Incentive Plan
10.18∞   Form of Nonqualified Stock Option Agreement under the PhaseRx, Inc. 2016 Long-Term Incentive Plan
10.19∞   Form of Incentive Stock Option Agreement under the PhaseRx, Inc. 2016 Long-Term Incentive Plan


 
 

TABLE OF CONTENTS

 
Exhibit No.   Description of Exhibit
10.20∞   Employment Offer Letter Agreement, dated August 17, 2009, between PhaseRx, Inc. and Robert W. Overell, Ph.D.
10.21∞   Employment Offer Letter Agreement, dated December 17, 2013, between PhaseRx, Inc. and Michael Houston, Ph.D.
10.22∞   Amendment to Employment Offer Letter Agreement, dated August 15, 2014, between PhaseRx, Inc. and Michael Houston, Ph.D.
10.23∞   Employment Offer Letter Agreement, dated December 21, 2015, between PhaseRx, Inc. and Helen Tsui
10.24∞   Consulting Agreement, dated July 2, 2013, between PhaseRx, Inc. and Paul H. Johnson, Ph.D.
10.25∞   Amendment to Amended and Restated Consulting Agreement, dated January 2, 2014, between PhaseRx, Inc. and Paul H. Johnson, Ph.D.
10.26∞   Amendment No. 2 to Consulting Agreement, dated February 10, 2016, between PhaseRx, Inc. and Paul H. Johnson, Ph.D.
10.27∞   Consulting Agreement, dated November 1, 2010, between PhaseRx, Inc. and John A. Schmidt, Jr., M.D. LLC
10.28∞   Amendment to Amended and Restated Consulting Agreement, dated June 1, 2011, between PhaseRx, Inc. and John A. Schmidt, Jr., M.D. LLC
10.29∞   Amendment No. 2 to Amended and Restated Consulting Agreement, dated April 1, 2012, between PhaseRx, Inc. and John A. Schmidt, Jr., M.D. LLC
10.30∞   Amendment No. 3 to Consulting Agreement, dated February 10, 2016, between PhaseRx, Inc. and John A. Schmidt, Jr., M.D. LLC
10.31    Loan and Security Agreement, dated December 21, 2015, by and among PhaseRx, Inc., the financial institutions and individuals listed on Annex A thereto, and Titan Multi-Strategy Fund I, LTD.
10.32   Subordination Agreement, dated December 21, 2015, by and among the parties identified on Schedule A thereto, as subordinated lenders, PhaseRx, Inc., and Titan Multi-Strategy Fund I, LTD., in its capacity as a senior lender and in its capacity as representative for itself and the other senior lenders.
10.33∞   Amendment to Amended and Restated Offer Letter Agreement, dated as of March 13, 2016, between PhaseRx, Inc. and Robert W. Overell, Ph.D.
10.34   Fourth Amendment to Lease, dated February 23, 2016, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 Elliott, Seattle, Washington
10.35   Sixth Amendment to Lease, dated February 23, 2016, by and between ARE-SEATTLE NO. 10, LLC and PhaseRx, Inc., for 410 W. Harrison, Seattle, Washington
10.36   Amendment to Loan and Security Agreement, dated as of April 6, 2016, by and among PhaseRx, Inc. and the lenders who are signatories thereto
23.1   Consent of Peterson Sullivan LLP, an Independent Registered Public Accounting Firm.
23.2*   Consent of Haynes and Boone, LLP (included in Exhibit 5.1)
24.1   Power of Attorney (included on signature page)

* To be filed by amendment.
Denotes management compensation plan or contract.
Confidential treatment has been requested for certain provisions omitted from this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended. The omitted information has been filed separately with the Securities and Exchange Commission.


 

Exhibit 3.1

 

THIRD AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION

 

OF

 

PHASERX, INC.

 

Article I

 

The name of the Corporation is PhaseRx, Inc.

 

Article II

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

 

Article III

 

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, DE 19808, County of New Castle. The name of the registered agent at such address is Corporation Service Company.

 

Article IV

 

1.           Classes of Stock . The total number of shares of stock that the corporation shall have authority to issue is 121,200,000, consisting of 65,600,000 shares of Common Stock, $0.0001 par value per share, and 55,600,000 shares of Preferred Stock, $0.0001 par value per share. The first Series of Preferred Stock shall be designated “ Series A Preferred Stock ” and shall consist of 45,100,000 shares and the second Series of Preferred Stock shall be designated “ Series A-1 Preferred Stock ” and shall consist of 10,500,000 shares.

 

Article V

 

The terms and provisions of the Common Stock and Preferred Stock are as follows:

 

1. Definitions . For purposes of this Article V, the following definitions shall apply:

 

(a)          “ Board Expansion Period ” shall have the meaning set forth in the Second Amended and Restated Voting Agreement, dated as of the date hereof, by and among the Company and the parties thereto (as may be amended and/or restated, the “ Voting Agreement ”).

 

(b)          “ Conversion Price ” shall mean $1.00 per share for each series of Preferred Stock (subject to adjustment from time to time for Recapitalizations (as defined below) and as otherwise set forth elsewhere herein).

 

 

 

 

(c)          “ Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities convertible into or exercisable or exchangeable, directly or indirectly, for Common Stock.

 

(d)          “ Corporation ” shall mean PhaseRx, Inc.

 

(e)          “ Distribution ” shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Common Stock payable in Common Stock, or the purchase or redemption of shares of the Corporation by the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchase of capital stock of the Corporation in connection with the settlement of disputes with any stockholder, and (iv) any other repurchase or redemption of capital stock of the Corporation approved by the holders of the Common and Preferred Stock of the Corporation voting as separate classes.

 

(f)          “ Dividend Rate ” shall mean an annual rate of $0.06 per share for the Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(g)          “ Liquidation Preference ” shall mean $1.00 per share for the Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(h)          “ Options ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire, directly or indirectly, Common Stock or Convertible Securities.

 

(i)          “ Original Issue Price ” shall mean $1.00 per share for the Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(j)          “ Preferred Stock ” shall mean the Series A Preferred Stock and the Series A-1 Preferred Stock.

 

(k)          “ Recapitalization ” shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

 

(l)           “ Requisite Preferred Directors ” shall mean at least two Preferred Directors during the Board Expansion Period and a majority of Preferred Directors at all other times.

 

(m)         “ Collaborator Director ” shall mean the director designated by the Collaborator (as defined in the Voting Agreement) pursuant to Section 2(b) of the Voting Agreement.

 

  - 2 -  

 

 

2. Dividends .

 

(a)           Preferred Stock . In any calendar year, the holders of outstanding shares of Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the Dividend Rate specified for such shares of Preferred Stock payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock unless dividends on the Preferred Stock have been declared in accordance with the preferences stated herein (including but not limited to the liquidation rights provided for in Section 3, Article V) and all declared dividends on the Preferred Stock have been paid or set aside for payment to the Preferred Stock holders. The right to receive dividends on shares of Preferred Stock shall not be cumulative, and no right to dividends shall accrue to holders of Preferred Stock by reason of the fact that dividends on said shares are not declared or paid. Payment of any dividends to the holders of Preferred Stock shall be on a pro rata , pari passu basis in proportion to the Dividend Rates for each series of Preferred Stock.

 

(b)           Additional Dividends . The Corporation shall not declare, set aside or pay any dividends on any share of Common Stock (other than dividends on Common Stock payable solely in Common Stock) unless a dividend (including the amount of any dividends paid pursuant to the above provisions of this Section 2) is declared, set aside or paid with respect to all outstanding shares of Preferred Stock in an amount for each such share of Preferred Stock at least equal to the aggregate amount of the dividends for all shares of Common Stock into which each such share of Preferred Stock could then be converted, calculated on the record date for determination of holders entitled to receive such dividend.

 

(c)           Non-Cash Distributions . Whenever a Distribution provided for in this Section 2 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

 

(d)           Waiver of Dividends . Any dividend preference of any series of Preferred Stock may be waived, in whole or in part, by the consent or vote of the holders of the majority of the outstanding shares of such series.

 

3. Liquidation Rights .

 

(a)           Liquidation Preference . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Preferred Stock and (ii) all declared but unpaid dividends (if any) on such share of Preferred Stock, or such lesser amount as may be approved by the holders of a majority of the voting power of the outstanding shares of Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

 

  - 3 -  

 

 

(b)           Remaining Assets . After the payment to the holders of Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the holders of the Preferred Stock and Common Stock in proportion to the number of shares of Common Stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of Common Stock at the then applicable Conversion Rate. Notwithstanding the foregoing, the aggregate distributions made pursuant to one or more subsections of this Section 3 with respect to any share of Preferred Stock shall not exceed an amount equal to three (3) times the applicable Liquidation Preference for such share of Preferred Stock plus any declared but unpaid dividends.

 

(c)           Greater Treatment . Notwithstanding Sections 3(a) and 3(b) above, but subject to Section 3(d) below, if in connection with any Liquidation Event (as defined in Section 3(e) below), the holders of the Preferred Stock would be entitled to receive cash, securities or other property in an amount in excess of the amount specified in Sections 3(a) and 3(b) above, had they elected to convert their shares of Preferred Stock into shares of Common Stock immediately prior to the occurrence of such event, then the shares of Preferred Stock shall be deemed to have converted into Common Stock immediately prior to such event at the then effective Conversion Price.

 

(d)           Shares not Treated as Both Preferred Stock and Common Stock in any Distribution . Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any Distribution, or series of Distributions, as shares of Common Stock, without first foregoing participation in the Distribution, or series of Distributions, as shares of Preferred Stock.

 

(e)           Reorganization . For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of related transactions in which the holders of a majority of the total voting power of the voting securities of the Corporation outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, as a result of shares in the Corporation held by such holders prior to such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Corporation or such other surviving or resulting entity (or if the Corporation or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent); (ii) a sale, lease or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Corporation; or (iii) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (each, a “ Liquidation Event ”). The treatment of any transaction or series of related transactions as a liquidation, dissolution or winding up pursuant to clause (i) or (ii) of the preceding sentence may be waived by the consent or vote of holders of a majority of the voting power of the outstanding Preferred Stock (voting as a single class and on an as-converted basis).

 

  - 4 -  

 

 

(f)           Valuation of Non-Cash Consideration . If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any publicly-traded securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

 

(i)          if the securities are then traded on a national securities exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on such exchange over the ten (10) trading day period ending five (5) trading days prior to the Distribution;

 

(ii)         if the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the Distribution.

 

In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

 

For the purposes of this subsection 3(f), “ trading day ” shall mean any day which the exchange or system on which the securities to be distributed are traded is open and “ closing prices ” or “ closing bid prices ” shall be deemed to be: (i) for securities traded primarily on the New York Stock Exchange, the American Stock Exchange or a Nasdaq market, the last reported trade price or sale price, as the case may be, at 4:00 p.m., New York time, on that day and (ii) for securities listed or traded on other exchanges, markets and systems, the market price as of the end of the regular hours trading period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times generally accepted in the securities industry for determining the market price of a stock as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.

 

(g)          In the event of a Liquidation Event, if any portion of the consideration payable to the stockholders of the Company is placed into escrow and/or is payable to the stockholders of the Company subject to contingencies, the applicable Liquidation Event agreement(s) shall provide that (x) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Company in accordance with Sections 3(a), 3(b) and 3(c) as if the Initial Consideration were the only consideration payable in connection with such Liquidation Event and (y) any additional consideration that becomes payable to the stockholders of the Company upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Company in accordance with Sections 3(a), 3(b), and 3(c) after taking into account the previous payment of the Initial Consideration as part of the same transaction.

 

  - 5 -  

 

 

4.           Conversion . The holders of the Preferred Stock shall have conversion rights as follows:

 

(a)           Right to Convert . Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the relevant series by the Conversion Price for such series. (The number of shares of Common Stock into which each share of Preferred Stock of a series may be converted is hereinafter referred to as the “ Conversion Rate ” for each such series.) Upon any decrease or increase in the Conversion Price for any series of Preferred Stock, as described in this Section 4, the Conversion Rate for such series shall be appropriately increased or decreased.

 

(b)           Automatic Conversion . Each share of Preferred Stock shall automatically be converted into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share (i) immediately prior to the closing of a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “ Securities Act ”), covering the offer and sale of the Corporation’s Common Stock, provided that (A) the offering price per share is not less than $7.00 (as adjusted for Recapitalizations), (B) the aggregate proceeds to the Corporation are not less than $35,000,000 after the deduction of underwriter discounts and commissions and (C) the Corporation’s Common Stock is listed for trading on the New York Stock Exchange, a Nasdaq Stock Market or such other securities exchange, quotation system or market approved by the unanimous vote of the Board of Directors (a “ Qualified Public Offering ”), or (ii) upon the receipt by the Corporation of a written request for such conversion from the holders of a majority of the voting power of Preferred Stock then outstanding (voting as a single class and on an as-converted basis), or, if later, the effective date for conversion specified in such requests, provided that the written approval of the holders of a majority of the Series A-1 Preferred Stock (voting as a single class) shall be required to convert shares of Series A-1 Preferred Stock into Common Stock under this clause (ii) at any time while that certain Development and Option Agreement (the “ Development Agreement ”) by and between the Corporation and the original holder of Series A-1 Preferred Stock remains in effect (each of the events referred to in (i) and (ii) are referred to herein as an “ Automatic Conversion Event ”).

 

  - 6 -  

 

 

(c)           Mechanics of Conversion . No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, the holder shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock or (B) notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that the holder elects to convert the same; provided, however, that on the date of an Automatic Conversion Event, the outstanding shares of Preferred Stock shall be converted automatically, without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided , further , however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion Event unless either the certificates evidencing such shares of Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of an Automatic Conversion Event, each holder of record of shares of Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

 

The Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, plus any declared and unpaid dividends on the converted Preferred Stock Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act or a merger, sale, financing, or liquidation of the Corporation or other event, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing of such transaction or upon the occurrence of such event, in which case the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such transaction or the occurrence of such event.

 

(d) Adjustments to Conversion Price for Diluting Issues .

 

(i)           Special Definition . For purposes of this paragraph 4(d), “ Additional Shares of Common ” shall mean all shares of Common Stock issued (or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the Corporation after the filing of this Amended and Restated Certificate of Incorporation, other than issuances or deemed issuances of:

 

(1)         shares of Common Stock or Options, Convertible Securities or other rights to purchase Common Stock issued or issuable to employees, officers or directors of, or consultant or advisors to the Corporation or any subsidiary pursuant to stock grants, restricted stock purchase agreements, option plans, purchase plans, incentive programs or similar arrangements not to exceed an aggregate of 3,004,688 shares of Common Stock (as adjusted for Recapitalizations and net of any stock repurchases or expired or terminated rights to purchase Common Stock) (the “ Incentive Securities Threshold Amount ”), or such greater number as may be approved by the Board of Directors, including the Requisite Preferred Directors;

 

  - 7 -  

 

 

(2)         shares of Common Stock issued upon (A) the exercise or conversion of Options or Convertible Securities outstanding as of the date of the filing of this Amended and Restated Certificate of Incorporation, (B) the exercise or conversion of Options or Convertible Securities counted against the limit set forth in sub-paragraph 4(d)(i)(1) above or (C) the conversion of Preferred Stock;

 

(3)         shares of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment is made pursuant to paragraph 4(e), 4(f) or 4(g) hereof;

 

(4)         shares of Common Stock issued in a registered public offering under the Securities Act;

 

(5)         shares of Common Stock, Options or Convertible Securities issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided , that such issuances are approved by the Board of Directors, including the Requisite Preferred Directors;

 

(6)         shares of Common Stock, Options or Convertible Securities issued or issuable to banks, equipment lessors or other financial institutions pursuant to a debt financing or commercial leasing transaction approved by the Board of Directors, including the Requisite Preferred Directors;

 

(7)         shares of Common Stock, Options or Convertible Securities issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors, including the Requisite Preferred Directors;

 

(8)         shares of Common Stock, Options or Convertible Securities issued or issuable to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors, including the Requisite Preferred Directors; and

 

(9)         shares of Common Stock excluded from the definition of “Additional Shares of Common” by the Board of Directors, including the Requisite Preferred Directors.

 

(ii)          No Adjustment of Conversion Price . No adjustment in the Conversion Price of a particular series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (as determined pursuant to paragraph 4(d)(v)) for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such series of Preferred Stock.

 

  - 8 -  

 

 

(iii)         Deemed Issuance of Additional Shares of Common . If the Corporation at any time or from time to time after the date of the filing of this Amended and Restated Certificate of Incorporation shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the underlying securities, shall be deemed to have been issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which shares are deemed to be issued:

 

(1)         no further adjustment in the Conversion Price of any series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock in connection with the exercise of such Options or conversion or exchange of such Convertible Securities;

 

(2)         if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof (other than a change pursuant to the anti-dilution provisions of such Options or Convertible Securities such as this Section 4(d) or pursuant to Recapitalization provisions of such Options or Convertible Securities such as Sections 4(e), 4(f) and 4(g) hereof), the Conversion Price of each series of Preferred Stock and any subsequent adjustments based thereon shall be recomputed to reflect such change as if such change had been in effect as of the original issue thereof (or upon the occurrence of the record date with respect thereto);

 

(3)         no readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount above the Conversion Price that would have resulted from any other issuances of Additional Shares of Common and any other adjustments provided for herein between the original adjustment date and such readjustment date;

 

(4)         upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price of each Series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:

 

  - 9 -  

 

 

(a)          in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and

 

(b)          in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and

 

(5)         if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their issuance.

 

(iv)         Adjustment of Conversion Price Upon Issuance of Additional Shares of Common . If this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to paragraph 4(d)(iii)) without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred Stock in effect on the date of and immediately prior to such issue, then, the Conversion Price of the affected series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued. Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if the amount of such reduction would be less than $0.01, but any such amount shall be carried forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate. For the purposes of this subsection 4(d)(iv), all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and the exercise and/or conversion of any other outstanding Convertible Securities and all outstanding Options shall be deemed to be outstanding.

 

(v)          Determination of Consideration . For purposes of this subsection 4(d), the consideration received by the Corporation for the issue (or deemed issue) of any Additional Shares of Common shall be computed as follows:

 

(1)          Cash and Property . Such consideration shall:

 

  - 10 -  

 

 

(a)          insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with such issuance;

 

(b)          insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

 

(c)          if Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as reasonably determined in good faith by the Board of Directors.

 

(2)          Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to paragraph 4(d)(iii) shall be determined by dividing:

 

(x)          the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

 

(y)          the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

(e)           Adjustments for Subdivisions or Combinations of Common Stock . If the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price of each series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. If the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Prices in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

 

  - 11 -  

 

 

(f)           Adjustments for Subdivisions or Combinations of Preferred Stock . If the outstanding shares of Preferred Stock or a series of Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. If the outstanding shares of Preferred Stock or a series of Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

 

(g)           Adjustments for Reclassification, Exchange and Substitution . Subject to Section 3 above (“ Liquidation Rights ”), if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Preferred Stock shall have the right thereafter to convert such shares of Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such series of Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

 

(h)           Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock.

 

(i)           Waiver of Adjustment of Conversion Price . Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived by the consent or vote of the holders of the majority of the voting power with respect to the outstanding shares of such series either before or after the issuance causing the adjustment. Any such waiver shall bind all future holders of shares of such series of Preferred Stock.

 

(j)           Notices of Record Date . If this Corporation shall propose at any time:

 

(i)          to declare any Distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;

 

(ii)         to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

 

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(iii)        to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the corporation pursuant to Section 3(e);

 

then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock at least 10 days’ prior written notice of the date on which a record shall be taken for such Distribution (and specifying the date on which the holders of Common Stock shall be entitled thereto and, if applicable, the amount and character of such Distribution) or for determining rights to vote in respect of the matters referred to in (ii) and (iii) above.

 

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Preferred Stock at the address for each such holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed.

 

The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent or vote of the holders of a majority of the voting power of the Preferred Stock, voting as a single class and on an as-converted basis.

 

(k)           Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

 

5. Voting .

 

(a)           Restricted Class Voting . Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.

 

(b)           No Series Voting . Other than as provided herein or required by law, there shall be no series voting.

 

(c)           Preferred Stock . Each holder of Series A Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. Each holder of Series A-1 Preferred Stock shall be entitled to the number of votes equal to 1/10 th the number of shares of Common Stock into which the shares of Series A-1 Preferred Stock held by such holder could be converted as of the record date. Fractional votes shall not be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be disregarded. Except as otherwise expressly provided herein or as required by law, the holders of shares of the Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote. Holders of Preferred Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation.

 

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(d) Election of Directors .

 

(i)          Subject to Article V, Section 5(d)(ii), on and after February 22, 2008, the holders of Preferred Stock, voting as a separate class, shall be entitled to elect three (3) members of the Board of Directors (the “ Preferred Directors ”) at each meeting or pursuant to each consent of the Corporation’s stockholders for the election of directors. The holders of Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors (the “ Common Directors ”), in either case, at each meeting or pursuant to each consent of the Corporation’s stockholders for the election of directors. Any additional members of the Corporation’s Board of Directors (the “ Independent Directors ”) shall be elected by the holders of Common Stock and Preferred Stock, voting together as a single class. If a vacancy on the Board of Directors is to be filled by the Board of Directors, only directors elected by the same class or classes of stockholders as those who would then be entitled to vote to fill such vacancy shall vote to fill such vacancy.

 

(ii)         During the Board Expansion Period, the holders of Preferred Stock, voting as a separate class, shall be entitled to elect the Collaborator Director as a fourth Preferred Director. It is acknowledged and agreed that the Company may withhold any information and exclude the Collaborator Director from any meeting or portion thereof if the Board reasonably determines, after advice of counsel, that access to such information or attendance at such meeting or portion thereof would present a conflict of interest. At the termination of the Board Expansion Period, the Collaborator Director shall automatically be removed from the Board and the holders of Preferred Stock, voting as a separate class, shall be entitled to elect three (3) members of the Board in accordance with Article V, Section 5(d)(i).

 

(iii)        Notwithstanding the foregoing or any other provision of this Amended and Restated Certificate of Incorporation or any voting agreement by and among the Corporation and its stockholders to the contrary, during the pendency of any Redemption Default (as defined in Section 6(a)), the holders of Preferred Stock, voting as a separate class, shall have the exclusive and special right to elect a majority of the Board of Directors, and the size of the Board of Directors shall be increased by the minimum number of directors necessary to allow the holders of the Preferred Stock to elect such majority. At any time after such voting power has been so vested in the holders of the Preferred Stock, the secretary of the Corporation may, and upon the written request of any holder of Preferred Stock (addressed to the secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Preferred Stock for the election of the additional directors to be elected by such holders as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Corporation for a special meeting of the stockholders of the Corporation or as required by law. If the secretary does not call a meeting as above provided within twenty (20) days after receipt of any such request, then any holder of Preferred Stock may call such meeting, upon the notice above provided, and for such purpose shall have access to the stock register of the Corporation.

 

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(e)           Adjustment in Authorized Common Stock . Subject to the provisions of Section 7A, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by an affirmative vote of the holders of a majority of the voting power of the stock of the Corporation.

 

(f)           Common Stock . Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held.

 

6. Redemption .

 

(a)          At any time after February 22, 2018, and at the election of the holders of at least a majority of the voting power of the then outstanding shares of Preferred Stock, the Corporation shall redeem, out of funds legally available therefor, all (but not less than all) of the then outstanding shares of Preferred Stock that have not been converted into Common Stock pursuant to Section 4 hereof (the “ Redemption Date ”), provided, that the Corporation may not redeem any shares of Preferred Stock under this Section 6 while the Development Agreement is in effect without the written approval of the holders of a majority of the Series A-1 Preferred Stock (voting as a single class). The Corporation shall redeem the shares of Preferred Stock by paying in cash an amount per share equal to the greater of (x) the Original Issue Price for such Preferred Stock, plus an amount equal to all declared and unpaid dividends thereon, whether or not earned and (y) the Fair Market Value (as defined below) of the Common Stock into which such shares of Preferred Stock are convertible (the “ Redemption Price ”). For purposes of this Section 6, the “ Fair Market Value ” of the Common Stock as of the Redemption Date shall be determined by a majority of the directors then serving on the Board of Directors (excluding the Preferred Directors), subject to the approval of the holders of a majority of the voting power of the then outstanding shares of Preferred Stock; provided , however , that if agreement with respect to Fair Market Value cannot be reached in the foregoing manner, such Fair Market Value shall be established by a an independent third-party appraiser mutually acceptable to a majority of the directors then serving on the Board of Directors (excluding the Preferred Directors) and the holders of a majority of the voting power of the then outstanding shares of Preferred Stock. If the funds legally available for redemption of the Preferred Stock shall be insufficient to permit the payment to such holders of the full respective Redemption Price (such event, a “ Redemption Default ”), the Corporation shall effect such redemption pro rata among the holders of the Preferred Stock such that each holder of Preferred Stock shall receive a redemption payment equal to a fraction of the aggregate amount available for redemption, the numerator of which is the number of shares of Preferred Stock held by such holder multiplied by the Redemption Price of each share of Preferred Stock held by such holder, and the denominator of which is the number of shares of Preferred Stock then outstanding multiplied by the Redemption Price of each such outstanding share of Preferred Stock. Any shares of Preferred Stock not redeemed in connection with a Redemption Default shall remain outstanding and entitled to all of the rights and preferences provided herein, including the rights of conversion provided herein, and shall accrue an additional redemption premium of fifteen percent (15%) per annum of the Original Issue Price for the Preferred Stock (as adjusted for Recapitalizations) per month from and including the Redemption Date to, but excluding the date such shares are actually redeemed. If at any time thereafter additional funds become legally available for the redemption, such funds shall be applied immediately toward redeeming the balance of the shares of Preferred Stock subject to redemption that have not been redeemed. During the pendency of any Redemption Default, the holders of shares of Preferred Stock shall have the right to elect no less than a majority of the Board of Directors as set forth in Section 5(b) above.

 

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(b)          Any redemption effected pursuant to Section 6(a) shall be made on a pro rata basis among the holders of the Preferred Stock in proportion to the shares of Preferred Stock then held by such holders.

 

(c)          At least fifteen (15), but no more than thirty (30) business days prior to the Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, the holder’s certificate or certificates representing the shares to be redeemed (the “ Redemption Notice ”). Except as provided herein, on or after the Redemption Date each holder of Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. If less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.

 

(d)          From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Preferred Stock designated for redemption in the Redemption Notice as holders of Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to the shares designated for redemption on such date, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Preferred Stock on the Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Preferred Stock. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Preferred Stock such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on the Redemption Date, but which it has not redeemed.

 

  - 16 -  

 

 

(e)          On or prior to the Redemption Date, the Corporation may deposit the Redemption Price of all shares of Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000, as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered a share certificate to the Corporation pursuant to Section 6(c) above. As of the Redemption Date, the deposit shall constitute full payment of the shares to their holders, and from and after the Redemption Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any monies deposited by the Corporation pursuant to this Section 6(e) for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 4 hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any monies deposited by the Corporation pursuant to this Section 6(e) remaining unclaimed at the expiration of two (2) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors.

 

7A.            Amendments and Changes . As long as any shares of the Preferred Stock shall be issued and outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent as provided by law) of the holders of more than fifty percent (50%) of the voting power of the outstanding shares of the Preferred Stock (voting together as a single class):

 

(a)          amend, alter or repeal any provision (including pursuant to a merger) of the Certificate of Incorporation or bylaws of the Corporation, if such action would alter the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Preferred Stock;

 

(b)          increase or decrease (other than for decreases resulting from conversion of the Preferred Stock) the authorized number of shares of Common Stock or Preferred Stock;

 

(c)          authorize or create (by reclassification, merger or otherwise) or issue or obligate itself to issue any new class or series of equity security (including any security convertible into or exercisable or exchangeable for any equity security) having rights, preferences or privileges senior to or on a parity with the Preferred Stock;

 

(d)          reclassify any capital stock;

 

(e)          permit any subsidiary of the Company to issue any capital stock other than to the Company or a subsidiary thereof, unless approved by the Board of Directors, including the Requisite Preferred Directors;

 

(f)          authorize or give effect to a merger, acquisition or sale of substantially all of the assets of the Corporation or any of its subsidiaries (other than a merger exclusively to effect a change of domicile of the Corporation);

 

(g)          voluntarily liquidate, dissolve, or wind up operations;

 

(h)          declare or pay dividends to the holders of capital stock;

 

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(i)          redeem or repurchase shares of Common Stock or Preferred Stock (except for purchases hereafter approved by the Board of Directors pursuant to contractual rights of first refusal or upon termination of services);

 

(j)          incur debt (other than trade payables incurred in the ordinary course of business) in excess of $500,000 in the aggregate, unless approved by the Board of Directors, including the Requisite Preferred Directors;

 

(k)          enter into any transaction for the purchase of goods or services (other than in the ordinary course of business) pursuant to which the Corporation would incur obligations in excess of $250,000 , unless approved by the Board of Directors, including the Requisite Preferred Directors ;

 

(l)          make any material change to the nature of the Corporation’s business as it is currently conducted or contemplated to be conducted, unless approved by the Board of Directors, including the Requisite Preferred Directors;

 

(m)          increase the number of shares authorized for issuance under any existing equity incentive plan in excess of the Incentive Securities Threshold Amount or create any new equity incentive plan (other than the creation of an equity incentive plan to give effect to the increase in the Incentive Securities Threshold Amount as contemplated by Section 4(d)(i)(1) hereof), unless approved by the Board of Directors, including the Requisite Preferred Directors; or

 

(n)          pledge or create a lien against a material portion of its assets, unless approved by the Board of Directors, including the Requisite Preferred Directors;

 

(o)          enter into any agreement or take any action with regard to the foregoing Sections 7A(a) through (n).

 

7B.            Additional Amendments and Changes . The Corporation shall not, without first having obtained the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Series A-1 Preferred Stock (except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Corporation’s Certificate of Incorporation, as amended and restated), amend, alter or repeal any provision of the Corporation’s Certificate of Incorporation or Bylaws so as to adversely affect, whether by merger, consolidation or otherwise, the relative rights, preferences or privileges of the Series A-1 Preferred Stock in a manner different than the Series A Preferred Stock.

 

7C.            Amendments and Changes to Section 5(d)(ii) . During the Board Expansion Period, the Corporation shall not, without first having obtained the affirmative vote or written consent of the holders of not less than (a) a majority of the outstanding shares of Common Stock and (b) a majority of the outstanding shares of Series A-1 Preferred Stock, each voting separately (except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by the Corporation’s Certificate of Incorporation, as amended and restated), amend, alter or repeal any provision of Section 5(d)(ii) of this Amended and Restated Certificate of Incorporation.

 

8.               Reissuance of Preferred Stock . If any shares of Preferred Stock shall be converted pursuant to Section 4, redeemed pursuant to Section 6 or otherwise repurchased by the Corporation, the shares so converted, redeemed or repurchased shall be cancelled and shall not be issuable by this Corporation.

 

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9.           Notices . Any notice required by the provisions of this Article V to be given to the holders of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the books of the Corporation.

 

Article VI

 

The Corporation is to have perpetual existence.

 

Article VII

 

Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

Article VIII

 

Unless otherwise set forth herein, the number of directors that constitute the Board of Directors of the Corporation shall be fixed by, or in the manner provided in, the Bylaws of the Corporation.

 

Article IX

 

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation.

 

Article X

 

1.          To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

 

2.          The Corporation shall have the power to indemnify, to the extent permitted by the Delaware General Corporation Law, as it presently exists or may hereafter be amended from time to time, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.

 

  - 19 -  

 

 

3.          Neither any amendment nor repeal of this Article X, nor the adoption of any provision of this Corporation’s Certificate of Incorporation inconsistent with this Article X, shall eliminate or reduce the effect of this Article X, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article X, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

 

Article XI

 

If a Covered Person (as defined below) (1) acquires knowledge of a Corporate Opportunity (as defined below) or (2) is then otherwise pursuing a Corporate Opportunity, unless such Corporate Opportunity is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation or pursuant to contractual rights with the Corporation to observe the proceedings of the Board of Directors:

 

(i)          the Corporation shall have no expectation that such Corporate Opportunity will be offered to it, and

 

(ii)         the Covered Persons (1) shall have no duty to communicate or present such Corporate Opportunity to the Corporation, shall have the right to hold such Corporate Opportunity for the Covered Person’s (and its officers’, directors’, agents’, stockholders’, Affiliates’ or subsidiaries’) own account, or to recommend, assign or otherwise transfer such Corporate Opportunity to persons other than the Corporation, and (2) shall not be liable to the Corporation or its stockholders or creditors for breach of fiduciary duty as a director or stockholder of the Corporation by reason of the fact that the Covered Persons pursued or acquired such Corporate Opportunity for itself, directed, sold, assigned or otherwise transferred such Corporate Opportunity to another person, or did not communicate information regarding such Corporate Opportunity to the Corporation,

 

it being understood that the foregoing shall not constitute a waiver of any right the Corporation may have as a result of a breach of a contract between the Corporation and any Covered Person.

 

(b)          For the purposes of this Article XI:

 

(i)          “ Affiliate ” of any Person (as defined below) shall mean any other Person that, directly or indirectly, controls, is under common control with or is controlled by that Person; provided, however, that neither the term “Affiliate” nor the waivers and protections contained in this Article XI, shall include or extend to any Person who serves as an officer, or employee of the Corporation. For purposes of this definition, “control” (including, with its correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any 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 by contract or otherwise.

 

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(ii)         “ Corporate Opportunity ” shall mean any matter, transaction, interest, investment, development or business opportunity or prospective economic or competitive advantage in which the Corporation could have an interest or expectancy.

 

(iii)        “ Covered Person ” shall mean (A) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries or (B) any holder of Preferred Stock or any Affiliate, parent, subsidiary, partner, member, director, stockholder, employee or agent of any agent of any such holder or holder’s Affiliate, other than someone who is an employee of the Corporation or any of its subsidiaries.

 

(iv)        “ Person ” shall mean an individual, corporation, partnership, limited liability company, trust, unincorporated organization, or other legal entity.

 

Without limiting the foregoing renunciation, the Corporation (i) acknowledges that the Covered Persons are in the business of making investments in, and have or may have investments in, other businesses similar to and that may compete with the Corporation’s businesses (“ Competing Businesses ”), and (ii) agrees that the Covered Persons shall have the unfettered right to make investments in or have relationships with Competing Businesses independent of their investments in the Corporation; provided that each Covered Person agrees to keep in confidence and prevent the use or disclosure to any other person or entity of the confidential information of the Corporation.

 

Article XII

 

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

 

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Exhibit 3.2

 

Bylaws of

 

PhaseRx, Inc.

 

As amended and restated November 17, 2014

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
ARTICLE I —  MEETINGS OF STOCKHOLDERS 1
     
1.1 Place of Meetings 1
1.2 Annual Meeting 1
1.3 Special Meeting 1
1.4 Notice of Stockholders’ Meetings 2
1.5 Quorum 2
1.6 Adjourned Meeting; Notice 2
1.7 Conduct of Business 2
1.8 Voting 2
1.9 Stockholder Action by Written Consent Without a Meeting 3
1.10 Record Date for Stockholder Notice; Voting; Giving Consents 4
1.11 Proxies 5
1.12 List of Stockholders Entitled to Vote 5
     
ARTICLE II —  DIRECTORS 5
     
2.1 Powers 5
2.2 Number of Directors 5
2.3 Election, Qualification and Term of Office of Directors 6
2.4 Resignation and Vacancies 6
2.5 Place of Meetings; Meetings by Telephone 7
2.6 Conduct of Business 7
2.7 Regular Meetings 7
2.8 Special Meetings; Notice 7
2.9 Quorum 8
2.10 Board Action by Written Consent Without a Meeting 8
2.11 Fees and Compensation of Directors 8
2.12 Removal of Directors 8
     
ARTICLE III —  COMMITTEES 9
     
3.1 Committees of Directors 9
3.2 Committee Minutes 9
3.3 Meetings and Actions of Committees 9
3.4 Subcommittees 9
     
ARTICLE IV —  OFFICERS 10
     
4.1 Officers 10
4.2 Appointment of Officers 10
4.3 Subordinate Officers 10
4.4 Removal and Resignation of Officers 10
4.5 Vacancies in Offices 10

 

 

 

 

 

TABLE OF CONTENTS

(Continued)

 

    Page
     
4.6 Representation of Shares of Other Corporations 10
4.7 Authority and Duties of Officers 10
     
ARTICLE V —  INDEMNIFICATION 11
     
5.1 Indemnification of Directors and Officers in Third Party Proceedings 11
5.2 Indemnification of Directors and Officers in Actions by or in the Right of the Company 11
5.3 Successful Defense 11
5.4 Indemnification of Others 12
5.5 Advanced Payment of Expenses 12
5.6 Limitation on Indemnification and Advancement of Expenses 12
5.7 Determination; Claim 13
5.8 Non-Exclusivity of Rights 13
5.9 Insurance 13
5.10 Survival 13
5.11 Effect of Repeal or Modification 13
5.12 Certain Definitions 13
     
ARTICLE VI —  STOCK 14
     
6.1 Stock Certificates; Partly Paid Shares 14
6.2 Special Designation on Certificates 14
6.3 Lost Certificates 15
6.4 Dividends 15
6.5 Stock Transfer Agreements 15
6.6 Registered Stockholders 15
6.7 Transfers 15
     
ARTICLE VII —  MANNER OF GIVING NOTICE AND WAIVER 15
     
7.1 Notice of Stockholder Meetings 15
7.2 Notice by Electronic Transmission 16
7.3 Notice to Stockholders Sharing an Address 17
7.4 Notice to Person with Whom Communication is Unlawful 17
7.5 Waiver of Notice 17
     
ARTICLE VIII —  GENERAL MATTERS 17
     
8.1 Fiscal Year 17
8.2 Seal 17
8.3 Annual Report 17
8.4 Construction; Definitions 18
     
ARTICLE IX —  AMENDMENTS 18

 

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BYLAWS

 

ARTICLE I — MEETINGS OF STOCKHOLDERS

 

1.1            Place of Meetings .  Meetings of stockholders of PhaseRx, Inc. (the “ Company ”) shall be held at any place, within or outside the State of Delaware, determined by the Company’s board of directors (the “ Board ”). The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Company’s principal executive office.

 

1.2            Annual Meeting .  An annual meeting of stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Any other proper business may be transacted at the annual meeting. The Company shall not be required to hold an annual meeting of stockholders, provided that (i) the stockholders are permitted to act by written consent under the Company’s certificate of incorporation and these bylaws, (ii) the stockholders take action by written consent to elect directors and (iii) the stockholders unanimously consent to such action or, if such consent is less than unanimous, all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

 

1.3            Special Meeting .  A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board, Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.

 

If any person(s) other than the Board calls a special meeting, the request shall:

 

(i)          be in writing;

 

(ii)         specify the time of such meeting and the general nature of the business proposed to be transacted; and

 

(iii)        be delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.

 

The officer(s) receiving the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this section 1.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

 

 

 

 

1.4            Notice of Stockholders’ Meetings .  Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders 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.

 

1.5            Quorum .  Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, in the manner provided in section 1.6 , until a quorum is present or represented.

 

1.6            Adjourned Meeting; Notice .  Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

1.7            Conduct of Business .  Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

 

1.8            Voting .  The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of section 1.10 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

 

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Except as may be otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission (as defined in section 7.2 of these bylaws), provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.

 

Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

 

1.9            Stockholder Action by Written Consent Without a Meeting .  Unless otherwise provided in the certificate of incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

An electronic transmission (as defined in section 7.2 ) consenting to an action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated for purposes of this section, provided that any such electronic transmission sets forth or is delivered with information from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (ii) the date on which such stockholder or proxy holder or authorized person or persons transmitted such electronic transmission.

 

In the event that the Board shall have instructed the officers of the Company to solicit the vote or written consent of the stockholders of the Company, an electronic transmission of a stockholder written consent given pursuant to such solicitation may be delivered to the Secretary or the President of the Company or to a person designated by the Secretary or the President. The Secretary or the President of the Company or a designee of the Secretary or the President shall cause any such written consent by electronic transmission to be reproduced in paper form and inserted into the corporate records.

 

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Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

 

1.10          Record Date for Stockholder Notice; Voting; Giving Consents .  In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which record date:

 

(i)          in the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting;

 

(ii)         in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board; and

 

(iii)        in the case of determination of stockholders for any other action, shall not be more than 60 days prior to such other action.

 

If no record date is fixed by the Board:

 

(i)          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 next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;

 

(ii)         the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law, or, if prior action by the Board is required by law, shall be at the close of business on the day on which the Board adopts the resolution taking such prior action; and

 

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(iii)        the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

 

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 that the Board may fix a new record date for the adjourned meeting.

 

1.11          Proxies .  Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

 

1.12          List of Stockholders Entitled to Vote .  The officer who has charge of the stock ledger of the Company shall prepare and make, at least ten 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. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) 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 (ii) during ordinary business hours, at the Company’s principal place of business. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

 

ARTICLE II — DIRECTORS

 

2.1            Powers .  The business and affairs of the Company shall be managed by or under the direction of the Board, except as may be otherwise provided in the DGCL or the certificate of incorporation.

 

2.2            Number of Directors .  The Board shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

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2.3            Election, Qualification and Term of Office of Directors .  Except as provided in section 2.4 of these bylaws, and subject to sections 1.2 and 1.9 of these bylaws, directors shall be elected at each annual meeting of stockholders. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. Each director shall hold office until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.

 

2.4            Resignation and Vacancies .  Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

 

Unless otherwise provided in the certificate of incorporation or these bylaws:

 

(i)          Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

 

(ii)         Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

 

If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

 

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

 

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A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office and until such director’s successor is elected and qualified, or until such director’s earlier death, resignation or removal.

 

2.5            Place of Meetings; Meetings by Telephone .  The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

2.6            Conduct of Business .  Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

2.7            Regular Meetings .  Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

 

2.8            Special Meetings; Notice .  Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.

 

Notice of the time and place of special meetings shall be:

 

(i)          delivered personally by hand, by courier or by telephone;

 

(ii)         sent by United States first-class mail, postage prepaid;

 

(iii)        sent by facsimile; or

 

(iv)        sent by electronic mail,

 

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Company’s records.

 

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Company’s principal executive office) nor the purpose of the meeting.

 

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2.9            Quorum .  At all meetings of the Board, a majority of the total number of directors ( provided that during the Board Expansion Period (as defined in the certificate of incorporation), such majority shall include at least one Common Director (as defined in the certificate of incorporation)) shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present ( provided that during the Board Expansion Period, such majority shall include at least one Common Director or one Independent Director (as defined in the certificate of incorporation)) shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

 

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

 

2.10          Board Action by Written Consent Without a Meeting .  Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board 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.

 

2.11          Fees and Compensation of Directors .  Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

 

2.12          Removal of Directors .  Unless otherwise restricted by statute, the certificate of incorporation or these bylaws, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

 

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office. For avoidance of doubt, at the termination of the Board Expansion Period, the Collaborator Director (as that term is defined the certificate of incorporation) shall automatically be removed from the Board pursuant to Article V, Section 5(d) of the certificate of incorporation.

 

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ARTICLE III — COMMITTEES

 

3.1            Committees of Directors .  The Board may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board 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 thereof 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 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 or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Company.

 

3.2            Committee Minutes .  Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

 

3.3            Meetings and Actions of Committees .  Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 

(i)           section 2.5 (Place of Meetings; Meetings by Telephone);

 

(ii)          section 2.7 (Regular Meetings);

 

(iii)         section 2.8 (Special Meetings; Notice);

 

(iv)         section 2.9 (Quorum);

 

(v)          section 2.10 (Board Action by Written Consent Without a Meeting); and

 

(vi)         section 7.5 (Waiver of Notice)

 

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However :

 

(vii)       the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

 

(viii)      special meetings of committees may also be called by resolution of the Board; and

 

(ix)         notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

3.4            Subcommittees .  Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board 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.

 

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ARTICLE IV — OFFICERS

 

4.1            Officers .  The officers of the Company shall be a President and a Secretary. The Company may also have, at the discretion of the Board, a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

 

4.2            Appointment of Officers .  The Board shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of section 4.3 of these bylaws.

 

4.3            Subordinate Officers .  The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

 

4.4            Removal and Resignation of Officers .  Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

 

Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

 

4.5            Vacancies in Offices .  Any vacancy occurring in any office of the Company shall be filled by the Board or as provided in section 4.3 .

 

4.6            Representation of Shares of Other Corporations .  Unless otherwise directed by the Board, the President or any other person authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

4.7            Authority and Duties of Officers .  Except as otherwise provided in these bylaws, the officers of the Company shall have such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

 

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ARTICLE V — INDEMNIFICATION

 

5.1            Indemnification of Directors and Officers in Third Party Proceedings .  Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

5.2            Indemnification of Directors and Officers in Actions by or in the Right of the Company .  Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

5.3            Successful Defense .  To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 5.1 or Section 5.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

 

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5.4            Indemnification of Others .  Subject to the other provisions of this Article V , the Company shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The Board shall have the power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.

 

5.5            Advanced Payment of Expenses .  Expenses (including attorneys’ fees) incurred by an officer or director of the Company in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article V or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Company deems appropriate.

 

Notwithstanding the foregoing, unless otherwise determined pursuant to Section 5.8, no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company, in which event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majority vote of the directors who are not parties to such Proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, that facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Company.

 

5.6            Limitation on Indemnification and Advancement of Expenses .  Subject to the requirements in Section 5.3 and the DGCL, the Company shall not be required to provide indemnification or, with respect to clauses (i), (iii) and (iv) below, advance expenses to any person pursuant to this Article V :

 

(i)          in connection with any Proceeding (or part thereof) initiated by such person except (i) as otherwise required by law, (ii) in specific cases if the Proceeding was authorized by the Board, or (iii) as is required to be made under Section 5.7;

 

(ii)         in connection with any Proceeding (or part thereof) against such person providing for an accounting or disgorgement of profits pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any federal, state or local statutory law or common law;

 

(iii)        for amounts for which payment has actually been made to or on behalf of such person under any statute, insurance policy or indemnity provision, except with respect to any excess beyond the amount paid; or

 

(iv)        if prohibited by applicable law.

 

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5.7            Determination; Claim .  If a claim for indemnification or advancement of expenses under this Article V is not paid in full within 60 days after a written claim therefor has been received by the Company, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such suit, the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or advancement of expenses under applicable law.

 

5.8            Non-Exclusivity of Rights .  The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The Company is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.

 

5.9            Insurance .  The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the DGCL.

 

5.10          Survival .  The rights to indemnification and advancement of expenses conferred by this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

5.11          Effect of Repeal or Modification .  Any repeal or modification of this Article V shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

 

5.12          Certain Definitions .  For purposes of this Article V , references to the “ Company ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V , references to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “ serving at the request of the Company ” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the Company ” as referred to in this Article V .

 

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ARTICLE VI — STOCK

 

6.1            Stock Certificates; Partly Paid Shares .  The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Company by the Chairperson of the Board or Vice Chairperson of the Board, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The Company shall not have power to issue a certificate in bearer form.

 

The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

 

6.2            Special Designation on Certificates .  If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 the certificate that the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the 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.

 

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6.3            Lost Certificates .  Except as provided in this section 6.3 , no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

6.4            Dividends .  The Board, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Company’s capital stock. Dividends may be paid in cash, in property, or in shares of the Company’s capital stock, subject to the provisions of the certificate of incorporation.

 

The Board may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

 

6.5            Stock Transfer Agreements .  The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

 

6.6            Registered Stockholders .  The Company:

 

(i)           shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

 

(ii)         shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

 

(iii)        shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

6.7            Transfers .  Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.

 

ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

 

7.1            Notice of Stockholder Meetings .  Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the Company’s records. An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or other agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

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7.2            Notice by Electronic Transmission .  Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:

 

(i)          the Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent; and

 

(ii)         such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice.

 

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

 

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

(iii)        if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

 

(iv)        if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

 

(v)         if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

 

(vi)        if by any other form of electronic transmission, when directed to the stockholder.

 

An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

An “ electronic transmission ” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

 

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7.3            Notice to Stockholders Sharing an Address .  Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.

 

7.4            Notice to Person with Whom Communication is Unlawful .  Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Company is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

 

7.5            Waiver of Notice .  Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

 

ARTICLE VIII — GENERAL MATTERS

 

8.1            Fiscal Year .  The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.

 

8.2            Seal .  The Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

8.3            Annual Report .  The Company shall cause an annual report to be sent to the stockholders of the Company to the extent required by applicable law. If and so long as there are fewer than 100 holders of record of the Company’s shares, the requirement of sending an annual report to the stockholders of the Company is expressly waived (to the extent permitted under applicable law).

 

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8.4            Construction; Definitions .  Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

 

ARTICLE IX — AMENDMENTS

 

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the Company may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Notwithstanding of the foregoing, during the Board Expansion Period, (a) Section 2.9 and the second paragraph of Section 2.12 of the bylaws and this Article IX may only be amended with the affirmative vote or written consent of all Common Directors then serving on the Board, (b) Sections 2.3 and 2.4 may only be amended with the affirmative vote or written consent of the Collaborator Director, if such amendment would adversely affect the Collaborator in a manner different than the other stockholders, and (c) Section 2.9 and the second paragraph of Section 2.12 of the bylaws and this Article IX may only be amended with the affirmative vote or written consent of the Collaborator Director.

  

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Exhibit 3.4

 

AMENDED AND RESTATED BYLAWS OF

 

PHASERX, INC.

 

(as amended and restated ______________, 2016, and effective immediately as of the

closing of the corporation’s initial public offering)

 

 

     

 

 

TABLE OF CONTENTS

 

    Page
     
ARTICLE I — CORPORATE OFFICES 1
1.1 REGISTERED OFFICE 1
1.2 OTHER OFFICES 1
     
ARTICLE II — MEETINGS OF STOCKHOLDERS 1
     
2.1 PLACE OF MEETINGS 1
2.2 ANNUAL MEETING 1
2.3 SPECIAL MEETING 1
2.4 ADVANCE NOTICE PROCEDURES 2
2.5 NOTICE OF STOCKHOLDERS’ MEETINGS 6
2.6 QUORUM 6
2.7 ADJOURNED MEETING; NOTICE 6
2.8 CONDUCT OF BUSINESS 6
2.9 VOTING 6
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING 7
2.11 RECORD DATES 7
2.12 PROXIES 8
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE 8
2.14 INSPECTORS OF ELECTION 8
     
ARTICLE III — DIRECTORS 9
     
3.1 POWERS 9
3.2 NUMBER OF DIRECTORS 9
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS 9
3.4 RESIGNATION AND VACANCIES 9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE 10
3.6 REGULAR MEETINGS 10
3.7 SPECIAL MEETINGS; NOTICE 10
3.8 QUORUM; VOTING 11
3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 11
3.10 FEES AND COMPENSATION OF DIRECTORS 11
3.11 REMOVAL OF DIRECTORS 11
     
ARTICLE IV — COMMITTEES 11
     
4.1 COMMITTEES OF DIRECTORS 11
4.2 COMMITTEE MINUTES 12
4.3 MEETINGS AND ACTION OF COMMITTEES 12
4.4 SUBCOMMITTEES 12
     
ARTICLE V — OFFICERS 12
     
5.1 OFFICERS 12
5.2 APPOINTMENT OF OFFICERS 13

 

  i  

 

 

TABLE OF CONTENTS

(Continued)

 

    Page
5.3 SUBORDINATE OFFICERS 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS 13
5.5 VACANCIES IN OFFICES 13
5.6 REPRESENTATION OF SHARES OR INTERESTS OF OTHER CORPORATIONS OR ENTITIES 13
5.7 AUTHORITY AND DUTIES OF OFFICERS 13
     
ARTICLE VI — STOCK 14
     
6.1 STOCK CERTIFICATES; PARTLY PAID SHARES 14
6.2 SPECIAL DESIGNATION ON CERTIFICATES 14
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES 14
6.4 DIVIDENDS 15
6.5 TRANSFER OF STOCK 15
6.6 STOCK TRANSFER AGREEMENTS 15
6.7 REGISTERED STOCKHOLDERS 15
     
ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER 15
     
7.1 NOTICE OF STOCKHOLDERS’ MEETINGS 15
7.2 NOTICE BY ELECTRONIC TRANSMISSION 15
7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS 16
7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL 16
7.5 WAIVER OF NOTICE 17
     
ARTICLE VIII — INDEMNIFICATION 17
     
8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS 17
8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION 17
8.3 SUCCESSFUL DEFENSE 18
8.4 INDEMNIFICATION OF OTHERS; ADVANCE PAYMENT TO OTHERS 18
8.5 ADVANCE PAYMENT OF EXPENSES 18
8.6 LIMITATION ON INDEMNIFICATION 18
8.7 DETERMINATION; CLAIM 19
8.8 NON-EXCLUSIVITY OF RIGHTS 19
8.9 INSURANCE 19
8.10 SURVIVAL 19
8.11 EFFECT OF REPEAL OR MODIFICATION 19
8.12 CERTAIN DEFINITIONS 20
     
ARTICLE IX — GENERAL MATTERS 20
     
9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS 20
9.2 FISCAL YEAR 20
9.3 SEAL 20

 

  ii  

 

 

TABLE OF CONTENTS

(Continued)

 

    Page
9.4 CONSTRUCTION; DEFINITIONS 20
     
ARTICLE X — AMENDMENTS    20

 

  iii  

 

 

AMENDED AND RESTATED BYLAWS OF PHASERX, INC.

   

ARTICLE I — CORPORATE OFFICES

 

1.1   Registered Office . The registered office of PhaseRx, Inc. shall be fixed in the corporation’s certificate of incorporation. References in these bylaws to the certificate of incorporation shall mean the certificate of incorporation of the corporation, as amended from time to time, including the terms of any certificates of designation of any series of Preferred Stock.

 

1.2   Other Offices . The corporation may at any time establish other offices at any place or places.

 

ARTICLE II — MEETINGS OF STOCKHOLDERS

 

2.1   Places of Meetings . Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

 

2.2   Annual Meeting . The annual meeting of stockholders shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the corporation’s notice of the meeting. At the annual meeting, directors shall be elected and any other proper business, brought in accordance with Section 2.4 of these bylaws, may be transacted.

 

2.3   Special Meeting

 

(i)     A special meeting of the stockholders, other than those required by statute, may be called at any time only by (A) the affirmative vote of a majority of the Whole Board, (B) the chairperson of the board of directors, (C) the chief executive officer or (D) the president. A special meeting of the stockholders may not be called by any other person or persons. The board of directors, by the affirmative vote of a majority of the Whole Board, may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders. For purposes of these bylaws, the term “ Whole Board ” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.

 

(ii)     The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, the chairperson of the board of directors, the chief executive officer or the president. Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.

 

     

 

 

2.4   Advance Notice Procedures .

 

(i)     Advance Notice of Stockholder Business. At an 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 brought: (A) pursuant to the corporation’s proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the Securities and Exchange Act of 1934, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “ Exchange Act ”), clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.

 

(a)     To comply with clause (C) of Section 2.4(i) above, a stockholder’s notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholder’s notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding year’s annual meeting; provided , however , that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described in this Section 2.4(i)(a). “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a 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.

 

(b)     To be in proper written form, a stockholder’s notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting, the text of the proposed business (including the text of any resolutions proposed for consideration) and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person as of the date of delivery of such notice, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the voting power of the corporation’s voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a “ Business Solicitation Statement ”). In addition, to be in proper written form, a stockholder’s notice to the secretary must be supplemented not later than ten days following the record date for notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the meeting. For purposes of this Section 2.4, a “ Stockholder Associated Person ” of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).

 

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(c)     Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be conducted.

 

(ii)     Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election or re-election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.

 

(a)     To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above; provided additionally , however , that in the event the number of directors to be elected to the board of directors is increased and there is no Public Announcement naming all of the nominees for director or specifying the size of the increased board made by the corporation at least ten (10) days before the last day a stockholder may deliver notice of nomination pursuant to the foregoing provisions, a stockholder’s notice required by this Section 2.4(ii) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the date on which such Public Announcement is first made by the corporation.

 

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(b)     To be in proper written form, such stockholder’s notice to the secretary must set forth:

 

(1)     as to each person (a “ nominee ”) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between or among the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder or concerning the nominee’s potential service on the board of directors, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee will owe fiduciary duties under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election or re-election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including without limitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected or re-elected, as the case may be); and

 

(2)     as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to “business” in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of voting power of the corporation’s voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect or re-elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a “ Nominee Solicitation Statement ”).

 

(c)     At the request of the board of directors, any person nominated by a stockholder for election or re-election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholder’s notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such person’s nomination was given, (2) such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director or audit committee financial expert of the corporation under applicable law, securities exchange rule or regulation, or any publicly disclosed corporate governance guideline or committee charter of the corporation and (3) such other information that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of any such information of the kind specified in this Section 2.4(ii)(c) if requested, such stockholder’s nomination shall not be considered in proper form pursuant to this Section 2.4(ii).

 

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(d)     Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.

 

(iii)      Advance Notice of Director Nominations for Special Meetings.

 

(a)     If the board of directors has authorized in the specific case that stockholders may fill a vacancy or newly created directorship at a special meeting of stockholders, and a special meeting has been properly called for such purpose, nominations of persons for election or appointment to the board of directors at such special meeting shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii) and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected or appointed at such meeting. A person shall not be eligible for election or appointment as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or appointment if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. Any person nominated in accordance with this Section 2.4(iii) is subject to, and must comply with, the provisions of Section 2.4(ii)(c).

 

(b)     The chairperson of such special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.

 

(iv)     Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the Exchange Act with respect to the matters set forth in this Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any rights of:

 

(a)     a stockholder to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act; or

 

(b)     the corporation to omit a proposal from the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act.

 

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2.5   Notice of Stockholders’ Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders 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 as of the record date for determining the stockholders entitled to notice of the meeting.

 

2.6   Quorum . The holders of a majority of the voting power of the stock issued, outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders, unless otherwise required by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange. Where a separate vote by a class or series or classes or series is required, a majority of the voting power of the then-issued and outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise required by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange.

 

If a quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. The chairperson of the meeting shall have the authority to adjourn a meeting of the stockholders in all other events. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

 

2.7   Adjourned Meeting; Notice . When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.

 

2.8   Conduct of Business . The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the chairperson of the board, if any, the chief executive officer (in the absence of the chairperson) or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.

 

2.9   Voting . The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

 

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Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

 

Except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of the voting power of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation, these bylaws or the rules of any applicable stock exchange.

 

2.10   Stockholder Action by Written Consent Without a Meeting . Unless otherwise provided in the certificate of incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at an annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be (i) signed by the holders of record on the record date (established in the manner set forth in Section 2.11 and Article VIII of the corporation’s certificate of incorporation) of outstanding shares of the corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided , however , that in the case of the election or removal of directors by written consent, such consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors, and (ii) delivered to the corporation in accordance with Section 228 of the DGCL.

 

2.11   Record Dates . In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.

 

If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

 

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 determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.

 

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In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

 

2.12   Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the stockholder.

 

2.13   List of Stockholders Entitled to Vote . The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date. The stockholder list shall be arranged in alphabetical order and show the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting (i) 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 (ii) during ordinary business hours, at the corporation’s principal place of business. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place (as opposed to solely by means of remote communication), then a list shall 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. If the meeting is to be held solely by means of remote communication, then a list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger of the corporation shall be the only evidence as to the identity of the stockholders entitled to examine the stock list and vote at the meeting and the number of shares held by each of them.

 

2.14   Inspectors of Election . Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting shall appoint a person to fill that vacancy.

 

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Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed and designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspector or inspectors’ count of all votes and ballots.

 

In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspector or inspectors may consider such information as is permitted by applicable law. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.

 

ARTICLE III — DIRECTORS

 

3.1   Powers . The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.

 

3.2   Number of Directors . The board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time solely by resolution of the Whole Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

3.3   Election, Qualification and Term of Office of Directors . Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

 

3.4   Resignation and Vacancies . Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation; provided, however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Unless otherwise specified in the notice of resignation, acceptance of such resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

 

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Unless otherwise provided in the certificate of incorporation or these bylaws or if authorized by resolution of the board of directors, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

 

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the Whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting power of the capital stock of the corporation at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

 

3.5   Places of Meetings; Meetings by Telephone . The board of directors may hold meetings, both regular and special, either within or outside the State of Delaware.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors may participate in a meeting of the board of directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

3.6   Regular Meetings . Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.

 

3.7   Special Meetings; Notice . Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of directors, at such times and places as he or she or they shall designate.

 

Notice of the time and place of special meetings shall be:

 

(i) delivered personally by hand, by courier or by telephone;

 

(ii) sent by United States first-class mail, postage prepaid;

 

(iii) sent by facsimile; or

 

(iv) sent by electronic mail,

 

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

 

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.

 

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3.8   Quorum; Voting . At all meetings of the board of directors, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

 

The affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.

 

If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.

 

3.9   Board Action by Written Consent Without a Meeting . Unless otherwise restricted by the certificate of incorporation, these bylaws or statute, 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 thereto in writing or by electronic transmission and the writing or writings or electronic transmission or 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. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.

 

3.10   Fees and Compensation of Directors . Unless otherwise restricted by the certificate of incorporation, these bylaws or statute, the board of directors shall have the authority to fix the compensation of directors.

 

3.11   Removal of Directors . A director may be removed from office by the stockholders of the corporation with or without cause.

 

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

 

ARTICLE IV — COMMITTEES

 

4.1   Committees of Directors . The board of directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. 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 thereof 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 or in these bylaws, shall have and may exercise all the powers and authority of 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 that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.

 

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4.2   Committee Minutes . Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

 

4.3   Meetings and Action of Committees . Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 

(i)        Section 3.5 (place of meetings and meetings by telephone);

 

(ii)       Section 3.6 (regular meetings);

 

(iii)      Section 3.7 (special meetings; notice);

 

(iv)     Section 3.8 (quorum; voting);

 

(v)      Section 3.9 (action without a meeting); and

 

(vi)      Section 7.5 (waiver of notice)

 

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members. However :

 

(i)        the time of regular meetings of committees may be determined by resolution of the committee;

 

(ii)      special meetings of committees may also be called by resolution of the committee; and

 

(iii)      notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors or a committee may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.

 

4.4   Subcommittees . Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions 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.

 

ARTICLE V — OFFICERS

 

5.1   Officers . The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

 

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5.2   Appointment of Officers . The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in this Article V for the regular election to such office.

 

5.3   Subordinate Officers . The board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.

 

5.4   Removal and Resignation of Officers . Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors or by any officer upon whom such power of removal may be conferred by the board of directors, except that, unless specifically approved by the board, officers may not remove other officers chosen by the board of directors.

 

Any officer may resign at any time by giving written or electronic notice to the corporation; provided, however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

 

5.5   Vacancies in Offices . Any vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.

 

5.6   Representation of Shares or Interests of Other Corporations or Entities . The chairperson of the board of directors, the president, any vice president, the treasurer, the secretary or any assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares or equity interests of any other corporation or corporations or entity or entities standing in the name of this corporation, including the right to act by written consent. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

5.7   Authority and Duty of Officers . All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.

 

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ARTICLE VI — STOCK

 

6.1   Stock Certificates; Partly Paid 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 its 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 represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson of the board of directors or vice-chairperson of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.

 

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, or upon the books and records of the corporation in the case of uncertificated partly-paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the corporation shall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

 

6.2   Special Designation on Certificates . If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the 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 the certificate that the corporation shall issue to represent such class or series of stock; provided, however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, 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. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 151, 156, 202(a) or 218(a) of the DGCL or with respect to this Section 6.2 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. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

 

6.3   Lost, Stolen or Destroyed Certificates . Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

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6.4   Dividends . The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock, subject to the provisions of the certificate of incorporation.

 

The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

 

6.5   Transfer of Stock . Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer; provided, however, that such succession, assignment or authority to transfer is not prohibited by the certificate of incorporation, these bylaws, applicable law or contract.

 

6.6   Stock Transfer Agreements . The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

 

6.7   Registered Stockholders . The corporation:

 

(i)        shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

 

(ii)      shall be entitled (to the fullest extent permitted by law) to hold liable for calls and assessments the person registered on its books as the owner of shares; and

 

(iii)      shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

 

7.1   Notice of Stockholders’ Meetings . Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the corporation’s records. An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

7.2   Notice by Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

 

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(i)       the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and

 

(ii)      such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

 

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

 

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

(i)      if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

 

(ii)      if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

 

(iii)      if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

 

(iv)      if by any other form of electronic transmission, when directed to the stockholder.

 

An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

An “ electronic transmission ” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

7.3   Notice to Stockholders Sharing an Address . Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.

 

7.4   Notice to Person with whom Communication is Unlawful . Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

 

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7.5   Waiver of Notice . Whenever notice is required to be given to stockholders, directors or other persons under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. 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. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the board of directors, as the case may be, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

 

ARTICLE VIII — INDEMNIFICATION

 

8.1   Indemnification of Directors and Officers in Third Party Proceedings . Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director of the corporation or an officer of the corporation, or while a director of the corporation or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person 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 such person’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person 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 such person’s conduct was unlawful.

 

8.2   Indemnification of Directors and Officers in Actions by or in the Right of the Corporation . Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is 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 such person is or was a director or officer of the corporation, or while a director or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

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8.3   Successful Defense . To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

 

8.4   Indemnification of Others; Advance Payment to Others . Subject to the other provisions of this Article VIII, the corporation shall have power to advance expenses to and indemnify its employees and its agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate the determination of whether employees or agents shall be indemnified or receive an advancement of expenses to such person or persons as the board of directors determines.

 

8.5   Advance Payment of Expenses . Expenses (including attorneys’ fees) incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems reasonably appropriate and shall be subject to the corporation’s expense guidelines. The right to advancement of expenses shall not apply to any claim for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in Section 8.6(ii) or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.

 

8.6   Limitation of Indemnification . Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):

 

(i)       for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

 

(ii)      for an accounting or disgorgement of profits pursuant to Section 16(b) of the Exchange Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);

 

(iii)      for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);

 

(iv)      initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or

 

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(v)      if prohibited by applicable law; provided, however , that if any provision or provisions of this Article VIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VIII (including, without limitation, each portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VIII (including, without limitation, each such portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

8.7   Determination; Claim . If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that are incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.

 

8.8   Non-Exclusivity of Rights . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.

 

8.9   Insurance . The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.

 

8.10   Survival . The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

8.11   Effect of Repeal or Modification . Any amendment, alteration or repeal of this Article VIII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to such amendment, alteration or repeal.

 

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8.12   Certain Definitions . For purposes of this Article VIII, references to the “ corporation ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on a person with respect to an employee benefit plan (excluding any “parachute payments” within the meanings of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended); and references to “ serving at the request of the corporation ” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the corporation ” as referred to in this Article VIII.

 

ARTICLE IX — GENERAL MATTERS

 

9.1   Execution of Corporate Contracts and Instruments . Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

9.2   Fiscal Year . The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.

 

9.3   Seal . The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

9.4   Construction; Definitions . Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “ person ” includes both an entity and a natural person.

 

ARTICLE X — AMENDMENTS

 

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however , that the affirmative vote of the holders of at least 66 2/3% of the total voting power of all outstanding shares of capital stock of the corporation entitled to vote thereon, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII and this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The board of directors, acting by the affirmative vote of at least a majority of the Whole Board, shall also have the power to adopt, amend or repeal bylaws; provided, however , that a bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.

 

* * * * *

 

  20  

 

 

PHASERX, INC.

 

CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS

 

The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of PhaseRx, Inc., a Delaware corporation (the “ Company ”), and that the foregoing amended and restated bylaws, comprising twenty-four (24) pages, were adopted as the bylaws of the Company on ______________, 2016.

 

  /s/ Robert Overell  
  (signature)  
     
  Robert Overell  
  (print name)  
     
  Secretary  
  (title)  

 

  21  

 

 

Exhibit 4.2

 

EXECUTION COPY

 

PHASERX, INC.

 

SECOND AMENDED AND RESTATED

 

INVESTORS’ RIGHTS AGREEMENT

 

November 17, 2014

 

     

 

 

TABLE OF CONTENTS

 

    Page
     
Section 1 Definitions 1
     
1.1 Certain Definitions 1
     
Section 2 Registration Rights 4
     
2.1 Requested Registration 4
2.2 Company Registration 6
2.3 Registration on Form S-3 7
2.4 Expenses of Registration 8
2.5 Registration Procedures 8
2.6 Indemnification 10
2.7 Information by Holder 12
2.8 Restrictions on Transfer 12
2.9 Rule 144 Reporting 14
2.10 Market Stand-Off Agreement 14
2.11 Delay of Registration 15
2.12 Transfer or Assignment of Registration Rights 15
2.13 Limitations on Subsequent Registration Rights 15
2.14 Termination of Registration Rights 15
     
Section 3 Covenants of the Company 15
     
3.1 Basic Financial Information and Inspection Rights 15
3.2 Directors’ and Officers’ Liability Insurance 16
3.3 Fire and Casualty Insurance 16
3.4 Confidentiality 16
3.5 Termination of Covenants 17
     
Section 4 Right of First Refusal 17
     
4.1 Right of First Refusal to Significant Holders 17
     
Section 5 Miscellaneous 19
     
5.1 Amendment 19
5.2 Notices 19
5.3 Governing Law 20
5.4 Successors and Assigns 20
5.5 Entire Agreement 20
5.6 Delays or Omissions 20
5.7 Severability 20
5.8 Titles and Subtitles 20
5.9 Counterparts 21
5.10 Telecopy Execution and Delivery 21
5.11 Jurisdiction; Venue 21
5.12 Further Assurances 21
5.13 Termination Upon Change of Control 21
5.14 Conflict 21
5.15 Aggregation of Stock 21
5.16 Prior Rights Agreement 21
5.17 Waiver of Right of First Offer 22

 

  - i -  

 

 

PHASERX, INC.

 

SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

This Second Amended and Restated Investors’ Rights Agreement (this “ Agreement ”) is made as of November 17, 2014, by and among PhaseRx, Inc., a Delaware corporation (the “ Company ”), the persons and entities (each, a “ Series A Investor ”) listed on Exhibit A hereto, the persons and entities (each, a “ Series A-1 Investor ” and together with the Series A Investors, the “ Investors ”) listed on Exhibit A-1 hereto and the persons (each, a “ Founder ” and collectively, the “ Founders ”) listed on Exhibit B hereto. The Founders and Investors are referred to herein collectively as the “ Stockholders .” Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings ascribed to them in Section 1 hereof.

 

Recitals

 

WHEREAS: The Company and the Stockholders are parties to the Amended and Restated Investors’ Rights Agreement dated as of April 9, 2014 (the “ Prior Rights Agreement ”).

 

WHEREAS: The Company and the Stockholders each desire to supersede and replace the Prior Rights Agreement in its entirety as provided herein. Pursuant to Section 5.1 of the Prior Rights Agreement, any term of the Prior Rights Agreement may be amended or waived by the written consent of the Company and the Holders (as defined in the Prior Rights Agreement) of a majority of the voting power of the shares of Common Stock issued or issuable upon conversion of the Shares (as defined in the Prior Rights Agreement) (collectively, the “ Requisite Holders ”).

 

NOW, THEREFORE: In consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

 

Section 1
Definitions

 

1.1          Certain Definitions .  As used in this Agreement, the following terms shall have the meanings set forth below:

 

(a)          “ Charter ” shall mean the Third Amended and Restated Certificate of Incorporation of the Company as may be amended and/or restated from time to time.

 

(b)          “ Commission ” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

 

(c)          “ Common Stock ” shall mean the Common Stock of the Company.

 

(d)          “ Conversion Shares ” shall mean shares of Common Stock issued upon conversion of the Series A Preferred Stock and Series A-1 Preferred Stock.

 

     

 

 

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

 

(f)          “ Founders’ Stock ” shall mean the shares of Common Stock currently held, directly or indirectly, or hereafter acquired, directly or indirectly, by Founders.

 

(g)          “ Holder ” shall mean any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been duly and validly transferred in accordance with Section   2.12 of this Agreement and shall include Lighthouse Capital Partners VI, L.P. (“ Lighthouse ”) only for purposes of Sections 2 (other than Section 2.13), 3.1(a), 3.4, 3.5 and 5 (other than Section 5.1) of this Agreement; provided , however , that the Founders shall be deemed Holders for the purposes of Section 2 (other than Sections 2.1 and 2.3).

 

(h)          “ Indemnified Party ” shall have the meaning set forth in Section 2.6(c) hereto.

 

(i)          “ Indemnifying Party ” shall have the meaning set forth in Section 2.6(c) hereto.

 

(j)          “ Initial Public Offering ” shall mean the closing of the Company’s first firm commitment underwritten public offering of the Company’s Common Stock registered under the Securities Act.

 

(k)          “ Initiating Holders ” shall mean any Holder or Holders who in the aggregate hold not less than twenty percent (20%) of the voting power of the outstanding Registrable Securities.

 

(l)          “ Lighthouse Warrant ” shall mean the warrant to purchase up to 125,000 shares of the Company’s Series A Preferred Stock issued to Lighthouse on December 1, 2010.

 

(m)          “ New Securities ” shall have the meaning set forth in Section 4.1(a) hereto.

 

(n)          “ Other Selling Stockholders ” shall mean persons other than Holders who, by virtue of agreements with the Company, are entitled to include their Other Shares in certain registrations hereunder.

 

(o)          “ Other Shares ” shall mean shares of Common Stock, other than Registrable Securities (as defined below), with respect to which registration rights have been granted.

 

(p)          “ Preferred Directors ” shall mean those directors that are designated pursuant to Section 2(b)(i) of the Voting Agreement entered into among the Company, Founders, and Investors dated of even date herewith.

 

(q)          “ Purchase Agreements ” shall mean the Purchase Agreement and any other purchase agreement between the Company and a Series A-1 Investor or its affiliates.

 

(r)          “ Registrable Securities ” shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares or upon exercise of the Warrants, (ii) for the purposes of Section 2 only (other than Sections 2.1 and 2.3), shares of Founders’ Stock, (iii) only for purposes of Sections 2 (other than Section 2.13), 3.4, 3.5 and 5 (other than Section 5.1) of this Agreement, shares of Common Stock issued or issuable upon conversion of the shares of Series A Preferred Stock issued or issuable upon exercise of the Lighthouse Warrant or any shares of Common Stock issued in respect of the Lighthouse Warrant and (iv) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in clauses (i) through (iii) above; provided , however , that Registrable Securities shall not include any shares of Common Stock described in clauses (i) through (iii) above the offer and sale of which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement are not validly assigned in accordance with this Agreement.

 

  - 2 -  

 

 

(s)          The terms “ register ,” “ registered ” and “ registration ” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

 

(t)          “ Registration Expenses ” shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the Holders, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company.

 

(u)          “ Restricted Securities ” shall mean any Registrable Securities required to bear the first legend set forth in Section 2.8(c) hereof.

 

(v)         “ Requisite Preferred Directors ” shall have the meaning set forth in Article V, Section 1(l) of the Charter.

 

(w)          “ Rule 144 ” shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

(x)          “ Rule 145 ” shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission

 

(y)          “ Rule 415 ” shall mean Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.

 

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

 

(aa)         “ Selling Expenses ” shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of one special counsel to the Holders included in Registration Expenses).

 

(bb)         “ Series A Preferred Stock ” shall mean the shares of Series A Preferred Stock of the Company.

 

  - 3 -  

 

 

(cc)         “ Series A-1 Preferred Stock ” shall mean the shares of Series A-1 Preferred Stock issued pursuant to any of the Purchase Agreements.

 

(dd)         “ Shares ” shall mean the Company’s Series A Preferred Stock and Series A-1 Preferred Stock.

 

(ee)         “ Significant Holders ” shall have the meaning set forth in Section 4.1 hereof.

 

(ff)         “ Voting Agreement ” shall mean the second amended and restated voting agreement, of even date herewith, among the parties hereto, as may be amended and/or restated from time to time.

 

(gg)         “ Warrants ” shall mean the warrants issued by the Company pursuant to the Series A Preferred Stock, Note and Warrant Purchase Agreement dated as of February 22, 2008, as amended; the Preferred Stock Purchase Warrant dated December 1, 2010 issued by the Company to Lighthouse Capital Partners VI, L.P.; and the warrants issued by the Company in connection with convertible debt financings.

 

(hh)         “ Withdrawn Registration ” shall mean a forfeited demand registration under Section 2.1 in accordance with the terms and conditions of Section 2.4.

 

Section 2
Registration Rights

 

2.1          Requested Registration

 

(a)           Request for Registration . Subject to the conditions set forth in this Section 2.1, if the Company shall receive from Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to all or a part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of by such Initiating Holders), the Company shall:

 

(i)          promptly give written notice of the proposed registration to all other Holders; and

 

(ii)         as soon as practicable, file and use its commercially reasonable efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.

 

(b)           Limitations on Requested Registration. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2.1:

 

(i)          prior to one hundred and eighty (180) days following the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public (or the subsequent date on which all market stand-off agreements applicable to the offering have terminated);

 

  - 4 -  

 

 

(ii)         in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

 

(iii)        after the Company has initiated two (2) such registrations pursuant to this Section 2.1 (counting for these purposes only (x) registrations which have been declared or ordered effective and pursuant to which securities have been sold, and (y) Withdrawn Registrations);

 

(iv)        during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration (or ending on the subsequent date on which all market stand-off agreements applicable to the offering have terminated); provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective;

 

(v)         if the Initiating Holders propose to dispose of shares of Registrable Securities the offer and sale of which may be registered immediately on Form S-3 pursuant to a request made under Section 2.3 hereof;

 

(vi)        if the Initiating Holders do not request that such offering be firmly underwritten by underwriters selected by the Initiating Holders (subject to the consent of the Company); and

 

(vii)       if the Company and the Initiating Holders are unable to obtain the commitment of the underwriter described in clause (b)(vi) above to firmly underwrite the offer.

 

(c)           Deferral . If (i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable Securities would be materially detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to the limitations set forth in Section 2.1(b)(iv) above) the Company shall have the right to defer such filing for a period of not more than sixty (60) days after receipt of the request of the Initiating Holders, and, provided further , that the Company shall not defer its obligation in this manner more than two (2) times in any twelve-month period.

 

(d)           Other Shares . The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 2.1(e), include Other Shares, and may include securities of the Company being sold for the account of the Company.

 

  - 5 -  

 

 

(e)           Underwriting . The right of any Holder to include all or any portion of its Registrable Securities in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder’s participation in an underwriting and the inclusion of such Holder’s Registrable Securities to the extent provided herein. If the Company shall request inclusion in any registration pursuant to Section 2.1 of securities being sold for its own account, or if other persons shall request inclusion in any registration pursuant to Section 2.1, the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons in such underwriting and the inclusion of the Company’s and such person’s other securities of the Company and their acceptance of the further applicable provisions of this Section 2 (including Section 2.10). The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by the Company, which underwriters are reasonably acceptable to a majority-in-interest of the Initiating Holders.

 

Notwithstanding any other provision of this Section 2.1, if the underwriters advise the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of Registrable Securities and Other Shares that may be so included shall be allocated as follows: (i) first, among all Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion; (ii) second, to the Other Selling Stockholders; and (iii) third, to the Company, which the Company may allocate, at its discretion, for its own account, or for the account of other holders or employees of the Company.

 

If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 2.1(e), then the Company shall then offer to all Holders and Other Selling Stockholders who have retained rights to include securities in the registration the right to include additional Registrable Securities or Other Shares in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders and Other Selling Stockholders requesting additional inclusion, as set forth above.

 

2.2          Company Registration

 

(a)           Company Registration . If the Company shall determine to register the offer and sale of any of its securities either for its own account or the account of a security holder or holders, other than a registration pursuant to Section 2.1 or 2.3, a registration relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will:

 

(i)          promptly give written notice of the proposed registration to all Holders; and

 

(ii)         use its commercially reasonable efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 2.2(b) below, and in any underwriting involved therein, all of such Registrable Securities as are specified in a written request or requests made by any Holder or Holders received by the Company within ten (10) days after such written notice from the Company is mailed or delivered. Such written request may specify all or a part of a Holder’s Registrable Securities.

 

  - 6 -  

 

 

(b)           Underwriting . If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.2(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company, the Other Selling Stockholders and other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company.

 

(A)         Notwithstanding any other provision of this Section 2.2, if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) limit the number of Registrable Securities to be included in, the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (i) first, to the Company for securities being sold for its own account, (ii) second, to the Holders requesting to include Registrable Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming conversion and (iii) third, to the Other Selling Stockholders requesting to include Other Shares in such registration statement based on the pro rata percentage of Other Shares held by such Other Selling Stockholders, assuming conversion. Notwithstanding the foregoing, no such reduction shall reduce the value of the Registrable Securities of the Holders included in such registration below twenty five percent (25%) of the total value of securities included in such registration, unless such offering is the Company’s Initial Public Offering and such registration does not include shares of any other selling stockholders (excluding shares the offer and sale of which are registered for the account of the Company), in which event any or all of the Registrable Securities of the Holders may be excluded.

 

If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall also be excluded therefrom by written notice from the Company or the underwriter. The Registrable Securities or other securities so excluded shall also be withdrawn from such registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

 

(c)           Right to Terminate Registration . The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.

 

2.3          Registration on Form S-3

 

(a)           Request for Form S-3 Registration . After its initial public offering, the Company shall use its commercially reasonable efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 2 and subject to the conditions set forth in this Section 2.3, if the Company shall receive from a Holder or Holders of Registrable Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement with respect to all or part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all such action with respect to such Registrable Securities as required by Section 2.1(a)(i) and (ii).

 

  - 7 -  

 

 

(b)           Limitations on Form S-3 Registration . The Company shall not be obligated to effect, or take any action to effect, any such registration pursuant to this Section 2.3:

 

(i)          in the circumstances described in either Sections 2.1(b)(i), 2.1(b)(ii) or 2.1(b)(iv);

 

(ii)         if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than $1,000,000; or

 

(iii)        if, in a given twelve-month period, the Company has effected one (1) such registration in such period.

 

(c)           Deferral . The provisions of Section 2.1(c) shall apply to any registration pursuant to this Section 2.3.

 

(d)           Underwriting . If the Holders of Registrable Securities requesting registration under this Section 2.3 intend to distribute the Registrable Securities covered by their request by means of an underwriting, the provisions of Section 2.1(e) shall apply to such registration. Notwithstanding anything contained herein to the contrary, registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration or registrations effected pursuant to Section 2.1.

 

2.4          Expenses of Registration .  All Registration Expenses incurred in connection with registrations pursuant to Sections 2.1, 2.2 and 2.3 hereof shall be borne by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Sections 2.1 and 2.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the voting power of the Registrable Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions set forth in Sections 2.1 and 2.3 are no longer satisfied (in which case all participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders of a majority of the voting power of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 2.1; provided , however , in the event that a withdrawal by the Holders is based upon material adverse information relating to the Company that is different from the information known or available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 2.1, such registration shall not be treated as a counted registration for purposes of Section 2.1 hereof, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the holders of securities included in such registration pro rata among each other on the basis of the number of Registrable Securities so registered.

 

2.5          Registration Procedures .  In the case of each registration effected by the Company pursuant to Section 2, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will use its commercially reasonable efforts to:

 

(a)          keep such registration effective for a period of ending on the earlier of the date which is sixty (60) days from the effective date of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration statement relating thereto;

 

  - 8 -  

 

 

(b)          to the extent the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) (a “ WKSI ”) at the time any request for registration is submitted to the Company in accordance with Section 2.3, (i) if so requested, file an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) (an “ automatic shelf registration statement ”) to effect such registration, and (ii) remain a WKSI (and not become an ineligible issuer (as defined in Rule 405 under the Securities Act)) during the period during which such automatic shelf registration statement is required to remain effective in accordance with this Agreement;

 

(c)          prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in subsection (a) above;

 

(d)          furnish such number of prospectuses, including any preliminary prospectuses, and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;

 

(e)          register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders; provided , that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

 

(f)          notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of 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 or incomplete in light of the circumstances then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing;

 

(g)          if at any time when the Company is required to re-evaluate its WKSI status for purposes of an automatic shelf registration statement used to effect a request for registration in accordance with Section 2.3 (i) the Company determines that it is not a WKSI, (ii) the registration statement is required to be kept effective in accordance with this Agreement, and (iii) the registration rights of the applicable Holders have not terminated, promptly amend the registration statement onto a form the Company is then eligible to use or file a new registration statement on such form, and keep such registration statement effective in accordance with the requirements otherwise applicable under this Agreement;

 

(h)          if (i) a registration made pursuant to a shelf registration statement is required to be kept effective in accordance with this Agreement after the third anniversary of the initial effective date of the shelf registration statement and (ii) the registration rights of the applicable Holders have not terminated, file a new registration statement with respect to any unsold Registrable Securities subject to the original request for registration prior to the end of the three year period after the initial effective date of the shelf registration statement, and keep such registration statement effective in accordance with the requirements otherwise applicable under this Agreement;

 

  - 9 -  

 

 

(i)          furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and reasonably satisfactory to a majority in interest of the voting power of the Holders requesting registration of Registrable Securities and (ii) a “comfort” letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters;

 

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

 

(k)          comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;

 

(l)          cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and

 

(m)          in connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 2.1 hereof, enter into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains reasonable and customary provisions, and provided further , that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

 

2.6          Indemnification

 

(a)          To the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners, legal counsel and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 2, and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any registration statement, any prospectus included in the registration statement, any issuer free writing prospectus (as defined in Rule 433 of the Securities Act), any issuer information (as defined in Rule 433 of the Securities Act) filed or required to be filed pursuant to Rule 433(d) under the Securities Act or any other document incident to any such registration, qualification or compliance prepared by or on behalf of the Company or used or referred to by the Company, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any offering covered by such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers, directors, partners, legal counsel and accountants and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder, any of such Holder’s officers, directors, partners, legal counsel or accountants, any person controlling such Holder, such underwriter or any person who controls any such underwriter, and stated to be specifically for use therein; and provided , further that, the indemnity agreement contained in this Section 2.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld).

 

  - 10 -  

 

 

(b)          To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, officers, partners, legal counsel and accountants and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, and each of their officers, directors and partners, and each person controlling each other such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided , however , that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 2.6 exceed the net proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.

 

(c)          Each party entitled to indemnification under this Section 2.6 (the “ Indemnified Party ”) shall give notice to the party required to provide indemnification (the “ Indemnifying Party ”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom; provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.6, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

 

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(d)          If the indemnification provided for in this Section 2.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. No person or entity will be required under this Section 2.6(d) to contribute any amount in excess of the net proceeds from the offering received by such person or entity, except in the case of fraud or willful misconduct by such person or entity. No person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity that was not guilty of such fraudulent misrepresentation.

 

(e)          Notwithstanding the foregoing, 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 foregoing provisions, the provisions in the underwriting agreement shall control.

 

2.7          Information by Holder .  Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 2.

 

2.8          Restrictions on Transfer

 

(a)          The holder of each certificate representing Registrable Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 2.8. Each Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Restricted Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Restricted Securities subject to, and to be bound by, the terms and conditions set forth in this Agreement, including, without limitation, this Section 2.8 and Section 2.10, and:

 

(i)          there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

 

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(ii)         such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, and, if requested by the Company, such Holder shall have furnished the Company, at its expense, with (i) an opinion of counsel reasonably satisfactory to the Company to the effect that such disposition will not require registration of such Restricted Securities under the Securities Act or (ii) a “no action” letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the Holder to the Company.

 

(b)          Notwithstanding the provisions of Section 2.8(a), no such registration statement, opinion of counsel or “no action” letter shall be necessary for (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Restricted Securities by any Holder to (x) a parent, subsidiary or other affiliate of the Holder, if the Holder is a corporation; (y) any of the Holder’s partners, members or other equity owners, or retired partners, retired members or other equity owners, or to the estate of any of the Holder’s partners, members or other equity owners or retired partners, retired members or other equity owners; or (z) a venture capital fund that is controlled by or under common control with one or more general partners or managing members of, or shares the same management company with, the Holder; provided , in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

 

(c)          Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with legends substantially similar to the following (in addition to any legend(s) required under applicable state securities laws):

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO (1) RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN AN INVESTORS’ RIGHTS AGREEMENT, AND (2) VOTING RESTRICTIONS AS SET FORTH IN A VOTING AGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THESE SHARES, COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.

 

The Holders consent to the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer established in this Section 2.8.

 

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(d)          The first legend referring to federal and state securities laws identified in Section 2.8(c) hereof stamped on a certificate evidencing the Restricted Securities and the stock transfer instructions and record notations with respect to such Restricted Securities shall be removed and the Company shall issue a certificate without such legend to the holder of such Restricted Securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of the securities may be made without registration or qualification.

 

2.9          Rule 144 Reporting .  With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to:

 

(a)          make and keep adequate current public information with respect to the Company available in accordance with Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

 

(b)          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 at any time after it has become subject to such reporting requirements; and

 

(c)          so long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.

 

2.10        Market Stand-Off Agreement .  Each Holder hereby agrees that such Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) during the one hundred and eighty (180) day period following the effective date of the registration statement for the Company’s Initial Public Offering filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) provided that all directors, officers and holders of one percent (1%) or more of the Company’s outstanding capital stock are similarly bound. The obligations described in this Section 2.10 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 2.8(c) hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred and eighty (180) day (or other) period. Each Holder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 2.10.

 

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2.11        Delay of Registration .  No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

 

2.12        Transfer or Assignment of Registration Rights .  The rights to cause the Company to register the offer and sale of securities granted to a Holder by the Company under this Section 2 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 500,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like); provided that (i) such transfer or assignment of Registrable Securities is effected in accordance with the terms of Section 2.8 hereof, the Right of First Refusal and Co-Sale Agreement, and applicable securities laws, (ii) the Company is given written notice prior to said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are intended to be transferred or assigned and (iii) the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Agreement, including without limitation the obligations set forth in Section 2.10.

 

2.13        Limitations on Subsequent Registration Rights .  From and after the date of this Agreement, the Company shall not, without the prior written consent of Holders holding a majority of the voting power of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are pari passu with or senior to the registration rights granted to the Holders hereunder.

 

2.14        Termination of Registration Rights .  The right of any Holder to request registration or inclusion in any registration pursuant to Sections   2.1, 2.2 or 2.3 shall terminate on the earlier of (i) such date, on or after the closing of the Company’s first registered public offering of Common Stock, on which all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90) day period, (ii) four (4) years after the closing of the Company’s Initial Public Offering and (iii) upon termination of the Agreement as provided herein.

 

Section 3
Covenants of the Company

 

The Company hereby covenants and agrees, as follows:

 

3.1          Basic Financial Information and Inspection Rights

 

(a)           Basic Financial Information . The Company will furnish the following reports to each Holder who owns at least 500,000 Shares and/or Conversion Shares (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like):

 

(i)          as soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an audited consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, in each case audited by a firm approved by the Board of Directors including the Requisite Preferred Directors, and prepared in accordance with U.S. generally accepted accounting principles consistently applied, and certified by the Chief Financial Officer of the Company;

 

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(ii)         as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments, but excluding footnotes; and

 

(iii)        at least thirty (30) days prior to the beginning of each fiscal year an operating plan for such fiscal year.

 

(b)           Inspection Rights . The Company will afford to (i) each Holder who (A) is entitled to designate a Preferred Director pursuant to the Voting Agreement and who owns at least 500,000 Shares and/or Conversion Shares (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like) and (B) each Series A-1 Investor, so long as such Holder owns at least 500,000 Shares and/or Conversion Shares (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like), and (ii) accountants and counsel to such Holders and Investors, reasonable access during normal business hours to all of the Company’s respective properties, books and records. Each such Holder and Investor shall have such other access to management for discussions and information as reasonably requested. The Company shall not be required to disclose details of contracts with or work performed for specific customers and other business partners where to do so would violate confidentiality obligations to those parties. Holders and Investors may exercise their rights under this Section 3.1(b) only for purposes reasonably related to their interests under this Agreement and related agreements. The rights granted pursuant to this Section 3.1(b) may not be assigned or otherwise conveyed by the Holders or Investors or by any subsequent transferee of any such rights without the prior written consent of the Company except as authorized in this Section 3.1(b).

 

3.2          Directors’ and Officers’ Liability Insurance .  The Company shall purchase and maintain in full force and effect, directors and officers liability insurance on reasonable terms and conditions reasonably acceptable to the directors designated by the Investors.

 

3.3          Fire and Casualty Insurance .  The Company shall purchase and maintain in full force and effect, fire and casualty insurance policies, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its material properties that may be damaged or destroyed on reasonable terms and conditions reasonably acceptable to the directors designated by the Investors.

 

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3.4          Confidentiality .  Anything in this Agreement to the contrary notwithstanding, no party hereto by reason of this Agreement shall have access to any trade secrets or classified information of the Company. The Company shall not be required to comply with any information rights of Section 3.1 in respect of any Holder whom the Company reasonably determines to be a competitor or an officer, employee, director or holder of more than ten percent (10%) of a competitor; provided , that none of Synageva BioPharma Corp. or its subsidiaries shall be deemed a competitor under this Section 3.4. Each Holder acknowledges that the information received by them pursuant to this Agreement may be confidential and for its use only, and it will not use such confidential information in violation of the Exchange Act or reproduce, disclose or disseminate such information to any other person (other than its employees or agents having a need to know the contents of such information, and its attorneys), except in connection with the exercise of rights under this Agreement, unless the Company has made such information available to the public generally or such Holder is required to disclose such information by a governmental authority. Notwithstanding the foregoing, the Company (i) acknowledges that the Investors listed in Exhibit A and Exhibit A-1 hereto as of the date of this Agreement are in the business of making investments in, and have or may have investments in other businesses similar to and that may compete with the Company’s business (“ Competing Business ”) and (ii) agrees that Holders shall have the unfettered right to make investments in or have relationships with Competing Businesses independent of their investments in the Company; and accordingly such Investors shall have access to information pursuant to Section 3.1 (except pursuant to the first sentence of this Section 3.4) provided that each such Holder agrees to keep in confidence and prevent the use by or disclosure to any other person or entity of the confidential information of the Company.

 

3.5          Termination of Covenants .  The covenants set forth in this Section 3 shall terminate and be of no further force and effect after the Company’s Initial Public Offering.

 

Section 4
Right of First Refusal

 

4.1          Right of First Refusal to Significant Holders .  The Company hereby grants to each Holder who owns at least 500,000 Shares or Conversion Shares (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits and the like) (the “ Significant Holders ”), the right of first refusal to purchase its pro rata share of New Securities (as defined in this Section 4.1(a)) which the Company may, from time to time, propose to sell and issue after the date of this Agreement. A Significant Holder’s pro rata share, for purposes of this right of first refusal, is equal to the ratio of (a) the number of shares of Common Stock owned by such Significant Holder immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock held by said Significant Holder) to (b) the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly). This right of first refusal shall be subject to the following provisions:

 

(a)          “ New Securities ” shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, exercisable or convertible into capital stock; provided that the term “ New Securities ” does not include:

 

(i)          the Shares and the Conversion Shares;

 

(ii)         up to a number of shares of Common Stock or options convertible securities or other rights to purchase Common Stock equal to the Incentive Securities Threshold Amount (as defined in the Charter) issued or issuable to officers, employees, directors, consultants, placement agents, and other service providers of the Company (or any subsidiary) pursuant to stock grants, option plans, purchase plans, agreements or other employee stock incentive programs or arrangements approved by the Board of Directors of the Company;

 

(iii)        securities issued pursuant to the conversion or exercise of any outstanding convertible or exercisable securities as of this date of this Agreement;

 

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(iv)        securities issued or issuable as a dividend or distribution on Preferred Stock of the Company or pursuant to any event for which adjustment is made pursuant to paragraph 4(e), 4(f) or 4(g) of the Charter;

 

(v)         securities offered pursuant to a bona fide, firmly underwritten public offering pursuant to a registration statement filed under the Securities Act;

 

(vi)        securities issued or issuable pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided , that such issuances are approved by the Board of Directors of the Company, including the Requisite Preferred Directors;

 

(vii)       securities issued or issuable to banks, equipment lessors or other financial institutions pursuant to a commercial leasing or debt financing transaction approved by the Board of Directors of the Company including the Requisite Preferred Directors;

 

(viii)      securities issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of the Company, including the Requisite Preferred Directors;

 

(ix)         securities issued or issuable to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Company, including the Requisite Preferred Directors;

 

(x)          securities of the Company which are otherwise excluded by the affirmative vote or consent of the holders of a majority of the shares of Preferred Stock of the Company then outstanding or the Board of Directors of the Company, including the Requisite Preferred Directors; and

 

(xi)         any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (i) through (x) above.

 

(b)          If the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Significant Holder shall have fifteen (15) days after any such notice is mailed or delivered to agree to purchase such Holder’s pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company, in substantially the form attached hereto as Schedule 1 , and stating therein the quantity of New Securities to be purchased.

 

(c)          If the Holders fail to exercise fully the right of first refusal within said fifteen (15) day period (the “ Election Period ”), the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) to sell that portion of the New Securities with respect to which the Significant Holders’ right of first refusal option set forth in this Section 4.1 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company’s notice to Significant Holders delivered pursuant to Section 4.1(b). In the event the Company has not sold within such ninety (90) day period following the Election Period, or such ninety (90) day period following the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Significant Holders in the manner provided in this Section 4.1.

 

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(d)          The right of first refusal granted under this Agreement shall expire upon, and shall not be applicable to the Company’s Initial Public Offering.

 

Section 5
Miscellaneous

 

5.1          Amendment .  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and (a) Holders holding a majority of the voting power of the shares of Common Stock issued or issuable upon conversion of the Shares (excluding any of such shares that have been sold to the public or pursuant to Rule 144), provided that each of the Shares held by the Series A-1 Investors will be considered to have one tenth the voting power of one Share held by the Series A Investors in accordance with Article V, Section 5(c) of the Charter; and provided , further , that if any amendment, waiver, discharge or termination operates in a manner that treats any Holder different from other Holders, the consent of such Holder shall also be required for such amendment, waiver, discharge or termination. Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Investor and each future holder of all such securities of Investor.

 

5.2          Notices .  All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand or by messenger addressed:

 

(a)          if to an Investor other than a Series A-1 Investor, at the Investor’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof;

 

(b)          if to a Series A-1 Investor, at the Series A-1 Investor’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, with a copy to Daniel T. Kajunski, Esq., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111 (facsimile) (617) 542-2241, which copy shall not constitute notice;

 

(c)          if to any Holder, at such address, facsimile number or electronic mail address as shown in the Company’s records, or, until any such holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of such shares for which the Company has contact information in its records; or

 

(d)          if to the Company, at 410 W. Harrison Street, Suite 300, Seattle, WA 98119, or at such other address or facsimile number as the Company shall have furnished to the Voting Parties in writing, with a copy, which shall not constitute notice, to Michael Nordtvedt, Wilson Sonsini Goodrich & Rosati, P.C., 701 Fifth Avenue, Suite 5100, Seattle, WA 98104, (facsimile) (206) 883-2699.

 

With respect to any notice given by the Company under any provision of the Delaware General Corporation Law or the Company’s charter or bylaws, each party hereto agrees that such notice may be given by facsimile or by electronic mail.

 

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Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, one (1) business day after confirmation of facsimile transfer or, if sent by electronic mail, one (1) business day after confirmation of delivery when directed to the electronic mail address set forth on the Schedule of Investors. In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.

 

5.3          Governing Law .  This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts of law.

 

5.4          Successors and Assigns .  This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

 

5.5          Entire Agreement .  This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein.

 

5.6          Delays or Omissions .  Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative.

 

5.7          Severability .  If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.

 

5.8          Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

 

  - 20 -  

 

 

5.9          Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument.

 

5.10        Telecopy Execution and Delivery .  A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.

 

5.11        Jurisdiction; Venue .  The parties, by their execution of this Agreement, hereby irrevocably submit to the non-exclusive in persona jurisdiction of the state courts of the State of Washington and of the United States District Courts that are located in King County, Washington, for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement.

 

5.12        Further Assurances .  Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement.

 

5.13        Termination Upon Change of Control .  Notwithstanding anything to the contrary herein, this Agreement (excluding any then-existing obligations) shall terminate upon (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of a majority of the total voting power of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transaction, a majority of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such transaction or series of transactions; or (b) a sale, lease or other conveyance of all substantially all of the assets of the Company.

 

5.14        Conflict .  In the event of any conflict between the terms of this Agreement and the Company’s Certificate of Incorporation or its Bylaws, the terms of the Company’s Certificate of Incorporation or its Bylaws, as the case may be, will control.

 

5.15        Aggregation of Stock .  All securities held or acquired by affiliated entities (including affiliated venture capital funds) or persons shall be aggregated together for purposes of determining the availability of any rights under this Agreement.

 

5.16        Prior Rights Agreement . Effective and contingent upon the execution of this Agreement by the Company and the Requisite Holders, the Prior Rights Agreement shall be superseded and replaced in its entirety as set forth in this Agreement, and this Agreement shall constitute the entire agreement between the parties and shall supersede any other prior understandings or agreements concerning the subject matter hereof.

 

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5.17        Waiver of Right of First Offer . Effective and contingent upon the execution of this Agreement by the Company and the Requisite Holders, the Requisite Holders hereby waive, on behalf of themselves and all other Major Investors, the rights of first offer and notice rights contained in Section 4 of the Prior Rights Agreement and this Agreement with respect to the sale and issuance of Series A-1 Preferred Stock pursuant to the Purchase Agreements and the Common Stock issuable upon conversion thereof.

 

( signature page follows )

 

  - 22 -  

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  COMPANY:
   
  PHASERX, INC. ,
  a Delaware corporation
   
  By: /s/ Robert W. Overell
    Name:  Robert W. Overell
    Title:  President and Chief Executive Officer

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTOR:
   
  SAVOY THERAPEUTICS CORP.
     
  By: /s/ Thomas Butham
  Name:  Thomas Butham
  Title:   Secretary and Vice President

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTORS:
   
  VERSANT VENTURE CAPITAL III, L.P.
  VERSANT SIDE FUND III, L.P.
     
  By: Versant Ventures III, LLC
  Its: General Partner
     
  By: /s/ Brian G. Atwood
    Name:  Brian G. Atwood
    Title:  Managing Director
   
  5AM VENTURES II, LP
  5AM CO-INVESTORS II, LP
   
  By: 5AM Partners II LLC
  Its: General Partner
     
  By: /s/ John Diekman
    Name:  John Diekman
    Title:  Managing Member

 

  ARCH VENTURE FUND VII, L.P.
   
  By: ARCH Venture Partners VII, L.P.
  Its: General Partner
     
  By: ARCH Venture Partners VII, LLC
  Its: General Partner
     
  By: Clinton W. Bybay
    Name:  Clinton W. Bybay
    Title: Managing Director

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTOR:
   
  FOUNDATION BIOVENTURES LLC
   
  By: /s/ Robert W. Overell
    Name:  Robert W. Overell
    Title:  President and Chief Executive Officer

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTOR:
   
  /s/ Steven Gillis
  Steven Gillis

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTOR:
   
  /s/ Allan Hoffman
  Allan Hoffman

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  INVESTOR:
   
  /s/ Pat Stayton
  Pat Stayton

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  FOUNDER:
   
  FOUNDATION BIOVENTURES LLC
   
  By: /s/ Robert W. Overell
    Name:  Robert W. Overell
    Title:  President and Chief Executive Officer

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  FOUNDER:
   
  /s/ Paul H. Johnson
  Paul H. Johnson

 

( Signature Page to PhaseRx, Inc. Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  FOUNDER:
   
  OLIVER W. PRESS LLC
   
  By: /s/ Oliver W. Press
  Name:  Oliver W. Press, MD Phd
  Title: Member

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  FOUNDER:
   
  /s/ Allan Hoffman
  Allan Hoffman

 

( Signature Page to PhaseRx, Inc. Second Amended and Restated Investors’ Rights Agreement )

 

     

 

 

The parties hereto have executed this Second Amended and Restated Investors’ Rights Agreement effective as of the day and year first above written.

 

  FOUNDER:
   
  /s/ Pat Stayton
  Pat Stayton

 

     

 

 

EXHIBIT A

 

SERIES A INVESTORS

 

ARCH Venture Fund VII , L.P.

8725 West Higgins Road, Suite 290

Chicago, Illinois 60631

(773) 380-6606 (facsimile)

(206) 674-3026 (facsimile)

sgillis@archventure.com (email)

mmcdonnell@archventure.com (email)

 

5AM Ventures II, LP

3000 Sand Hill Road

Building 4, Suite 230

Menlo Park, CA 94025

(650) 233-8923 (facsimile)

john@5amventures.com (email)

 

5AM Co-Investors II, LP

3000 Sand Hill Road

Building 4, Suite 230

Menlo Park, CA 94025

(650) 233-8923 (facsimile)

john@5amventures.com (email)

 

Versant Venture Capital III, L.P.

3000 Sand Hill Road

Bldg. 4, Suite 210

Menlo Park, CA 94025

650-854-9513 (facsimile)

brian@versantventures.com (email)

scross@versantventures.com (email)

 

Versant Side Fund III, L.P.

3000 Sand Hill Road

Bldg. 4, Suite 210

Menlo Park, CA 94025

650-854-9513 (facsimile)

brian@versantventures.com (email)

scross@versantventures.com (email

 

     

 

 

Foundation BioVentures LLC

Robert W. Overell, President

1854 NW 195 th Street #302

Shoreline, WA 98177

(206) 546-6805 (facsimile)

roverell@aol.com (email)

 

Richard Dunham Smith & Patricia Ann

Smith, as Trustees of the Smith 1987

Family Trust, U/A DTD 9/28/87

2415 South Court

Palo Alto, CA 94301

(650) 327-0635 (facsimile)

dick2415@sbcglobal.net (email)

 

Pat Stayton

Box 355061

Department of Bioengineering

University of Washington

Seattle, WA 98195

(206) 616-3928 (facsimile)

stayton@u.washington.edu (email)

 

Oliver W. Press LLC

Oliver W. Press, Member

Fred Hutchinson Cancer Research Center

1100 Fairview Ave. N, D3-190

Seattle, WA 98109

(206) 667-1874 (facsimile)

press@u.washington.edu (email)

 

Allan Hoffman

Box 355061 – Foege, room N530R

University of Washington

Seattle, WA 98195

(206) 543-6124 (facsimile)

hoffman@u.washington.edu (email)

 

Steven Gillis, Ph.D.

8725 West Higgins Road, Suite 290

Chicago, Illinois 60631

(773) 380-6606 (facsimile)

(206) 674-3026 (facsimile)

sgillis@archventure.com (email)

 

     

 

 

David Cosman  
   
   
   (facsimile)  
   (email)  

 

     

 

 

Exhibit A-1

 

SERIES A-1 INVESTORS

 

Savoy Therapeutics Corp.

c/o Synageva BioPharma Corp.

33 Hayden Avenue

Lexington, MA 02421 USA

Attention: Thomas Beetham

Facsimile: 781-357-9901

Email: thomas.beetham@synageva.com

 

     

 

 

EXHIBIT B

 

FOUNDERS

 

Allan Hoffman

Foundation BioVentures LLC (Robert W. Overell, President)

Paul H. Johnson

Oliver W. Press LLC (Oliver W. Press, Member)

Richard Dunham Smith & Patricia Ann Smith, as Trustees of the Smith 1987 Family Trust, U/A DTD 9/28/87

Pat Stayton

 

     

 

 

SCHEDULE 1

 

NOTICE AND WAIVER/ELECTION OF

RIGHT OF FIRST REFUSAL

 

I do hereby waive or exercise, as indicated below, my rights of first refusal under the Amended and Restated Investors’ Rights Agreement dated as of April 9, 2014 (the “Agreement”):

 

1. Waiver of [___] days’ notice period in which to exercise right of first refusal: (please check only one)

 

¨

WAIVE in full, on behalf of all Holders, the [___]-day notice period provided to exercise my right of first refusal granted under the Agreement.

 

¨

DO NOT WAIVE the notice period described above.

 

2. Issuance and Sale of New Securities: (please check only one)

 

¨

WAIVE in full the right of first refusal granted under the Agreement with respect to the issuance of the New Securities.

 

¨

ELECT TO PARTICIPATE in $__________ ( please provide amount ) in New Securities proposed to be issued by PhaseRx, Inc., a Delaware corporation, representing LESS than my pro rata portion of the aggregate of $[_______] in New Securities being offered in the financing.

 

¨

ELECT TO PARTICIPATE in $__________ in New Securities proposed to be issued by PhaseRx, Inc., a Delaware corporation, representing my FULL pro rata portion of the aggregate of $[_______] in New Securities being offered in the financing.

 

¨

ELECT TO PARTICIPATE in my full pro rata portion of the aggregate of $[_______] in New Securities being made available in the financing AND, to the extent available, the greater of (x) an additional $__________ ( please provide amount ) or (y) my pro rata portion of any remaining investment amount available in the event other Significant Holders do not exercise their full rights of first refusal with respect to the $[_______] in New Securities being offered in the financing.

  

Date: ________________

   
  ( Print investor name )
   
   
  ( Signature )
   
   
  ( Print name of signatory, if signing for an entity )
   
   
  ( Print title of signatory, if signing for an entity )

 

This is neither a commitment to purchase nor a commitment to issue the New Securities described above. Such issuance can only be made by way of definitive documentation related to such issuance. PhaseRx, Inc. will supply you with such definitive documentation upon request or if you indicate that you would like to exercise your first offer rights in whole or in part.

  

     

 

 

Exhibit 4.3

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of February 29, 2016, among PhaseRx, Inc., a Delaware corporation (the “ Company ”), and each of the several lenders signatory hereto (each such lender, a “ Lender ” and, collectively, the “ Lenders ”).

 

This Agreement is made pursuant to that certain Loan and Security Agreement, dated as of December 21, 2015, among the Company and each Lender (the “ Loan Agreement ”)

 

The Company and each Lender hereby agree as follows:

 

1. Definitions .

 

Capitalized terms used and not otherwise defined herein that are defined in the Loan Agreement shall have the meanings given such terms in the Loan Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

Advice ” shall have the meaning set forth in Section 6(d).

 

Commission ” means the U.S. Securities and Exchange Commission.

 

Common Stock ” means the Company’s common stock, par value $0.01 per share.

 

Conversion Shares ” means the shares of Common Stock issuable to the Lenders upon an Automatic Conversion pursuant to Section 8.01 of the Loan Agreement.

 

Cut-Off Date ” shall have the meaning set forth in Section 2(a).

 

Effectiveness Period ” shall have the meaning set forth in Section 2(a).

 

Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

Indemnified Party ” shall have the meaning set forth in Section 5(c).

 

Indemnifying Party ” shall have the meaning set forth in Section 5(c).

 

Initial Registration Statement ” means the initial Registration Statement filed pursuant to this Agreement.

 

Losses ” shall have the meaning set forth in Section 5(a).

 

Plan of Distribution ” shall have the meaning set forth in Section 2(a).

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an information investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

 

 

 

Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

Registrable Securities ” means, as of any date of determination, all Conversion Shares then issuable upon an Automatic Conversion pursuant to Section 8.01 of the Loan Agreement (assuming on such date the Term Loans are converted in full without regard to any conversion limitations therein); provided, however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities, any securities upon the exercise, conversion or exchange of or as a dividend upon which such securities were issued, or any securities issuable upon the exercise, conversion or exchange of, or as a dividend upon such securities, were at no time held by any Affiliate of the Company), as reasonably determined by the Company, upon the advice of counsel to the Company. For the avoidance of doubt, any such Registrable Securities shall cease to be Registrable Securities after the Cut-Off Date.

 

Registration Statement ” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

Rule 144 ” means means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).

 

  2  
 

 

SEC Guidance ” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

Trading Day ” means a day on which the principal Trading Market is open for trading, provided, that in the event that the Common Stock is not listed or quoted for trading on a Trading Market on the date in question, then Trading Day shall mean a Business Day.

 

Trading Market ” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTC QB Marketplace or the OTC QX Marketplace (or any successors to any of the foregoing).

 

Transfer Agent ” means a transfer agent for the Company’s Common Stock, and any successor transfer agent of the Company.

 

2. Shelf Registration .

 

(a)          If the Company consummates the Qualified Offering in accordance with the Loan Agreement, the Company shall use its reasonable best efforts to cause a Registration Statement covering all of the Registrable Securities to be declared effective under the Securities Act concurrently with the registration statement for the Qualified Offering, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until the first to occur of: (A) the date that is one (1) year from the date the Registration Statement is declared effective by the Commission (the “ Cut-Off Date ”) and (B) the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter which shall be obtained at the Company’s expense, to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities, any securities upon the exercise, conversion or exchange of or as a dividend upon which such securities were issued, or any securities issuable upon the exercise, conversion or exchange of, or as a dividend upon such securities, were at no time held by any Affiliate of the Company) (the “ Effectiveness Period ”). The Registration Statement filed hereunder shall be on Form S-1 and shall contain (unless otherwise directed by at least 85% in interest of the Holders) substantially the “ Plan of Distribution ” attached hereto as Annex A . The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 5:30 p.m. Eastern Time on the second Trading Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. For the avoidance of doubt, in no event shall the Lenders or any Holder have any piggyback rights with respect to the Qualified Offering or rights to participate in the underwritten offering contemplated by the Qualified Offering.

 

  3  
 

 

(b)          Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and use its commercially reasonable efforts to file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-3 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(d); provided , however , that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

(c)          Notwithstanding any other provision of this Agreement, if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:

 

(i) First, the Company shall reduce or eliminate any securities to be included by any Person other than a Holder or the Company; and

 

(ii) Second, the Company shall reduce Registrable Securities represented by Conversion Shares (applied to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders, collectively).

 

In the event of a cutback hereunder, the Company shall give the Holder at least one (1) Trading Day prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its reasonable best efforts to file with the Commission, as promptly as allowed by the Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(d)          The Company shall undertake to register the Registrable Securities on Form S-3 as soon as the Company is eligible to use such Form, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

  

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3. Registration Procedures .

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)          Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of 67% or more of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Trading Days after the Holders have been so furnished copies of a Registration Statement or one (1) Trading Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) by the end of the fourth (4 th ) Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

 

(b)          (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c)          If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

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(d)          Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a 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, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided , however , in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

(e)          Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)          Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

 

(g)          Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

(h)           The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Company shall pay the filing fee required by such filing within two (2) Business Days of request therefor.

 

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(i)          Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(j)          If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Loan Agreement and applicable law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

(k)          Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a 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. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 75 calendar days (which need not be consecutive days) in any 12-month period .

 

(l)          Comply with all applicable rules and regulations of the Commission.

 

(m)          To the extent it becomes eligible to use such Form, the Company shall use its reasonable best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

 

(n)          The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares.

 

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4.    Registration Expenses . All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Facility Documents, any legal fees or other costs of the Holders.

 

5. Indemnification .

 

(a)           Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

 

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(b)           Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title), to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act or the plan of distribution in any Registration Statement through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus, (ii) to the extent, but only to the extent, that such information relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder under this Section 5(b) be greater in amount than the dollar amount of the net proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c)           Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

 

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

(d)           Contribution . If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6. Miscellaneous .

 

(a)           Remedies . In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

(b)           Reserved .

 

(c)           Compliance . Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

(d)           Discontinued Disposition . By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.

 

(e)           Piggy-Back Registrations . If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided , however , that the Company shall not be required to include any Registrable Securities in the Qualified Offering or register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act or that are the subject of a then effective Registration Statement.

 

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(f)           Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 67% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security). If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

(g)           Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Loan Agreement.

 

(h)           Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder to the extent such Holder duly assigns its Term Loans under the Loan Agreement.

 

(i)           No Inconsistent Agreements . Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full or will not be terminated in connection with the Qualified Offering.

 

(j)           Execution and Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(k)           Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Loan Agreement.

 

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(l)           Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(m)           Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(n)           Headings . The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(o)           Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

 

********************

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

  PHASERX, INC.
   
  By:/s/ Robert W. Overell, Ph.D.
     Name: Robert W. Ovrell, Ph.D.
    Title: Chief Executive Officer and President

 

[SIGNATURE PAGE OF LENDERS FOLLOWS]

 

 

 

  

[SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT]

 

Name of Lender: 2004 Leon Scharf Irrevocable Trust Corp

 

Signature of Authorized Signatory of Lender : /s/ Willy Beer

 

Name of Authorized Signatory: Willy Beer

 

Title of Authorized Signatory: Trustee

 

 

 

 

Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “ Selling Stockholders ”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the NASDAQ Capital Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

· ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

· block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

· purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

· an exchange distribution in accordance with the rules of the applicable exchange;

 

· privately negotiated transactions;

 

· settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

 

· in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

· through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

· a combination of any such methods of sale; or

 

· any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

 

 

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earliest of (i) one (1) year from the date the Registration Statement is declared effective by the Commission, (ii) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (iii) the date on which all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

  2  
 

   

Annex B

 

PHASERX, INC.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “ Registrable Securities ”) of PhaseRx, Inc., a Delaware corporation (the “ Company ”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Stockholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

2004 Leon Scharf Irrevocable Trust Corp

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Willy Beer

   

 

2. Address for Notices to Selling Stockholder:

 

#### ######### ###. ##### ### ########, ## #####

 
 

Telephone:  ### ## ####

Fax:  

Contact Person: Willy Beer

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

4  

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   

 

5  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 2004 Leon Scharf Irrevocable Trust Corp.
     
  By:  /s/ Willy Beer
    Name: Willy Beer
    Title: Trustee

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

6  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Alpha Capital Anstalt

 

Signature of Authorized Signatory of Lender : /s/ Konrad Ackermann

 

Name of Authorized Signatory: Konrad Ackermann

 

Title of Authorized Signatory: Director

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

Alpha Capital Anstalt

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Konrad Ackermann

   

 

2. Address for Notices to Selling Stockholder:

 

########### ## ##-#### ##### ########### #############

 
 

Telephone: ### ### ####

Fax: ### ### ####

Contact Person: Konrad Ackermann

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   
   

 

9  

 

  

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Alpha Capital Anstalt
     
  By:  /s/ Konrad Ackermann
    Name: Konrad Ackermann
    Title: Director

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

10  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

 

Name of Lender: Mazia Arjang

 

Signature of Authorized Signatory of Lender : /s/ Mazia Arjang

 

Name of Authorized Signatory: Mazia Arjang

 

Title of Authorized Signatory:

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

Mazia Arjang

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Mazia Arjang

   

 

2. Address for Notices to Selling Stockholder:

 

## ####### ####
##### ####, ## #####
 

Telephone:  ### ### ####

Fax:  

Contact Person: Mazia Arjang

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   
   

 

13  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Mazia Arjang
     
  By:   /s/ Mazia Arjang
    Name: Mazia Arjang

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

14  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

 

Name of Lender: Mordechai Belsky

 

Signature of Authorized Signatory of Lender : /s/ Mordechai Belsky

 

Name of Authorized Signatory: Mordechai Belsky

 

Title of Authorized Signatory:

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

Mordechai Belsky

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Mordechai Belsky

   

 

2. Address for Notices to Selling Stockholder:

 

### ###### ###

########. ## #####
 

Telephone:   

Fax:  

Contact Person: Mordechai Belsky

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   
   

 

17  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Mordechai Belsky
     
  By:  /s/ Mordechai Belsky
    Name: Mordechai Belsky

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

18  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

 

Name of Lender: Chesed Found Ltd.

 

Signature of Authorized Signatory of Lender : /s/ Menachem Goldshmid

 

Name of Authorized Signatory: Menachem Goldshmid

 

Title of Authorized Signatory: Director

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

Cheses Found Ltd.

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Menachem Goldshmid

   

 

2. Address for Notices to Selling Stockholder:

#### ###, ### #####. ##. ######## ########, # ### ##### #######. #######
#### ####
 
Telephone:   

Fax:  

Contact Person: Menachem Goldshmid

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   
   

 

21  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Chesed Found Ltd.
     
  By:  /s/ Menachem Goldshmid
    Name: Menachem Goldshmid
    Title: Director

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

22  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

 

Name of Lender: Fame Associates

 

Signature of Authorized Signatory of Lender : /s/ Isaac Fruchthandler

 

Name of Authorized Signatory: Isaac Fruchthandler

 

Title of Authorized Signatory:

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

(a) Full Legal Name of Selling Stockholder
 

 

Fame Associates

   

 

(b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
 

 

 

   

 

(c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
 

 

Isaac Fruchthandler

   

 

2. Address for Notices to Selling Stockholder:

 

c/o ### $$$$$$$

### ######## #### #####
### #### ## ####

Telephone:  ### ### ####

Fax:  
Contact Person:

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨         No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨         No    x

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨         No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
 

 

 

   
   

 

25  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
 

 

 

   
   

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Fame Associates
     
  By:  /s/ Isaac Fruchthandler
    Name: Isaac Fruchthandler
    Title:  Manager

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

 

26  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

 

Name of Lender: Chaim Gross

 

Signature of Authorized Signatory of Lender : /s/ Chaim Gross

 

Name of Authorized Signatory: Chaim Gross

 

Title of Authorized Signatory:

 

 

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Chaim Gross
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Chaim Gross

 

2. Address for Notices to Selling Stockholder:

 

## #### #####
########, ## #####
 

Telephone: ### ### ####

Fax:  

Contact Person: Chaim Gross

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

29  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Chaim Gross
     
  By: /s/ Chaim Gross
    Name: Chaim Gross
    Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

30  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: H&M Machine

 

Signature of Authorized Signatory of Lender : /s/ Hershel Parnes

 

Name of Authorized Signatory: Hershel Parnes

 

Title of Authorized Signatory:

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    H&M Machine
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Hershel Parnes

  

2. Address for Notices to Selling Stockholder:

 

## ### ###

######. ## #####
 

Telephone:  

Fax:  

Contact Person: Hershel Parnes

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

33  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 H&M Machine
     
  By: /s/ Hershel Parnes
    Name: Hershel Parnes
    Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

34  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Joseph Hoch

 

Signature of Authorized Signatory of Lender : /s/ Joseph Hoch

 

Name of Authorized Signatory: Joseph Hoch

 

Title of Authorized Signatory:

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Joseph Hoch
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Joseph Hoch

 

2. Address for Notices to Selling Stockholder:

 

## #### ##### ########

## ## ##### ########. ##### ###
### #######, ## #####

Telephone:  

Fax:  

Contact Person : Joseph Hoch

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

37  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Joseph Hoch
     
  By: /s/ Joseph Hoch
    Name: Joseph Hoch
    Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

38  

 

  

[SIGNATURE PAGE OF LENDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT]

 

Name of Lender: Kuykendall Associates, LLC Retirement; Trust, Frederick T. Kuykendall II TTEE

 

Signature of Authorized Signatory of Lender : /s/ Frederick T. Kuykendall, III

 

Name of Authorized Signatory: Frederick T. Kuykendall, III

 

Title of Authorized Signatory: Trustee

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

  

  (a) Full Legal Name of Selling Stockholder
     
    Kuykendall Associates, LLC Retirement Trust, Frederick T. Kuykendall II TTEE
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
    Frederick T Kuykendall, III
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Frederick T Kuykendall, III

 

2. Address for Notices to Selling Stockholder:

 

#### ###### #####

######. ## #####
 

Telephone:  

Fax:  

Contact Person: Frederick T Kuykendall, III

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    x

  

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

41  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/18/16 Beneficial Owner: Frederick T. Kuykendall, III
     
  By: /s/ Frederick T. Kuykendall, III
    Name: Frederick T. Kuykendall, III
    Title: Trustee

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

42  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Max Mizrachi

 

Signature of Authorized Signatory of Lender : /s/ Max Mizrachi

 

Name of Authorized Signatory: Max Mizrachi

 

Title of Authorized Signatory:

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Max Mizrachi
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
    Max Mizrachi
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Max Mizrachi

 

2. Address for Notices to Selling Stockholder:

 

 

 
 

Telephone:  

Fax:  

Contact Person: Max Mizrachi

  

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

45  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/19/16 Beneficial Owner: Max Mizrachi
     
  By: /s/ Max Mizrachi
    Name: Max Mizrachi
    Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

46  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Israel Muller

 

Signature of Authorized Signatory of Lender : /s/ Israel Muller

 

Name of Authorized Signatory: Israel Muller

 

Title of Authorized Signatory:

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Israel Muller
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Israel Muller

 

2. Address for Notices to Selling Stockholder:

 

# ######## #####

#######, ## ### ###
######

Telephone : ### ### ####

Fax:  

Contact Person: Israel Muller

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

49  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Israel Muller
     
  By: /s/ Israel Muller
    Name: Israel Muller
    Title:

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

50  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Point Capital, Inc.

 

Signature of Authorized Signatory of Lender : /s/ Eric Weisblum

 

Name of Authorized Signatory: Eric Weisblum

 

Title of Authorized Signatory: President

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

  

  (a) Full Legal Name of Selling Stockholder
     
    Point Capital, Inc.
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Eric Weisblum

 

2. Address for Notices to Selling Stockholder:

 

### ##### ###., ####. #, ### ##

#########, ## #####
 

Telephone : ### ### ####

Fax:  

Contact Person: Eric Weisblum

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

53  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Point Capital, Inc.
     
  By: /s/ Eric Weisblum
    Name: Eric Weisblum
    Title: President

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

54  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Erik Richardson

 

Signature of Authorized Signatory of Lender : /s/ Erik Richardson

 

Name of Authorized Signatory: Erik Richardson

 

Title of Authorized Signatory:

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Erik Richardson
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Erik Richardson

 

2. Address for Notices to Selling Stockholder:

 

######## ###### ####

### #######, ## #####
 

Telephone : ### ### ####

Fax:  

Contact Person: Erik Richardson

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

  

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x  

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

57  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Point Capital, Inc.
     
  By: /s/ Erik Richardson
    Name: Erik Richardson
   

Title:

 

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

58  

 

 

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Riding the Bull LLC

 

Signature of Authorized Signatory of Lender : /s/ Mark Groussman

 

Name of Authorized Signatory: Mark Groussman

 

Title of Authorized Signatory: Managing Member

 

 

 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Riding the Bull LLC
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Mark Groussman

 

2. Address for Notices to Selling Stockholder:

 

##### ## #### ##### ####

######## ## #####
 

Telephone : ##########

Fax:  

Contact Person: Mark Groussman

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    x

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    x

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

61  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Riding the Bull LLC
     
  By: /s/ Mark Groussman
    Name: Mark Groussman
    Title: Managing Member

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

62  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Robert S. Colman Trust UDT 3/13/85

 

Signature of Authorized Signatory of Lender : /s/ Robert Colman

 

Name of Authorized Signatory: Robert Colman

 

Title of Authorized Signatory: Trustee

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Robert S. Colman Trust UDT 3/13/85
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
     
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Robert Colman

 

2. Address for Notices to Selling Stockholder:

 

## ##### ##### ##.

####### ## #####
 

Telephone : ### ### ####

Fax:  

Contact Person: Robert Colman

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

  

Yes    ¨          No    x

 

 

 

 

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

65  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/10/16 Beneficial Owner: Robert Colman
     
  By: /s/ Robert S. Colman Trust UDT 3/13/85
    Name: Robert Colman
    Title: Trustee

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

66  

 

  

SIGNATURE PAGE OF HOLDERS TO PHASERX REGISTRATION RIGHTS AGREEMENT

 

Name of Lender: Titan Multi-Strategy Fund I. Ltd.

 

Signature of Authorized Signatory of Lender : /s/ Jonathan Honig

 

Name of Authorized Signatory: Jonathan Honig

 

Title of Authorized Signatory: Managing Member

 

 

 

  

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Stockholder
     
    Titan Multi-Strategy Fund I. Ltd.
     
  (b) Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:
     
    Jonathan Honig
     
  (c) Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):
     
    Jonathan Honig

 

2. Address for Notices to Selling Stockholder:

 

#### ## #### #####

#### #####, ## #####
 

Telephone : ### ### ####

Fax:  

Contact Person: Jonathan Honig

 

3. Broker-Dealer Status:

 

(a) Are you a broker-dealer?

 

Yes    ¨          No    x

 

(b) If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

(c) Are you an affiliate of a broker-dealer?

 

Yes    ¨          No    x

 

 

 

  

(d) If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

 

Yes    ¨          No    ¨

 

Note: If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4. Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Loan Agreement.

 

(a) Type and amount of other securities beneficially owned by the Selling Stockholder:
     
     
     

 

2  

 

 

5. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:
     
     
     

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: 2/22/16 Beneficial Owner: Titan Multi-Strategy Fund I, Ltd.
     
  By: /s/ Jonathan Honig
    Name: Jonathan Honig
    Title: Managing Member

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

3  

 

Exhibit 10.1

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

SECOND AMENDED AND RESTATED

 

EXCLUSIVE PATENT LICENSE AGREEMENT

 

BETWEEN ·

 

PHASERX, INC.

 

AND

 

UNIVERSITY OF WASHINGTON

 

FOR

 

MEMBRANE DISRUPTIVE POLYMERS

 

UW COMOTION REF.  37984A

 

 
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

TABLE OF CONTENTS

 

1. Definitions 1
2. Term 6
3. Grant of License 6
4. Applications and Patents 9
5. Commercialization 11
6. Payments, Reimbursements, Reports, and Records 12
7. Infringement 14
8. Termination 16
9. Release, Indemnification, and Insurance 18
10. Warranties 20
11. Limitation of Remedies 21
12. Amendment and Waiver 21
13. Assignment 22
14. Applicable Law 22
15. Confidentiality 22
16. Disputes 23
17. Consent and Approvals 24
18. Construction 25
19. Enforceability 25
20. Entire Agreement; No Third-Party Beneficiaries 25
21. Language and Currency 25
22. Notices 25
23. Patent Marking 26
24. Publicity 26
25. Relationship of Parties 26
26. Security Interest 26
27. Survival 26
28. Forum Selection 26
Exhibit A 28
Exhibit B 40
Exhibit C 41

 

 
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

EXCLUSIVE PATENT LICENSE AGREEMENT

 

THIS SECOND AMENDED AND RESTATED AGREEMENT ("Agreement") is dated and effective as of the date of last signature, and is made by and between the University of Washington, a public institution of higher education and an agency of the state of Washington (the "University"), and PhaseRx, Inc., incorporated under the laws of the state of Delaware (the "Company"), collectively the "Parties".  This Agreement amends and restates in its entirety the Amended and Restated Exclusive Patent License Agreement dated and effective as of January 20, 2016 between University and Company, which amends and restates in its entirety the Exclusive Patent Agreement dated and effective as of December 6, 2006 (the "Effective Date") between University and Company, as previously amended.

 

Purpose

 

The University and University of Massachusetts ("UMass") own the right to license to others certain rights to the Licensed Patents, as that term is defined and used in this Agreement.  University and UMass have entered into an interinstitutional agreement dated May 14, 2005 whereby University will manage their joint interests in the Licensed Patents on behalf of both institutions.  University will provide an unredacted copy of this Agreement to UMass.  

 

The Company co-owns certain inventions claimed in the Licensed Patents and desires that the University grant it a license to use, develop, and commercialize the inventions claimed in the Licensed Patents to the extent they are owned or co-owned by the University.  The University is willing to grant such a license on the terms set forth below.

 

NOW, THEREFORE, the Parties agree that:

 

1.             Definitions.   For purposes of interpreting this Agreement, the following terms shall have the meanings ascribed to them below in this Article:

 

1.1.          "Affiliate" means any entity which controls, is controlled by or is under common control with a Party.  An entity shall be regarded as in control of another entity for purposes of this definition if it owns or controls more than ninety percent (90%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority).

 

1.2.          "Confidential Information" means any information or materials (biological, chemical, or otherwise) not generally known to the public, including any information comprised by those materials, in each case to the extent disclosed by one Party to the other Party in writing and marked "Confidential" (or disclosed orally and confirmed in writing as confidential within thirty (30) days following such disclosure), and including without limitation, non-public Licensed Technology.

 

Page 1 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

1.3.          "Event of Force Majeure" means an unforeseeable act that wholly prevents a Party from performing one or more of its material duties under this Agreement and that was outside of the reasonable control of the Party.  An Event of Force Majeure includes acts of war or of God, insurrection and riot, and labor strikes.  An Event of Force Majeure shall not mean a Party's inability to obtain a Third Party's consent to any act or omission.

 

1.4           "Field of Use" means drug delivery, human therapeutics, human prophylactics and research reagents used for the in vitro and in vivo delivery and/or uptake of any entity including, but not limited to, polymers, particles, nucleic acids, proteins, peptides and/or other molecules into cells, tissues, or organs.  The Field of Use excludes all other uses including diagnostics and in vitro molecular assays and separations for diagnostic and/or research reagent applications.

 

1.5.          "Know-How" means technical facts, data, or advice, oral or written (in the form of information contained in patents and patent applications, reports, letters, drawings, specifications, testing procedures, training and operational manuals, bills of materials, photographs and related materials) and/or any tangible materials not set forth in the Licensed Technology, together with University's proprietary rights in the same, in each case that: (i) were developed in the laboratory of Patrick Stayton or Allan Hoffman at the University of Washington; (ii) relates to the Licensed Technology in existence as of the Effective Date at the time of this Agreement; (iii) were developed before the Effective Date; (iv) are owned by and in the possession of University; and (v) are not covered by rights to any Third Party that would prevent delivery to the Company.

 

1.6.          "Licensed Patents" means the patents and patent applications described in Section A1.6 of attached Exhibit A.   Licensed Patents also include any further related patent issued during the term of this Agreement by the United States Patent and Trademark Office or any like foreign body with respect to a patent application that is part of Licensed Patents, as well as any reissues, reexaminations, continuations, continuations-in-part (but only those claims in such continuations-in-part that are sufficiently supported by a patent application included in Exhibit A so as to be entitled to the benefit of a priority date of such supporting patent application), divisionals, substitutions and extensions of Licensed Patents.  "Licensed Patents" shall also include any patents or patent applications arising from currently unpatented University Disclosures as provided in Section A1.8 of attached Exhibit A.

 

Page 2 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

1.7.          "Licensed Product" means any product or good in the Field of Use that is made by, made for, sold, transferred, or otherwise disposed of by the Company or its Sublicensees during the term of this Agreement and the Post-termination Period and that, but for the granting of the rights set forth in this Agreement, would infringe (including under the doctrine of equivalents) one or more Valid Claims in a Licensed Patent, including any Valid Claims in pending patent applications, or any product or good that is made using a process or machine that is covered by a Valid Claim in a Licensed Patent including patent applications.  Licensed Product includes Licensed Therapeutic Products.  For clarity, it is understood and agreed that a Valid Claim in a pending patent application will be deemed to have been infringed for purposes of this definition if it would have been infringed were it to have been issued at the time of the activity.  The term "Licensed Product" also means any service provided by Company or its Sublicensees that incorporates all or any portion of a product that would be a Licensed Product.  Unless the Parties otherwise agree in writing, the term Licensed Product refers only to products and goods manufactured, made, sold, transferred, or otherwise disposed of during the term of this Agreement.

 

1.8.          "Licensed Technology" means collectively the inventions claimed in each Licensed Patent, including any patents or patent applications arising from currently unpatented University Disclosures listed in Section A1.8 of attached Exhibit A of this Agreement as of the Effective Date of this Agreement.

 

1.9.          "Material Sublicensee" means a Sublicensee to whom Company has granted a right to (i) make and sell any Licensed Product or (ii) sell any Licensed Product, provided that such Sublicensee is responsible for marketing of such Licensed Product within its sales territory.  Notwithstanding the foregoing, any Sublicensee to whom Company has granted a right of first negotiation, option or similar right that would, if exercised, result in such Sublicensee satisfying the criteria set forth in the preceding sentence, shall be deemed a Material Sublicensee for purposes of Sections 1.22, 3.1.2, 5.3, 8.3.2, and 9.5.1 of the Agreement prior to such exercise for so long as such right of first negotiation, option or similar right remains exercisable by such Sublicensee.

 

Page 3 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

1.10.        "Net Sales" means the gross amount invoiced for sales, leases, and other dispositions of Licensed Products by Company or its Sublicensees, less (i) all trade, quantity, and cash discounts, including credits provided based on sales of Licensed Products, refunds or government rebates, in each case actually granted, (ii) all credits and allowances actually granted due to rejections, returns, billing errors, chargebacks and retroactive price reductions, (iii) packaging, handling fees and prepaid freight, in each case to the extent separately invoiced, and (iv) duties, excise, sale and use taxes, and other governmental charges (including value added taxes) in each case to the extent actually incurred and not reimbursed.  Notwithstanding the foregoing, provided that all collection of outstanding debt by Company or Sublicensee, or on behalf of Company or Sublicensee, is attributed to the specific products or service for which such debt was incurred such that royalties due can be and are calculated for such products or services, then Net Sales will be calculated based upon gross amounts received by Company rather than on gross amounts invoiced.  Where, in addition to the Licensed Product, other active products or active processes are sold in combination with Licensed Product as a single unit (combination product), the Net Sale shall be determined by multiplying the gross invoiced amounts for each such combination product by a fraction, the numerator of which shall be the established market price for the Licensed Products contained in the combination product and the denominator of which shall be the sum of the established market price for the Licensed Products plus the established market price of the other active components contained in the combination products. When such separate market prices are not established in any particular country, the Parties shall negotiate in good faith to determine a fair and equitable method of calculating Net Sale in that country for the combination product in question.  Net Sales will not include transfers made between Company and any Sublicensee for resale to Third Parties, but shall include resale to such Third Parties. In the event that Company transfers Licensed Products to an Affiliate or Sublicensee and such Licensed Product is subsequently used by such Affiliate or Sublicensee for a commercial purpose including internal research and development unrelated to the development of Licensed Products, the "Net Sales Price" for such transferred units of Licensed Product for purposes of this Agreement shall be equal to the price the Company charges non-Affiliate Third Parties for the Licensed Product or if the Company does not offer to sell the Licensed Product to the public, the price charged by the Company for a product of similar kind, quality, and quantity. For purposes of clarity, it is understood and agreed that Net Sale will not include amounts received for Licensed Products used in clinical trials when supplied at a substantially discounted price, used for research related to the development of Licensed Products where no sale occurs, supplied as commercial samples, or as charitable or humanitarian donations when supplied without charge.

 

1.11.        "Payment" means a payment to be made by the Company to the University specified in Section 6.1 of this Agreement and described in Section A6.1 of attached Exhibit A.

 

1.12.        "Performance Milestone" means an act or event specified in Section 5.1 of this Agreement and described in Section A5.1 of attached Exhibit A.

 

1.13.        "Post-termination Period" means the one hundred eighty (180) day period commencing on the date of termination of this Agreement.

 

1.14         "Qualified Funding" means Three Million Dollars ($3,000,000.00 US) in funding, such funding to include income from all sources, including but not limited to grants, research agreements, private investments corporate and/or venture financing, sublicensing revenue, and gross income from product sales.

 

1.15         "Seed Funding" means Three Hundred Thousand Dollars ($300,000.00 US) in funding, such funding to include income from all sources, including but not limited to grants, research agreements, private investments corporate and/or venture financing, sublicensing revenue, and gross income from product sales.

 

1.16         "Sublicense" means the grant by Company to a Third Party of any license, option, first right to negotiate or other right under the Licensed Patent and/or Licensed Technology, in whole or in part.

 

Page 4 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

1.17         "Sublicensee" means a Third Party, including an Affiliate, holding a Sublicense under the Licensed Patent and/or Licensed Technology. Notwithstanding the foregoing, "Sublicensee" shall specifically exclude Distributors.

 

1.18         "Sublicensing Consideration" means any and all consideration, including but not limited to upfront fees, milestone payments, maintenance fees, non-cash consideration, and premiums over Fair Market Value of stock, but excluding running royalties (see below Section 6.1), received by Company or by Sublicensees who are Affiliates, from non-Affiliate Sublicensees in consideration for the grant of a Sublicense under this Agreement.  For avoidance of doubt, Sublicensing Consideration shall not include (i) proceeds reasonably attributable to bona fide debt financing or the sale of securities (other than any premiums over Fair Market Value), and (ii) payments to the Company or its Affiliate by such Sublicensees for the performance of bona fide product development work, research work, clinical studies and the pursuit of regulatory approvals, in each case to the extent such research, development and regulatory activities are performed pursuant to and as supported by an express agreement, and such payments are at reasonable and customary fully-burdened rates.  "Fair Market Value" means the average price that the security in question is publicly trading at for twenty (20) days prior to the announcement of its purchase by the Sublicensees, or, if the security is not publicly traded, the value of such stock as determined in good faith by board of directors of the Company.

 

1.19.         "Territory" means worldwide.  Notwithstanding the foregoing, the Parties acknowledge that the inventions disclosed in University disclosure 7279 (listed as UW Docket No. 43581 in Section A1.6 of attached Exhibit A) were funded through a grant from the Bill and Melinda Gates Foundation (the "Grant"), and that accordingly, with respect to University disclosure 7279, and any resultant patents based upon such disclosure, "Territory" shall be limited to the United States, Canada, Australia, Japan, the United Kingdom, Germany, France, Spain, Italy, Switzerland, Austria, Portugal, Greece, Belgium, the Netherlands, Denmark, Norway, Sweden and Finland, and such other countries throughout the world with respect to which University is not precluded, under obligations resulting from the Grant, from granting to Company a license in the Field of Use.

 

1.20         "Third Party" means all individuals or entities other than University and Company.

 

1.21         "Valid Claim" means the claims of unexpired issued patents that have not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken.  Valid Claim will also include the claims of pending patent applications, provided such claims have not been pending for more than five (5) years following the Effective Date of this Agreement.

 

Page 5 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

1.22         "Distributor" means a Third Party to whom Company, or its Material Sublicensees have granted rights solely to resell Licensed Product, and from whom Company, its Affiliates and their Material Sublicensees receive no further consideration for such sale of Licensed Products (including but not limited to royalties and/or commissions) beyond the initial transfer price received upon such sale to such Third Party.  Distributor specifically excludes any Third Party which controls, is controlled by or is under common control with Company, its Affiliates or their Material Sublicensees.  Control for purposes of this Section 1.22 means an entity that owns or controls more than fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority.

 

1.23         "Licensed Therapeutic Products" means Licensed Products with applications in drug delivery, human therapeutics, human prophylactics and research reagents used for the in vitro and in vivo delivery and/or uptake of any entity including, but not limited to, polymers, particles, nucleic acids, proteins, peptides and/or other molecules into cells, tissues, or organs.

 

2.             Term.      The term of this Agreement shall commence on the Effective Date and, unless terminated earlier as provided below in Article 8, this Agreement shall expire on the date on which no Licensed Patent is valid and subsisting or pending in any country in the Territory.  Following expiration of this agreement due to expiration of all Licensed Patents (but not for an earlier termination), University agrees that Company's non-exclusive license under the Know-How shall survive on a fully paid-up basis.

 

3.             Grant of License.

 

3.1.           The Company's Rights.

 

3.1.1.          Subject to the terms and conditions of this Agreement, the University hereby grants to the Company, and the Company hereby accepts, an exclusive license under the Licensed Patents and Licensed Technology, and a non-exclusive license under the Know-How, in each case to (i) make, use, offer to sell or sell, offer to lease or lease, import, or otherwise offer to dispose or dispose of Licensed Products, (ii) practice any method, process or procedure, and (iii) otherwise exploit the Licensed Patents, Licensed Technology and Know-How; and to have any of the foregoing performed on its behalf by a Third Party, in each of cases (i), (ii) and (iii) above to be solely within the Field of Use and in the Territory.  For purposes of clarity, no provision of this Agreement shall be construed to grant the Company, by implication, estoppel or otherwise, any rights other than the rights expressly granted it in this Agreement, to the Licensed Technology, a Licensed Patent, or to any other University-owned technology, patent applications, or issued patents.

 

Page 6 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

3.1.2.          Company and Material Sublicensees shall have the right, exercisable from time to time during the term of this Agreement, to Sublicense their rights under this Agreement.  The Company shall not enter into such agreement with any Sublicensee if the terms of the agreement are inconsistent in any respect with the terms of this Agreement including without limitation Sections 5.2, 5.4, 6.3, 8.3, 9.5, 10.4, 11.3 and 6.4.2 of this Agreement.  Company will provide University copies of any Sublicense agreement entered into with a Material Sublicensee within thirty (30) days of its execution, provided that University agrees that Company may redact from any such Sublicense agreement any financial or other terms completely unrelated to the sublicensing of Licensed Patents and Licensed Technology, provided that Company agrees to provide University with a general description of the type and nature of the materials that have been redacted from the agreement.  Any term in a Sublicense agreement required for University to assess the value of compensation provided in return for such Sublicense may not be redacted, even if such term involves intellectual property that is not University intellectual property.  If University disputes the right of the Company to make a redaction, University shall have the right to view an unredacted copy of such Sublicense to verify that such term is completely unrelated to University intellectual property, but shall not keep a copy of such unredacted Sublicense.  Company is not required to provide copies of any Sublicenses entered into with Sublicensees that are not Material Sublicensees, provided that Company includes the names of such Sublicensees, and a general description of the nature of each such Sublicense in its reports submitted to University pursuant to Sections 5.3 and 6.3, and provided that Company will permit University to view a copy of any such Sublicense within thirty (30) days of request from University, provided further that University shall not keep a copy of such Sublicense.  Any Sublicense attempted to be made or made in violation of this Section shall be void and shall constitute an event of default under Section 8.1.1 of this Agreement.

 

3.1.3.          The Company, without the prior approval of the University, may assign all, but no less than all, its rights and delegate all its duties under this Agreement to another if the assignment is made (i) to an Affiliate, or (ii) as a part of and in connection with (A) the sale by the Company to a purchaser of all or substantially all of its assets or business to which this Agreement relates, (B) the sale, transfer, or exchange by the shareholders, partners, or equity owners of the Company of a majority interest in the Company to a single purchaser, or (C) the merger of the Company into another corporation or other business entity.  Company shall provide University with written notice of the assignment within thirty (30) days of the effective date of such assignment.  Any assignment attempted to be made or made in violation of this Section shall be void and shall, without further act, cause the immediate termination of this Agreement.  Any assignment or delegation shall not release the assigning or delegating Party from its obligations under this Agreement accruing prior to such assignment, grant of a Sublicense, or delegation without the express written consent of the University.

 

3.2.           The United States Government's Rights.   The University acknowledges that, to the best of its knowledge, the Licensed Technology was funded, in whole or in part, by the federal government of the United States of America. The Parties acknowledge and agree that the federal government of the United States of America has certain rights in and to any government funded Licensed Technology as those rights are described in Chapter 18, Title 35 of the United States Code and accompanying regulations, including Part 401, Chapter 37 of the Code of Federal Regulations, and that the Parties' rights and obligations under this Agreement to any government-funded Licensed Technology, including the grant of license set forth above in Section 3.1.1, are subject to the applicable terms of the aforementioned United States laws.

 

Page 7 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

3.3.           The University's Rights. The University and UMass retain an irrevocable, nonexclusive license to make, have made, and use products, processes, and other subject matter covered by the Licensed Patents or the Licensed Technology for research, medical, instructional, or any other academic purpose.  Expressly included within this University and UMass reservation of rights is the right (i) to use the Licensed Patents and/or Licensed Technology in sponsored research or collaborative research with any Third Party, and (ii) to grant material transfer agreements or licenses for academic purposes to non-profit entities. University and UMass also have the right to publish any information included in the Licensed Patents, Licensed Technology, Know-How or any other information that may result from University's research.

 

3.4            Transfer of Know-How.   Subject to the University approval, Company may request validation amounts of materials related to the practice of Licensed Patents to be supplied by University through the lab of either Dr. Stayton or Dr. Hoffman. Such request shall detail specific materials, specific amounts, and purpose of such transfer. Company acknowledges that University approval of such transfer of such material may require additional approvals or conflict of interest reviews.  Approval will be on a case by case basis. Following such approval, material will be transferred using the material transfer agreement attached as Exhibit C, or as otherwise mutually agreed to between the Parties.

 

3.5            Option. The University hereby grants Company, for Licensed Patents and Licensed Technology included in University Ref# 2744 (listed as UW Docket No. 41887 in Section A1.6 of attached Exhibit A), which includes all patents and applications in Licensed Patents as of the Effective Date of this Agreement, an exclusive fully paid-up option ("Option") to include within this Agreement all fields of use outside the Field of Use, including for human diagnostic applications ("Additional Field of Use").  The Option shall be for [****] from the Effective Date of this Agreement, with the ability to extend the Option for [****] upon written agreement of both Parties ("Option Term").  Company's license in such Additional Field of Use shall be subject to a reasonable development plan and diligence plan for such Additional Field of Use, to be supplied following the exercise of such Option and concurrent with the negotiation of terms for Company's license to such Additional Field of Use. Following exercise of Company's Option under this Agreement, the Parties shall negotiate in good faith for up to [****] days to execute a license on commercially reasonable terms for such Additional Field of Use.  Following the expiration of this [****] day period, if no license is signed for the Additional Field of Use between the University and Company, the University shall be free to license its rights in the Additional Field of Use elsewhere at its sole discretion, and shall have no further obligations to Company with respect to this Option. Notwithstanding the foregoing, the University shall perpetually retain the right to grant non-exclusive licenses under the Licensed Patents in the Additional Field of Use for the development of diagnostic products for use in the developing world consistent with any University obligations pursuant to funding from The Bill and Melinda Gates Foundation.  For avoidance of doubt, this Option is not for Licensed Technology, or any future patents or patent applications included in University Ref# 7279, 7387 or 7568 (listed as UW Docket Nos. 43581, 43721, and 43939, respectively, in Section A1.6 or A1.8 of attached Exhibit A).

 

Page 8 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

4.             Applications and Patents.

 

4.1.           Cost Reimbursement . The Company shall pay, or reimburse the University for paying, all reasonable and necessary costs (including attorneys' and application fees) incurred prior to, on, or after the Effective Date to apply for, prosecute, enforce, and maintain each Licensed Patent, including patent applications, as provided in attached Section A4.1 of attached Exhibit A, or any patents or patent applications arising from currently unpatented University Disclosures as provided in Section A1.8 of attached Exhibit A, including the costs of interferences, oppositions, re-examinations, and patent litigation. Subject to terms set forth in Section A4.1, within thirty (30) days of its receipt of the University's invoice for reimbursable expenses, the Company shall deliver to the University payment in the amount of such invoice.  The Parties acknowledge that the amount of such expenses incurred prior to the Effective Date is One Hundred Twenty Eight Thousand Five Hundred Eighteen and 23/100 dollars ($128,518.23 US).  At no point during the term of this Agreement shall University be under any obligation to incur any patent expenses for which Company is not currently reimbursing University.  University may, at its discretion, require advance payment for any patent activities requested by Company prior to issuing instructions to University patent counsel to undertake such activities.  Under no circumstances shall University be obligated to instruct counsel to undertake activities for which advanced payment has been requested from Company, but not received by University

 

4.2.           Pre-Agreement Patent Filings . The Company represents that, as of the Effective Date, it has not and does not manufacture, have manufactured, offer to sell, sell, offer to lease, lease, or import (a) any product or good that infringes (including under the doctrine of equivalents) a claim in any Licensed Patent including patent applications, or (b) any product or good that is made using a process or machine that infringes (including under the doctrine of equivalents) a claim in a Licensed Patent including patent applications.

 

4.3.           Patent Application Filings During the Term of This Agreement .

 

4.3.1.          The University retains the sole and exclusive right to file or otherwise prosecute all patent applications within the Licensed Patents using counsel of University's choice. Provided Company is reimbursing University for ongoing patent expenses, Company may request University choose new counsel should Company become dissatisfied with current counsel, such change in counsel not to be unreasonably withheld by University.  In no event shall the Company file a patent application with respect to the Licensed Technology which was invented solely by the University.  The Company shall cooperate with the University in the filing and prosecution of all patent applications within the Licensed Patents. Where Company files a patent application that has a UW employee as an inventor in addition to inventors that are under obligation to assign patent rights to Company, such patent application shall be reported to the University immediately upon filing, and University shall receive a copy.  Should the University assert that it is the proper assignee of such UW employee's ownership interest in such patent application under the University's then current policies, Company shall add the University as an assignee, copy University on all patent office correspondence, allow University to comment on prosecution, and provide University notice of any application or patent that is to be abandoned such that University can choose to continue prosecution/maintenance at its option until such time as it is determined (either by law or mutual agreement of the Parties) that the University is not the proper assignee of such UW employee's rights.

 

Page 9 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

4.3.2.          Subject to Section 4.1, Company may request that University prosecute Licensed Patents in foreign countries, if available and if Company so desires. Company will notify University of its desire to obtain or maintain foreign patents not less than ninety (90) days prior to the deadline for any payment, filing or action to be taken in connection therewith. Any such notice concerning a foreign patent filing must be in writing, and must identify the countries in which Company wishes patent protection to be sought. Such notice shall be deemed confirmation of the Company's obligation to pay such costs associated with such patent filings.  The absence of such a notice from the Company to University will be considered an election by Company not to obtain the particular foreign rights at issue.

 

4.3.3.           Subject to Section 4.1, the University shall take all commercially reasonable steps to cause patents and patent applications within Licensed Patents to be diligently prosecuted and maintained. The University shall (i) instruct counsel to copy Company on all correspondence with domestic and foreign patent authorities regarding the Licensed Patents, and upon request of Company, will take such other reasonable steps as may be necessary to cause such counsel to comply with such instructions, and (ii) provide Company with copies of all invoices from University's patent counsel for the filing, prosecution and maintenance of the Licensed Patents, and (iii) consult with the Company on the prosecution of the patent application. Company's suggestions and requests regarding patent prosecution shall be reasonably considered and included to the extent not detrimental to University's intellectual property rights.  Subject to Company making arrangements to reimburse University for the entire cost of direct consultation with the University counsel, Company shall have the right to speak with such counsel directly, provided University shall have the right to be included in such communication.

 

4.3.4.          In the event the University and the Company do not reach an agreement as to whether a patent application with respect to the Licensed Technology should be filed in a particular country, the University may, but shall have no duty or obligation hereunder to, file and prosecute such patent application at its own expense.

 

4.3.5.          No provision of this Agreement limits, conditions, or otherwise affects the University's right to prosecute a patent application within the Licensed Patents in any country.

 

4.4.           Maintenance of Licensed Patents . Subject to Section 4.1, the University shall take all commercially reasonable steps to cause each Licensed Patent to remain or be valid and subsisting.

 

Page 10 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

4.5.           Ownership of the Licensed Patents and Patent Applications . No provision of this Agreement grants the Company any rights, titles, or interests (except for the grant of license in Section 3.1.1 of this Agreement) in the Licensed Patents including patent applications, notwithstanding the Company's payment of all or any portion of the patent prosecution, maintenance, and related costs.

 

5.             Commercialization.

 

5.1.           Commercialization and Performance Milestones . The Company shall use its commercially reasonable efforts, consistent with sound and reasonable business practices and judgment, to commercialize the Licensed Technology and to manufacture and offer to make and sell Licensed Products as soon as reasonably practicable and to maximize sales thereof. Unless excused by the occurrence of an Event of Force Majeure during the term of this Agreement, the Company shall perform, or shall cause to happen or be performed, as the case may be, all the performance milestones described in Section A5.1 of attached Exhibit A.   For purposes of clarity, it is understood and agreed that with respect to the diligence obligations set forth in this Agreement, including without limitation the obligations described in this Section 5.1 and Section A5.1 of attached Exhibit A, such obligations may be satisfied by Company directly, or by Company's Sublicensees.

 

5.2.           Covenants Regarding the Manufacture of Licensed Products . The Company hereby covenants and agrees that the manufacture, use, sale, or transfer of Licensed Products shall comply with all applicable federal and state laws, including all federal export laws and regulations.  The Company hereby further covenants and agrees that, to the extent required under 35 United States Code Section 204, it shall, and it shall cause each Sublicensee, to substantially manufacture in the United States of America all products embodying or produced through the use of an invention that is subject to the rights of the federal government of the United States of America.

 

5.3.           Commercialization Reports . Within thirty (30) days of December 31 of each year following the first anniversary of the Effective Date and continuing until such time as Company (either directly or through its Sublicensee) begins providing University with sales reports pursuant to Section 6.3 below, the Company shall deliver to the University written reports of the Company's and its Material Sublicensees' efforts and plans to commercialize the Licensed Technology and to manufacture, offer to sell, or sell Licensed Products.  In such written report, Company will provide University a general description of the activities of Company and each Material Sublicensee.  Company further agrees in the case of Sublicenses granted to Sublicensees that are not Material Sublicensees, that Company will provide University with the name of the Sublicensee and general description of the general type of work (e.g., contract manufacturing, monitoring of clinical trials, etc.) being performed under each such Sublicense.  Company's inability to disclose any plans of its Sublicensees shall not relieve the Company of its obligations to demonstrate its compliance with its diligence obligations under Section 5.1 above including for each of the commercialization and performance milestones described in Section A5.1 of attached Exhibit A, each commercialization report shall include sufficient information to demonstrate compliance of those milestones and shall set out timeframes and plans for those milestones which have not yet been met.  Company further agrees to include in each such commercialization report a list of all Sublicenses granted by Company during the preceding calendar year.  Upon University's request, Company shall provide a list of wholesalers and resellers with rights to sell Licensed Product. Company further agrees that it will provide University a verbal and in-person update as to progress against milestones every three (3) months until such time as Company has achieved Qualified Funding.

 

Page 11 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

5.4.           Use of the University's Name and Trademarks or the Names of University Faculty, Staff, or Students .  Except as provided below, no provision of this Agreement grants the Company or Sublicensee any right or license to use the name or trademarks of the University, UMass, or the names or identities of any member of the faculty, staff, or student body of the University or UMass. The Company shall not use and shall not permit its Sublicensees to use any such trademarks, names, or identities without prior written approval by an authorized representative of the respective institutions. Notwithstanding the foregoing, Company may use the name University of Washington and University of Massachusetts (i) in discussions with, and disclosures to, investors, potential investors, advisors, partners, potential acquirers and Affiliates of Company, and (ii) disclosures required by securities laws and in other regulatory and administrative filings in the ordinary course of Company's business, in each case so long as the use of University's and UMass' name by Company is limited to statements of fact and is not used in a manner to suggest or imply endorsement by University or UMass of Company or of any Licensed Product.

 

6.             Payments, Reimbursements, Reports, and Records.

 

6.1.           Payments .  The Company shall deliver to the University the payment or payments specified in Section A6.1 of attached Exhibit A.  The Company shall make such payments by check, wire transfer, or any other mutually agreed-upon and generally accepted method of payment.  All checks to the University shall be made payable to "University of Washington" and shall be mailed to the address specified in Article 22 of this Agreement.  Upon request, the University shall deliver to the Company written wire transfer instructions.

 

6.2.           Late Payments .  Company agrees to pay a late fee for all amounts owed to the University that are overdue by thirty (30) days or more.  The late fee shall be computed at an effective annual rate equal to the United States prime rate plus [****], compounded monthly, as set forth by The Wall Street Journal (Western edition) on the date on which such payment is due, of the outstanding, unpaid balance.  The payment of such a late fee shall not foreclose or limit University from exercising any other rights it may have as a consequence of the lateness of any payment.

 

Page 12 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

6.3.           Sales Reports .  Within sixty (60) days after the last day of a calendar quarter, beginning with first commercial sale of Licensed Product and continuing through the term of this Agreement and the Post-termination Period, the Company shall deliver to the University a written sales report (a copy of the form of which is attached as Exhibit B) recounting the number and Net Sales amount (expressed in U. S. dollars) of all sales, leases, or other dispositions of Licensed Products, whether made by the Company or any Sublicensee, during such calendar quarter.  The Company shall deliver such written report to the University even if the Company is not required hereunder to pay to the University a payment for sales, leases, or other dispositions of Licensed Products during the calendar quarter.

 

6.4.           Records Retention and Audit Rights .

 

6.4.1.          Throughout the term of this Agreement and the Post-termination Period and for three (3) years thereafter, the Company, at its expense, shall keep and maintain and shall cause each Sublicensee to keep and maintain complete and accurate records of all sales, leases, and other dispositions of Licensed Products during the term of this Agreement and the Post-termination Period and all other records related to this Agreement.

 

6.4.2.          The University, at its expense except as set forth below in this Section, shall have the right to inspect and audit the Company's records referred to in Section 6.4.1 hereof at the Company's address as set forth in Article 22 of this Agreement or such other locations as the Parties shall mutually agree during the Company's normal business hours.  The frequency of such inspection and audit shall be at the University's discretion, but no more than once per calendar year.  The University shall have the right to determine the Company's compliance with the terms of this Agreement. The Company shall reimburse the University for all its out-of-pocket expenses to inspect and audit such records if the University, in accordance with the results of such inspection and audit, determines that the Company has underpaid amounts owed to the University by at least [****] in the audited period. The Company shall cause each Affiliate Sublicensee (and shall use reasonable efforts to cause all other Sublicensees) to grant the University a right to inspect and audit such Sublicensee's records, such right of inspection and audit to be substantially similar to the rights granted the University in this Section.  To the extent that Company does not have the right to grant University the right to audit such non-Affiliate Sublicensees' books and records hereunder, Company shall obtain for itself such right and, at the request of University, Company shall exercise such audit right with respect to such non-Affiliate Sublicensees using auditors reasonably acceptable to University and provide the results of such audit for inspection by University pursuant to this Section 6.4.2, such results to be sufficient for University to confirm amounts owed to University in connection with such Sublicense.  In connection with, and prior to the commencement of, an audit, if the Company so requests in writing to the University, the Company, the University and the auditor shall enter into an agreement on standard and customary terms prohibiting the auditor and the University from disclosing the Company's nonpublic, proprietary information to any Third Party without the Company's prior written consent; provided, however, that consistent with generally accepted auditing standards and the auditor's professional judgment, the auditor may disclose such information to the University and its agents, counsel, or consultants.

 

Page 13 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

6.5.           Currency and Checks . All computations and payments made under this Agreement shall be in United States dollars.  The exchange rate for the currency into dollars as reported in the Wall Street Journal as the New York foreign exchange mid-range rate on the last business day of the month in which the transaction was entered into shall be used for determining the dollar value of transactions conducted in non-United States dollar currencies.

 

7.              Infringement.

 

7.1.           Third-Party Infringement of a Licensed Patent .

 

7.1.1.           Notice of Third Party's Infringement .  In the event a Party learns of substantial, credible evidence that a Third Party is making, using, or selling a product in a Field of Use in the Territory that infringes a Licensed Patent, such Party promptly thereafter shall deliver written notice of the possible infringement to the other Party, describing in detail the information suggesting infringement of the Licensed Patent.

 

7.1.2.           Legal Action to Enforce a Licensed Patent .   Upon the delivery of the notice described in Section 7.1.1 of this Agreement, the Company and the University shall discuss the steps and acts they shall take to investigate the matter, to cause the Third Party to cease infringing a Licensed Patent, and to seek compensation for the acts of infringement and reimbursement for related costs and expenses. Company shall have the first right to commence an action to enforce a Licensed Patent.  If necessary to the suit, the University agrees to be joined as a party plaintiff provided that Company shall reimburse the University for all reasonable legal fees and costs incident thereto.  If Company fails, within ninety (90) days of a request by University to take action to stop infringement of the Licensed Patents within the Field of Use, to secure cessation of the infringement, institute suit against the infringer, or to provide to University satisfactory evidence that Company is engaged in bona fide negotiations for the acceptance by infringer of a Sublicense in and to relevant patents in Licensed Patents for the Field of Use, then University may, upon written notice to Company, assume full right and responsibility to secure cessation of the infringement, or institute suit against the infringer.  If University in accordance with the terms and conditions of this Agreement chooses to institute suit against an alleged infringer, University may bring such suit in its own name (or, if required by law, in its and Company's name) and at its own expense, and Company shall, at University's expense for Company's direct associated expenses, fully and promptly cooperate and assist University in connection with any such suit. Any and all license fees, royalties, damages, awards, or settlement proceeds shall first be applied to reimburse the enforcing Party's out-of-pocket expenses and then the non-enforcing Party's out-of-pocket expenses.  If Company initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining shall be retained by Company, except that any payment that constitutes consideration for sale of infringing Licensed Product shall be handled according to the provisions of Net Sales, and any payment that constitutes consideration of or the grant of a Sublicense shall be handled as Sublicensing Consideration.  If University initiated and prosecuted, or maintained the defense of, the action, the amount of any recovery remaining then shall be divided ten percent (10%) to Company and ninety percent (90%) to University.  The University shall not have an obligation under this Agreement to commence or maintain such an action.  No provision of this Agreement shall limit, condition, or otherwise affect a Party's statutory and common-law rights to commence an action to enforce a Licensed Patent.

 

Page 14 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

7.2.           The Company's Alleged Infringement of a Third Party's Rights .

 

7.2.1.           Notice and Investigation of Alleged Infringement .  In the event the Company receives written notice (or is informed by a Sublicensee or customer that they have received written notice) from a Third Party charging that Company's (or a Sublicensee's) practice of Licensed Patents to manufacture, sell, lease, or otherwise dispose of a Licensed Product infringes the patent rights of such Third Party, the Company promptly thereafter shall deliver written notice of such notification to the University.

 

7.2.2.           Settlement and Defense . As between the Parties to this Agreement, Company will be entitled to control the defense in any such actions.  If Company is required to pay a royalty (including any amounts for past royalties) to a Third Party to make and/or sell a Licensed Product as a result of a final judgment or settlement, Company shall be entitled, pursuant to Section A6.1.5 of Exhibit A, to deduct such amounts from the royalties owing to University subject to the terms of Section A6.1.5. (Third Party Royalties Deduction) of Exhibit A.  For avoidance of doubt, Company shall not be entitled to recalculate past royalties paid to University or reduce ongoing royalty payments below [****] percent ([****]%) of Net Sales to compensate for past royalties due under a final judgment or settlement.  In no event shall the Company admit, allege or otherwise state in connection with the defense of a suit described in this Section orally or in any answer, request for admissions, interrogatories, deposition, affidavit, court testimony, court document (including motion papers and briefs), or any other document of whatever type that a Licensed Patent is invalid or that a claim in a Licensed Patent is invalid, unless the University has given its prior written consent.

 

7.3           In any suit, action or other proceeding in connection with enforcement and/or defense of the Licensed Patents, University agrees to cooperate with Company, including without limitation by executing such necessary documents as Company may reasonably request.  Upon the request of and, at the expense of Company, University agrees to use efforts reasonable to University to make available at reasonable times and under appropriate conditions necessary personnel, records, papers, information, samples, specimens and other similar materials in University's possession.

 

Page 15 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

8.             Termination.

 

8.1.           By the University .

 

8.1.1.          If the Company breaches or fails to perform one or more of its duties under this Agreement, the University may deliver to the Company a written notice of default.  The University may terminate this Agreement by delivering to the Company a written notice of termination if the default has not been cured in full within sixty (60) days of the delivery to the Company of the notice of default.  If, however, Company disputes in good faith that the claimed breach exists, such 60 day period will not start to run until the earlier of (i) such dispute being resolved or (ii) such dispute having been through the dispute resolution process of Section 16.1 and 16.2.  If, prior to the expiration of the termination of such sixty (60) day period, Company files suit to prevent University from terminating this Agreement, such sixty (60) day period shall halt, and not resume until a decision on such suit is made by the court or such suit is abandoned.  Notwithstanding the foregoing, if University agrees that greater than sixty (60) days is required for Company to cure such breach, University shall consider in good faith the appropriate time required, and shall not begin such sixty (60) day period unless University believes Company is not moving forward in good faith to cure such breach in a timely fashion.

 

8.1.2.          The University may terminate this Agreement by delivering to the Company a written notice of termination at least ten (10) days prior to the date of termination if the Company (i) becomes insolvent at any time following the second anniversary of the Effective Date or seeks liquidation or dissolution; (ii) voluntarily files or has filed against it a petition under applicable bankruptcy or insolvency law, and such petition or proceeding if brought by a Third Party is not dismissed within ninety (90) days; (iii) a receiver or trustee is appointed to take possession, custody or control of all or part of Company's assets or property, unless such appointment occurs at the instigation of a Third Party and is dismissed within ninety (90) days; or (iv) makes a general assignment for the benefit of creditors.

 

8.2.           By the Company .  The Company may terminate this Agreement at any time by delivering to the University a written notice of termination at least sixty (60) days prior to the effective date of termination.

 

8.3.           Post-termination Period .

 

8.3.1.          Except as permitted in this Section 8.3.1, the Company shall not use, or permit others to use, the Licensed Technology or manufacture or have manufactured Licensed Products after the termination of this Agreement.  After the termination of this Agreement under Section 8.2 or the expiration of this Agreement, the Company may offer to sell and sell, offer to lease and lease, and otherwise offer to dispose of or dispose of Licensed Products in the Territory that were manufactured prior to the termination of this Agreement.  After termination of this Agreement under Section 8.1, the Company shall not offer to sell or sell, offer to lease or lease, or otherwise offer to dispose of or dispose of a Licensed Product in the Territory.  For purposes of clarity, the foregoing restrictions shall not apply in the event of an expiration of this Agreement.  With respect to any of the Licensed Technology and Licensed Patents co-owned by the Company and University, the foregoing shall not be construed to limit any of Company’s rights as a joint owner in the co-owned Licensed Technology and Licensed Patents.  For avoidance of doubt, nothing in this Agreement affects the legal rights of co-owners of Licensed Patents following termination of this Agreement.

 

Page 16 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

8.3.2.          At any time within thirty (30) days following termination of this Agreement, for whatever reason other than expiration, a Material Sublicensee may notify University that it wishes to enter into a direct license with University in order to retain its rights to the Licensed Patents, Licensed Technology and Know-How granted to it under its Sublicense.  Following receipt of such notice, University and Material Sublicensee shall promptly enter into a license agreement (the "New License Agreement"), the terms of which license agreement shall be substantially similar to the terms of the Sublicense granted by Company to such Material Sublicensee, including but not limited to sublicense scope, sublicense territory, and duration of sublicense grant; provided however, that the financial terms of each New License Agreement, including without limitation, the running royalty rate and milestone payments, shall be identical to the corresponding financial terms set forth in this Agreement, except that the New License Agreement shall provide for payment on a pro rata basis with all other Material Sublicensees choosing to take a direct license of (i) the minimum royalties due to University under this Agreement, (ii) the ongoing patent costs of the Licensed Patents as well as any unreimbursed past patent expenses with respect to the Licensed Patents due to University under this Agreement, and (iii) any other out of pocket expenses of University which Company is obligated to reimburse under this Agreement. University further agrees that each Material Sublicense granted by Company hereunder shall survive during the period commencing on termination of this Agreement and ending on the earlier of (1) the expiration of the thirty (30) day period as described above if the Material Sublicensee does not provide notice to University that it wishes to enter into the New License Agreement, or (2) the effective date of the New License Agreement between University and the applicable Material Sublicensee.  Notwithstanding the foregoing, each Material Sublicensee's right to enter into the New License Agreement shall be contingent upon:

 

   8.3.2.1           such Material Sublicensee informing University in writing pursuant to Article 22 (Notices), that it wishes to enter into a direct license with University, within thirty (30) days of termination of this Agreement with Company;

 

   8.3.2.2           such Sublicense being in good standing with University and such Sublicense not being the subject matter of a dispute with the University or Company;

 

   8.3.2.3           such Material Sublicensee being in compliance with its Sublicense agreement in all material respects;

 

   8.3.2.4           such Material Sublicensee using reasonable efforts to provide documentation requested by University to demonstrate Material Sublicensee meets compliance requirements as set out in this Section 8.3.2 within thirty (30) days of such request for documentation by University (or such longer period of time as University agrees is reasonable under the circumstances based on the nature and extent of the requested documentation);

 

Page 17 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

   8.3.2.5           such Sublicense having been validly entered into pursuant to the terms of Section 3.1.2. of this Agreement; and

 

   8.3.2.6           no further obligations being imposed upon University as a result of the Sublicense becoming a direct license.  

 

University may, at its sole discretion, waive any of these requirements.  If any condition of this Section 8.3.2 is not met, then University shall be free to license or not license Licensed Patents and Licensed Technology to such Sublicensee according to its sole discretion.

 

9.             Release, Indemnification, and Insurance.

 

9.1.           The Company's Release .  For itself and its employees, the Company hereby releases the University and UMass, and their regents, officers, employees, students, and agents forever from any and all suits, actions, claims, liabilities, demands, damages, losses, or expenses (including reasonable attorneys' and investigative expenses) relating to or arising out of: (i) the manufacture, use, lease, sale, or other disposition of a Licensed Product by Company or any of Company's Sublicensees or assigns; or (ii) the assigning or sublicensing by Company of the Company's rights under this Agreement.

 

9.2.           The Company's Indemnification . Throughout the term of this Agreement and thereafter, the Company shall indemnify, defend, and hold the University and UMass, and their regents, officers, employees, students, and agents harmless from all suits, actions, claims, liabilities, demands, damages, losses, or expenses (including reasonable attorneys' and investigative expenses) asserted by Third Parties (collectively, "Claims"), relating to or arising out of the manufacture, use, lease, sale, or other disposition of a Licensed Product by Company or by any Sublicensee, including, without limitation, breach of contract and warranty and products-liability claims relating to a Licensed Product and claims brought by a Sublicensee.  Notwithstanding the foregoing, Company shall have no obligation to indemnify University under this Section 9.2 with respect to Claims resulting from a breach by University of its warranties under Section 10.1 and 10.2 or from the gross negligence or willful misconduct of University and shall have no obligation to defend University against any allegations thereof.

 

9.3.           The University's Indemnification . Subject to the limitations on liability set forth in Article 11 of this Agreement, throughout the term of this Agreement and thereafter, the University shall indemnify, defend, and hold the Company and its directors, employees, and agents harmless from all Claims relating to or arising out of the University's negligent acts or omissions in connection with its performance of its obligations under this Agreement.  Notwithstanding the foregoing, University shall have no obligation to indemnify Company under this Section 9.3 with respect to Claims resulting from a breach by Company of its warranties under Section 10.1 or from the gross negligence or willful misconduct of Company and shall have no obligation to defend Company against any allegations thereof.

 

Page 18 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

9.4.           Procedure .  An indemnitee that intends to claim indemnification under this Article 9 shall: (i) promptly notify the indemnifying Party in writing of any Claim with respect to which the indemnitee intends to claim such indemnification; (ii) give the indemnifying Party sole control of the defense and/or settlement thereof, subject to indemnifying Party receiving prior written approval from the indemnified Party before entering into any settlement that would materially diminish the rights or interests of the indemnified Party; and (iii) provide the indemnifying Party, at the indemnifying Party's expense, with reasonable assistance and full information with respect to such Claim.  Notwithstanding the foregoing, the indemnifying Party shall have no obligations for any Claim if the indemnitee makes any admission against interest or settlement regarding such Claim, in the case of the indemnitee being the University or UMass or their regents, officers, employees, students, or agents, such admission being made by an officer of the University or UMass respectively, without the prior written consent of the indemnifying Party, which consent shall not be unreasonably withheld.

 

9.5.           The Company's Insurance .

 

9.5.1.          Prior to the first dosing of a human subject with Licensed Product, and throughout the term of this Agreement thereafter, Company shall maintain, and shall cause each Material Sublicensee to maintain, in full force and effect comprehensive general liability (CGL) insurance, with single claim limits reasonably acceptable to the University. Such insurance policy shall include coverage for claims that may be asserted by the University or UMass against the Company under Section 9.2 of this Agreement and for claims by a Third Party against the Company or the University or UMass arising (i) out of the purchase or use of a Licensed Product, or (ii) from human clinical trials of Licensed Products by Company or its Sublicensees.  Such insurance policy shall name the University and UMass, and any Sublicensee without independent insurance fulfilling the obligations of this Section 9.5.1, as additional insureds.  Such insurance policy shall require the insurer to deliver written notice to the University at the address set forth in Article 22 of this Agreement at least thirty (30) days prior to the termination of the policy. Upon receipt of the University's written request, the Company shall deliver to the University a copy of the certificate of insurance for such policy. For avoidance of doubt, Company and Material Sublicensees are responsible for ensuring insurance coverage as required under this Section 9.5.1 is in place and in full force for the activities of each of their Sublicensees as a condition of providing a Sublicense to such Sublicensee.

 

9.5.2.          The provisions of Section 9.5.1 of this Agreement shall not apply if the University agrees in writing to accept the Company's or a Sublicensee's, as the case may be, self-insurance plan as adequate insurance.

 

9.6.           Sublicensees - Release . The Company shall cause each Sublicensee and assignee to grant the University and UMass a release from liabilities substantially similar to the release granted in favor of the University and UMass in Section 9.1 of this Agreement.

 

Page 19 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

10.          Warranties.

 

10.1.         Authority .  Each Party represents and warrants to the other Party that it has full corporate power and authority to execute, deliver, and perform this Agreement, and that no other corporate proceedings by such Party are necessary to authorize the Party's execution or delivery of this Agreement.

 

10.2.         Additional Warranties .  The University warrants that to the best of its knowledge it has acquired sufficient rights (including sufficient patent and other intellectual property rights) in the Licensed Technology and Licensed Patent such that it is able to lawfully grant the licenses granted to the Company hereunder.  In addition, the University warrants that it has not previously granted and will not grant any rights in the Licensed Technology and Licensed Patents that are inconsistent with the rights and licenses granted to Company herein.

 

10.3.           Disclaimers .

 

10.3.1. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTIONS 10.1 AND 10.2 OF THIS AGREEMENT, THE UNIVERSITY, UMASS DISCLAIM AND EXCLUDE ALL WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE LICENSED TECHNOLOGY, EACH LICENSED PATENT, AND EACH LICENSED PRODUCT, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF NON-INFRINGEMENT AND THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

10.3.2. Without limiting the generality of the foregoing, the University and UMass expressly disclaim any warranties concerning and make no representations:

 

(i)            that the patent applications within Licensed Patents will be approved or that a patent will issue;

 

(ii)           concerning the validity or scope of any Licensed Patent; or

 

(iii)          that the manufacture, use, sale, lease or other disposition of a Licensed Product will not infringe a Third Party's patent or violate its intellectual property rights.

 

10.4.         Sublicensees - Warranties .  The Company shall cause each Sublicensee to give the University and UMass warranties and disclaimers and exclusions of warranties substantially similar to the warranty and disclaimers and exclusions of warranties in favor of the University and UMass in Section 10.1 and Sections 10.3.1 and 10.3.2 of this Agreement.

 

Page 20 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

11.           Limitation of Remedies.

 

11.1.         Limitation of Remedies Available to Company .   EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL THE UNIVERSITY OR UMASS BE LIABLE FOR CLAIMS BY COMPANY OR ANY THIRD PARTY FOR EITHER (A) PERSONAL INJURY OR PROPERTY DAMAGES ARISING IN CONNECTION WITH THE ACTIVITIES CONTEMPLATED IN THIS AGREEMENT, OR (B) LOST PROFITS, LOST BUSINESS OPPORTUNITY, RELIANCE, EXPECTANCY, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OF ANY KIND.

 

11.2.         Limitation of Remedies Available to University and UMass .   EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL COMPANY BE LIABLE FOR UNIVERSITY'S OR UMASS'S LOST PROFITS, LOST BUSINESS OPPORTUNITY, OR ANY OTHER SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OF ANY KIND.  THIS LIMITATION OF REMEDIES DOES NOT LIMIT COMPANY'S OBLIGATION TO INDEMNIFY AS PROVIDED UNDER ARTICLE 9.

 

11.3.         Damage Cap .   IN NO EVENT SHALL THE UNIVERSITY'S TOTAL LIABILITY FOR THE BREACH OR NONPERFORMANCE OF THIS AGREEMENT EXCEED THE VALUE OF THE CONSIDERATION (INCLUDING EQUITY, BUT EXCLUDING REIMBURSEMENT FOR OUT OF POCKET EXPENSES, INCLUDING BUT NOT LIMITED TO PATENT EXPENSES) PAID TO THE UNIVERSITY, UNDER THIS AGREEMENT.  THIS LIMITATION ON UNIVERSITY'S LIABILITY SHALL APPLY TO CONTRACT, TORT, AND ANY OTHER CLAIM OF WHATEVER NATURE.  NOTWITHSTANDING THE FOREGOING, THE PARTIES AGREE THAT IN THE EVENT OF A BREACH BY UNIVERSITY OF ITS WARRANTIES UNDER SECTION 10.2 OF THIS AGREEMENT RESULTING IN AN AWARD OF DAMAGES TO COMPANY IN EXCESS OF THE DAMAGES CAP SET FORTH IN THE PRECEDING TWO SENTENCES, COMPANY SHALL BE ENTITLED TO CREDIT IN FULL ANY SUCH AMOUNTS IN EXCESS OF SUCH DAMAGE CAP AGAINST ANY OF COMPANY'S FUTURE PAYMENT OBLIGATIONS UNDER SECTION 6.1 OF THIS AGREEMENT (INCLUDING WITHOUT LIMITATION, FUTURE ROYALTIES AND MILESTONE PAYMENTS).

 

11.4.          Sublicensees - Damages .  The Company shall cause each Sublicensee to agree to limitations of remedies and damages substantially similar to the limitations of remedies and damages set forth in Sections 11.l and 11.2 of this Agreement.

 

12.           Amendment and Waiver.   This Agreement may be amended from time to time only by a written instrument signed by the Parties. No term or provision of this Agreement shall be waived and no breach excused unless such waiver or consent shall be in writing and signed by the Party claimed to have waived or consented. No waiver of a breach shall be deemed to be a waiver of a different or subsequent breach.

 

Page 21 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

13.           Assignment.   Except as provided in Sections 3.1.2 and 3.1.3 of this Agreement, the Company shall not assign or Sublicense its interest or delegate its duties under this Agreement, unless the University consents to the assignment, Sublicense, or delegation. Any assignment, Sublicense, or delegation attempted to be made in violation of this Article shall be void. Any assignment or delegation shall not release the assigning or delegating Party from its obligations under this Agreement accruing prior to such assignment, grant of a Sublicense, or delegation without the express written consent of the University

 

This Agreement shall inure to the benefit of the Company and the University and their respective permitted Sublicensees and trustees.

 

14.           Applicable Law.   The internal laws of the state of Washington shall govern the validity, construction, and enforceability of this Agreement, without giving effect to the conflict of laws principles thereof.

 

15.           Confidentiality.

 

15.1.          Form of transfer . Confidential Information may be conveyed in written, graphic, oral, physical, or electronic form. Confidential Information shall include, without limitation, non-public Licensed Technology as well as Company's business plan or reports.

 

15.2.          Exceptions . Confidential Information does not include any information that: is required by law to be disclosed; is or becomes part of the public domain through no fault of recipient; is known to recipient prior to the disclosure by the disclosing Party, as evidenced by documentation; is publicly released as authorized under this Agreement by the University, its employees or agents; is subsequently obtained without restriction by a Party from a Third Party who is authorized to have such information; or is independently developed by a Party without reliance on any portion of the Confidential Information received from the disclosing Party and without any breach of this Agreement as evidenced by documentation.

 

Page 22 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

15.3.         No Unauthorized Disclosure of Confidential Information . Beginning on the Effective Date and continuing throughout the term of this Agreement and thereafter for a period of five (5) years ("Confidentiality Period"), neither Party shall use for any purpose or disclose or otherwise make known or available to any Third Party any Confidential Information disclosed to it by the other Party, without the express prior written consent of such other Party.  Each Party shall utilize reasonable procedures to safeguard the Confidential Information disclosed to it by the other Party.  Notwithstanding the above, Company shall be permitted to (i) disclose University Confidential Information to actual or potential investors, lenders, consultants, collaborators, Sublicensees, development partners, attorneys or advisors, which disclosure shall be made so far as reasonably practicable under conditions of confidentiality and limited use and provided Company is liable to University for any breaches of confidentiality relating to University Confidential Information resulting from such disclosure; and (ii) disclose Confidential Information of University (A) to the extent necessary to fulfill its obligations and/or duties hereunder which disclosure shall be made so far as reasonably practicable under conditions of confidentiality and limited use (B) in filing for, prosecuting or maintaining any proprietary rights, and (C) in its regulatory filings or other communications with the US Food and Drug Administration or equivalent foreign regulatory authority pertaining to Licensed Products.  Company will immediately inform University, and provide University with a copy of any use of University Confidential Information in a form that could result in public disclosure, including use in any patent application filings. Notwithstanding the foregoing, Company or Sublicensees may not disclose Confidential Information of University that comprises data, a summary of the results of any data, or conclusions from any data, in any patent application or in connection with any filing, prosecution, or maintenance of any proprietary rights without the express written permission of the University, such permission not to be unreasonably withheld.

 

15.4.         Access to University and UMass Information .  The University is an agency of the State of Washington and is subject to the Washington Public Records Act, RCW 42.56 et seq., ("Act"), and no obligation assumed by University under this Agreement shall be deemed to be inconsistent with University's obligations as defined under the Act and as interpreted by University in its sole discretion.  In the event University receives a request for public records under the Act for documents containing Confidential Information, and if University concludes that the documents are not otherwise exempt from public disclosure, University will provide Company notice of the request before releasing such documents. Such notice shall be provided in a timely manner to afford Company sufficient time to review such documents and/or seek a protective order, at Company's expense utilizing the procedures described in RCW 42.56.540.  University shall have no obligation to protect the Confidential Information from disclosure in response to a request for public records.

 

UMass is an agency of the Commonwealth of Massachusetts and is subject to the Massachusetts Public Records Law, M.G.L. c. 66, §10, and no obligation assumed by UMass under this Agreement shall be deemed to be inconsistent with the UMass's obligations defined under the Massachusetts Public Records Law.  In the event UMass receives a request for public records under the Massachusetts Public Records Law for documents containing Confidential Information, and if UMass concludes that the documents are not otherwise exempt from public disclosure, UMass will provide UW notice of the request before releasing such documents. UW shall promptly provide notice to Company.  The responsibility for protecting the Confidential Information shall reside exclusively with Company utilizing the procedures described in M. G.L. c. 66, §10(b).         

 

16.          Disputes.   The Parties agree that any and all disputes and controversies arising from, connected with, or relating to this Agreement, including relating to the construction, meaning, performance or effect of this Agreement or any breach thereof (collectively "Disputes") will be resolved in accordance with the terms of this Article 16 as follows:

 

Page 23 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

16.1          Informal Dispute Resolution .  Prior to initiating formal dispute resolution procedures, the Parties will first attempt to resolve any Dispute directly through good faith negotiations. Either Party may deliver to the other a written notice requiring negotiation of the Dispute ("Notice To Negotiate").  The Parties will seek to resolve Disputes through negotiations, but may, during this informal dispute resolution period, escalate the resolution of any Dispute internally as necessary or appropriate to the Company's Chief Executive Officer and University's Director of UW CoMotion, Innovation Development, or their authorized representatives.  If the Dispute has not been resolved within fifteen (15) days after the delivery of a Notice to Negotiate, either Party may by written notice ("Notice To Mediate") request to mediate the Dispute in accordance with Section 16.2 (Mediation), subject to the other Party's consent.  To the fullest extent permitted by law, the Parties will conduct the negotiations in confidence.

 

16.2          Mediation .  Subject to the Parties mutual agreement to mediate the Dispute pursuant to Section 16.1 (“Informal Dispute Resolution”), the Parties agree to retain the services of a mutually acceptable Third Party mediator to mediate the resolution of the Dispute.  Unless the Parties otherwise agree in writing, the mediator will be resident in the metropolitan area in which the University is situated, and all meetings regarding the mediation will be held either by video or telephone conference or by in-person meetings held in such city. No Party will unreasonably withhold acceptance of a mediator, and the selection of a mediator will be made within 15 days following the conclusion of direct negotiations regarding a Dispute pursuant to Section 16.1 (Informal Dispute Resolution) above.  If a mediator is not appointed, or if, following the appointment of a mediator, the Dispute is not resolved within thirty (30) days, or such extended period that the Parties may agree to in writing, after the delivery of the Notice To Mediate, then either Party may elect to pursue any options available to them under this Agreement, or commence litigation pursuant to Section 16.3 (“Litigation”) below.  To the fullest extent permitted by law, the Parties agree to maintain the mediation proceedings in confidence; and share the costs of the mediator and the mediation facilities equally.  All communications during the mediation referred to in this Section 16.2 including any documents or information prepared and exchanged solely for the purposes of that mediation, will be considered to be "without prejudice" and will not be admissible in any subsequent litigation.

 

16.3          Litigation .  Any Party may seek (i) interim measure of protection, including injunctive relief, prior to or during the negotiation or mediation of Disputes, and (ii) final resolution, from the courts sitting in the city in which the University is situated regarding any Dispute, and each Party irrevocably and unconditionally agrees to the exclusive jurisdiction of such courts, and all courts competent to hear appeals therefrom, for that purpose.

 

17.           Consent and Approvals.   Except as otherwise expressly provided, all consents or approvals required under the terms of this Agreement shall be in writing and shall not be unreasonably withheld or delayed.

 

Page 24 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

18.           Construction.   The headings preceding and labeling the Sections of this Agreement are for the purpose of identification only and shall not in any event be employed or used for the purpose of construction or interpretation of any portion of this Agreement.  As used herein and where necessary, the singular shall include the plural and vice versa, and masculine, feminine, and neuter expressions shall be interchangeable.

 

19.           Enforceability.   If a court of competent jurisdiction adjudges a provision of this Agreement unenforceable, invalid, or void, such determination shall not impair the enforceability of any of the remaining provisions hereof and such provisions shall remain in full force and effect.

 

20.           Entire Agreement; No Third-Party Beneficiaries.   This Agreement (including all attachments, exhibits, and amendments hereto) is intended by the Parties as the final and binding expression of their contract and agreement and as the complete and exclusive statement of the terms thereof.  This Agreement cancels, supersedes, and revokes all prior negotiations, representations and agreements among the Parties, whether oral or written, relating to the subject matter of this Agreement.

 

No provision of this Agreement, express or implied, is intended to confer upon any person other than the Parties to this Agreement any rights, remedies, obligations, or liabilities hereunder.  No Sublicensee shall have a right to enforce or seek damages under this Agreement.

 

21.           Language and Currency.   Unless otherwise expressly provided in this Agreement, all notices, reports, and other documents and instruments that a Party hereto elects or is required by the terms of this Agreement to deliver to the other Party hereto shall be in English, and all notices, reports, and other documents and instruments detailing revenues and earned under this Agreement or expenses chargeable to a Party hereto shall be United States dollar denominated.

 

22.           Notices.   All notices, requests, and other communications that a Party is required or elects to deliver shall be in writing and shall be delivered personally, or by facsimile or electronic mail (provided such delivery is confirmed), or by a recognized overnight courier service or by United States mail, first-class, certified or registered, postage prepaid, return receipt requested, to the other Party at its address set forth below or to such other address as such Party may designate by notice given pursuant to this Article:

 

If to the University:            UW CoMotion, Innovation Development

ATTN: Director

4311 11 th Avenue NE, Suite 500

Seattle, WA 98105-4608

Facsimile No.: 206-685-4767

 

For notices sent                  University of Washington

pursuant to Article             Office of the Attorney General

8 , with a copy to:               101 Gerberding Hall

Seattle, WA 98105

Facsimile No.: 206-543-0779

 

Page 25 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

If to the Company:              PhaseRx Inc.,

Attn: Robert Overell

410 W. Harrison Street, Suite 300

Seattle, WA, 98119

Phone No.: 206-805-6301

E-mail: robert@phaserx.com

 

23.           Patent Marking.   The Company shall mark any and all material forms of Licensed Products or packaging pertaining thereto made and sold by the Company in the United States with patent marking conforming to 35 U.S.C. §287(a), as amended from time to time.  Such marking shall further identify the pendency of any U.S. patent application and/or any issued U.S. or foreign patent forming any part of the Licensed Patents.  All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to provide notice to potential infringers pursuant to the patent law and practice of the country of manufacture or sale.

 

24.           Publicity. The University reserves the right to disclose to the public the execution and delivery of this Agreement along with the Company's name and the name of the technology.

 

25.           Relationship of Parties. In entering into, and performing their duties under, this Agreement, the Parties are acting as independent contractors and independent employers.  No provision of this Agreement shall create or be construed as creating a partnership, joint venture, or agency relationship between the Parties.  No Party shall have the authority to act for or bind the other Party in any respect.

 

26.           Security Interest. In no event shall the Company grant, or permit any person to assert or perfect, a security interest in the Company's rights under this Agreement.

 

27.           Survival.   Immediately upon the termination or expiration of this Agreement, except for certain rights granted for the Post-termination Period described above in Section 8.3, all the Company's rights under this Agreement shall terminate; provided, however, all obligations of the Parties that have accrued prior to the effective date of termination or expiration of this Agreement (e.g., the obligation to report and make payments on sales, leases, or dispositions of Licensed Products and to reimburse the University for costs) and the obligations specified in Sections 6.1 and 6.2 of the Agreement shall survive.  The obligations and rights set forth in Sections 6.4 and 8.3 and Articles 9, 10, and 11 of this Agreement shall survive the termination or expiration of this Agreement.  Additionally, the non-exclusive license set forth in the last sentence of Article 2 shall survive the expiration (but not the earlier termination) of this Agreement.

 

28.           Forum Selection.   A suit, claim, or other action to enforce the terms of this Agreement shall be brought exclusively in the state courts of King County, Washington.  The Company hereby submits to the jurisdiction of that court and waives any objections it may have to that court asserting jurisdiction over the Company or its assets and property.

 

Page 26 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed by their respective authorized representatives.

 

University of Washington   PhaseRx, Inc.
         
By: /s/ Fiona Wills   By: /s/ Robert Overell
         
Name: Fiona Wills   Name: Robert Overell
         
Title: Director, Innovation Development   Title: President and CEO
         
Date: 02/09/2016   Date: 02/09/2016

 

Page 27 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Exhibit A

 

A1.6 Patents and Patent Applications

 

 

Title

PhaseRx

Docket

Number

UW Docket

Number

Application Serial

Number

Filing Date Status
Enhanced Transport Using Membrane Disruptive Agents 1100.PRV1 41887.01US1 60/070,411 Jan. 5, 1998 Converted
1100.US1 41887.03US2 09/226,044 Jan. 5, 1999 Issued/Granted
1100.USC1 41887.08US4 10/857,626 May 28, 2004 Issued/Granted
1100.USC2 41887.09US4 12/105,983 Apr. 18, 2008 Issued/Granted
1100.USC3 41887.18US4 13/182,756 Jul. 14, 2011 Issued/Granted
1100.USC4 41887.19US4 14/175,891 Feb. 7, 2014 Pending
1100.PCT1 41887.02WO2 PCT/US99/01122 Jan. 5, 1999 Nationalized
1100.AU1 41887.06AU2 20261/99 Jan. 5, 1999 Issued/Granted
1100.CA1 41887.05CA2 2,317,549 Jan. 5, 1999 Issued/Granted
1100.EP1 41887.04EP2 99900750.3 Jan. 5, 1999 Validated
1100.EPD1 41887.10EP3 09075353.4 Jan. 5, 1999 Pending
1100.FR1 41887.15FR2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.DE1 41887.13DE2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.IE1 41887.12IE2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.IT1 41887.16IT2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.ES1 41887.17ES2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.CH1 41887.14CH2 99900750.3 Jan. 5, 1999 Issued/Granted
1100.GB1 41887.11GB2 99900750.3 Jan. 5, 1999 Issued/Granted
Enhanced Transport Using Membrane Disruptive Agents 1200.PRV1 42378.01US1 60/174,893 Jan. 7, 2000 Converted
1200.US1 42378.02US2 09/755,701 Jan. 5, 2001 Issued/Granted
1200.USD1 42378.04US3 12/771,850 Apr. 30, 2010 Issued/Granted
Temperature and pH Responsive Polymer Compositions 1300.PRV1 43581.01US1 60/782,789 Mar. 16, 2006 Converted
1300.US1 43581.02US2 11/687,522 Mar. 16, 2007 Issued/Granted
1300.PCT1 43581.03WO2 PCT/US2007/064238 Mar. 16, 2007 Nationalized

 

PhaseRx, Inc./University of Washington

Exclusive Patent License Agreement

UW CoMotion Ref.

 

Page 28 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Diblock Copolymer and Polynucleotide Complexes Thereof for Delivery into Cells 1400.PRV1 43939.01US1 61/052,908 May 13, 2008 Converted
1400.PRV2 43939.02US1 61/052,914 May 13, 2008 Converted
1900.PRV1 43939.04US1 61/171,377 Apr. 21, 2009 Converted
2100.AU1 43939.07AU2 2009246327 May 13, 2009 Issued/Granted
2100.CN1 43939.10CN2 200980122888.3 May 13, 2009 Issued/Granted
2100.IL1 43939.12IL2 20938 Nov. 10, 2010 Issued/Granted
2100.MX1 43939.16MX2 MX/a/2010/012238 May 13, 2009 Issued/Granted
2100.SG1 43939.17SG2 201008331-9 Nov. 12, 2010 Issued/Granted
2100.ZA1 43939.18ZA2 2010/08729 May 13, 2009 Issued/Granted
2100.CH1 43939.20CH2 09747510.7 Feb. 27, 2013 Issued/Granted
2100.DE1 43939.21DE2 09747510.7 May 13, 2009 Issued/Granted
2100.ES1 43939.22ES2 09747510.7 Feb. 27, 2013 Issued/Granted
2100.FR1 43939.23FR2 09747510.7 May 13, 2009 Issued/Granted
2100.GB1 43939.24GB2 09747510.7 May 13, 2009 Issued/Granted
2100.IE1 43939.25IE2 09747510.7 Feb. 27, 2013 Issued/Granted
2100.IT1 43939.26IT2 09747510.7 May 13, 2009 Issued/Granted
2100.US1 43939.06US2 12/992,517 Feb. 9, 2011 Pending
2100.BR1 43939.08BR2 PI0912159-5 May 13, 2009 Pending
2100.CA1 43939.09CA2 2,724,105 Nov. 10, 2010 Pending
2100.IN1 43939.13IN2 8578/DELNP/2010 May 13, 2009 Pending
2100.JP1 43939.14JP2 2011-509670 Nov. 15, 2010 Pending
2100.KR1 43939.15KR2 10-2010-7027808 Dec. 10, 2010 Pending
2100.AUD1 43939.27AU3 2013204733 Apr. 12, 2013 Pending
2100.CND1 43939.29CN3 201310232498.X Jun. 13, 2013 Pending
2100.JPD1 43939.30JP3 2015-200236 Oct. 8, 2015 Pending
2100.EP1 43939.11EP2 09747510.7 May 13, 2009 Validated

 

Page 29 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Diblock Copolymer Micelles and Polynucleotide Complexes Thereof for Delivery into Cells 1500.PRV1 43939.03US1 61/091,294 Aug. 22, 2008 Converted
Micellic Assemblies 1600.PRV1 44677.01US1 61/112,048 Nov. 6, 2008 Converted
1600.PRV2 44677.03US1 61/140,744 Dec. 24, 2008 Converted
1600.PRV3 44677.05US1 61/171,369 Apr. 21, 2009 Converted
Polymeric Carrier 1700.PRV1 44677.02US1 61/112,054 Nov. 6, 2008 Converted
1700.PRV2 44677.04US1 61/140,779 Dec. 24, 2008 Converted
1700.PRV3 44677.06US1 61/171,358 Apr. 21, 2009 Converted
Targeted Polymer Bioconjugates 1800.PRV1 44508.03US1 61/120,769 Dec. 8, 2008 Converted
1800.PRV2 44508.04US1 61/171,365 Apr. 21, 2009 Converted
Diblock Copolymer Micelles and Polynucleotide Complexes Thereof for Delivery into Cells 1900.PRV1 43939.04US1 61/171,377 Apr. 21, 2009 Converted
Bispecific Intracellular Delivery Vehicles 2000.PRV1 44392.02US1 61/171,381 Apr. 21, 2009 Converted
Diblock Copolymers and Polynucleotide Complexes Thereof for Delivery into Cells 2100.PCT1 43939.05WO2 PCT/US2009/043847 May 13, 2009 Nationalized
Targeted Polymer Bioconjugates 2200.PCT1 44508.05WO2 PCT/US2009/043839 May 13, 2009 Nationalized

 

Page 30 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Micellic Assemblies 2300.PCT1 44677.07WO2 PCT/US2009/043849 May 13, 2009 Nationalized
2300.AU1 44677.13AU2 2009246329 Nov. 13, 2010 Issued/Granted
2300.JP1 44677.20JP2 2011-509671 Nov. 15, 2010 Issued/Granted
2300.MX1 44677.22MX2 MX/a/2010/012239 May 13, 2009 Issued/Granted
2300.EP1 44677.17EP2 09747512.3 Dec. 13, 2010 Validated
2300.CH1 44677.57CH2 09747512.3 May 13, 2009 Issued/Granted
2300.DE1 44677.58DE2 09747512.3 May 13, 2009 Issued/Granted
2300.ES2 44677.59ES2 09747512.3 May 13, 2009 Issued/Granted
2300.FR1 44677.60FR2 09747512.3 May 13, 2009 Issued/Granted
2300.GB1 44677.61GB2 09747512.3 May 13, 2009 Issued/Granted
2300.IE1 44677.62IE2 09747512.3 Feb. 27, 2013 Issued/Granted
2300.IT1 44677.63IT2 09747512.3 Feb. 27, 2013 Issued/Granted
2300.US1 44677.12US2 12/992,525 Nov. 12, 2010 Pending
2300.CA1 44677.15CA2 2,724,014 Nov. 10, 2010 Pending
2300.KR1 44677.21KR2 10-2010-7027809 May 13, 2009 Pending
2300.JPD1 44677.65JP3 2015-107802 May 27, 2015 Pending
Polymeric Carrier 2400.PCT1 44677.08WO2 PCT/US2009/043837 May 13, 2009 Nationalized
2400.US1 44677.25US2 12/992,536 Nov. 12, 2010 Issued/Granted
2400.USC1 44677.64US4 14/630,477 Feb. 24, 2015 Pending
Micelles for Intracellular Delivery of Therapeutic Agents 2500.PCT1 44677.11WO2 PCT/US2009/043853 May 13, 2009 Nationalized
2500.MX1 44677.48MX2 MX/a/2010/012237 Nov. 9, 2010 Issued/Granted
Heterogeneous Polymeric Micelles for Intracellular Delivery 2600.PCT1 44677.09WO2 PCT/US2009/043859 May 13, 2009 Nationalized
2600.US1 44677.51US2 13/059,946 May 2, 2011 Issued/Granted

 

Page 31 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Bispecific Intracellular Delivery Vehicles 2700.PCT1 44392.03WO2 PCT/US2009/043852 May 13, 2009 Nationalized
2700.US1 44392.07US2 13/127,968 Jul. 27, 2011 Issued/Granted
2700.USC1 44392.08US4 14/173,730 Feb. 5, 2014 Issued/Granted
2700.CA1 44392.04CA2 2,742,955 May 6, 2011 Pending
2700.USC2 44392.09US4 14/957,429 Dec. 2, 2015 Pending
2700.EP1 44392.05EP2 09825146.5 Jun. 6, 2011 Pending
Micelles of Hydrophilically Shielded Membrane-Destabilizing Copolymers 2800.PCT1 44677.10WO2 PCT/US2009/043860 May 13, 2009 Nationalized
2800.US1 44677.56US2 13/127,962 Jul. 26, 2011 Pending
Multiblock Copolymers 2900.PRV1 45161.01US1 61/177,921 May 13, 2009 Converted
2900.PRV2 45161.02US1 61/243,898 Sept. 18, 2009 Converted
2900.PCT1 45161.03WO2 PCT/US2009/063648 Nov. 6, 2009 Nationalized
2900.AU1 45161.04AU2 2009313358 Nov. 6, 2009 Issued/Granted
2900.CN1 45161.07CN2 200980148153.8 Nov. 6, 2009 Issued/Granted
2900.EP1 45161.08EP2 09825524.3 Jun. 6, 2011 Validated
2900.JP1 45161.11JP2 2011-534933 Nov. 6, 2009 Issued/Granted
2900.MX1 45161.13MX2 MX/a/2011/004242 Nov. 6, 2009 Issued/Granted
2900.SG1 45161.14SG2 201103187-9 Nov. 6, 2009 Issued/Granted
2900.ZA1 45161.15ZA2 2011/03289 Nov. 6, 2009 Issued/Granted
2900.GB1 45161.18GB2 09825524.3 Apr. 28, 2015 Issued/Granted
2900.FR1 45161.19FR2 09825524.3 Jun. 6, 2011 Issued/Granted
2900.DE1 45161.20DE2 602009030260.4 Jun. 6, 2011 Issued/Granted
2900.IE1 45161.21IE2 09825524.3 Jun. 6, 2011 Issued/Granted
2900.IT1 45161.22IT2 09825524.3 Jun. 24, 2015 Issued/Granted
2900.ES1 45161.23ES2 09825524.3 Jun. 25, 2015 Issued/Granted
2900.CH1 45161.24CH2 09825524.3 Jun. 6, 2011 Issued/Granted

 

Page 32 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

  2900.BR1 45161.05BR2 PI0921357-0 May 6, 2011 Pending
2900.CA1 45161.06CA2 2,742,880 May 6, 2011 Pending
2900.IN1 45161.09IN2 3370/DELNP/2011 Nov. 6, 2009 Pending
2900.IL1 45161.10IL2 212459 Nov. 6, 2009 Pending
2900.KR1 45161.12KR2 10-2011-7012773 Nov. 6, 2009 Pending
2900.US1 45161.16US2 13/127,959 Jul. 27, 2011 Pending
2900.AUD1 45161.17AU3 2013204152 Apr. 12, 2013 Pending
Omega-Functionalized Polymers, Junction Functionalized Block Copolymers, Polymer Bioconjugates and Radical Chain Extension Polymerization 3000.PRV2 44508.02US1 61/120,756 Dec. 8, 2008 Converted
3000.PCT1 44508.06WO2 PCT/US2009/067193 Dec. 8, 2009 Nationalized
3000.US1 44508.11US2 13/133,355 Aug. 22, 2011 Pending
Hydrophobic Block Conjugated Therapeutic Agents 3100.PRV1 45162.01US1 61/261,186 Nov. 13, 2009 Converted
3100.PCT1 45162.02WO2 PCT/US2010/056565 Nov. 12, 2010 Nationalized
Targeting Monomers and Polymers Having Targeting Blocks 3200.PRV1 45163.01US1 61/262,512 Nov. 18, 2009 Converted
3200.PCT1 45163.02WO2 PCT/US2010/056993 Nov. 17, 2010 Nationalized
3200.US1 45163.03US2 13/510,279 Aug. 10, 2012 Pending
Folate and Folate Analog Targeting Monomers and Polymers Having Folate of Folate Analog Targeting Blocks 3300.PRV1 45164.01US1 61/262,516 Nov. 18, 2009 Converted

 

Page 33 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

A1.8 Unpatented University Disclosures

 

Title

PhaseRx

Docket

Number

UW Docket

Number

Application Serial

Number

Filing Date Status
Diblock polymers for smart micelle drug delivery applications N/A 43721 N/A N/A N/A

 

A4.1         Patent Cost Reimbursement .  Notwithstanding any term of this Agreement to the contrary, the Company shall have no obligations under this Agreement to pay, or reimburse the University for paying, any cost or expense to apply for, prosecute, or maintain each Licensed Patent including patent applications until Company has received Seed Funding, or [****] months has passed following the Effective Date of this Agreement, whichever is sooner.  University may, in its sole discretion, choose to extend this period during which Company does not pay past or ongoing patent expenses for an additional [****] months after reevaluation by the Parties if Seed Funding has not been achieved.  Once Company has received Seed Funding, Company shall pay the ongoing reasonable out-of-pocket costs incurred by University in prosecuting and maintaining the Licensed Patents ("Patent Expenses") to a maximum of [****] Dollars ($[****] US) per year until such time as Company has received Qualified Funding.  Once Company has received Qualified Funding it shall pay all ongoing Patent Expenses, and shall reimburse University for all past Patent Expenses, including both costs incurred prior to the Effective Date of this Agreement, and any costs incurred by University and not reimbursed by Company during the term of this Agreement. Such payment of past Patent Expenses may occur, at Company's option, in eight (8) equal quarterly installments.  Company shall have no obligation to reimburse University for past Patent Expenses for which University has been previously reimbursed by a Third Party.  Where Qualified Funding has been guaranteed, but not yet received by Company, University and Company shall negotiate in good faith to determine an appropriate patent reimbursement schedule.  University is at no time during this Agreement obligated to incur patent expenses for which Company is not currently reimbursing University.  Company understands University will endeavor to limit its incurrence of Patent Expenses which are not being currently reimbursed by Company to a maximum of [****] Dollars ($[****] US) in any twelve (12) month period.

 

A5.1.        Performance Milestones

 

A5.1.1     Company shall submit a summary business and product development plan for the commercialization of Licensed Technology to University within one hundred twenty (120) days of the Effective Date, and during the term of this Agreement, shall update such summary plan on an annual basis.  Company shall provide University with any executive summary, visual presentations, and financial projections that are prepared within six (6) months of Effective Date of this Agreement, and then provide any updates on an annual basis. Additionally, within one year of the Effective Date Company shall provide University with a diligence plan for development of Licensed Products

 

Page 34 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

A5.1.2     Company shall have hired a full time Chief Scientific Officer or R&D Manager within twelve (12) months of the Effective Date.

 

A5.1.3     Company shall have established, through Company sponsored research, reproducible, well-controlled in-vitro proof of concept data for the delivery of macromolecules incorporating the Licensed Technology as a drug delivery method within twenty four (24) months of the Effective Date.

 

A5.1.4     Company shall have secured Seed Funding to support development of Licensed Technology and shall have initiated a research program, either in-house, through sponsored research, through contract research or with a corporate partner, to develop Licensed Products within eighteen (18) months of the Effective Date.

 

A5.1.5     Company shall have established, through Company sponsored research, reproducible, well-controlled in-vivo proof of concept data for the delivery of macromolecules incorporating the Licensed Technology as a drug delivery method for therapeutics within thirty six (36) months of the Effective Date.

 

A5.1.6     Company shall have secured Qualified Funding to support development of Licensed Technology, or shall have secured assets worth Ten Million Dollars ($10,000,000.00 US) within thirty six (36) months of the Effective Date.

 

A5.1.7     Company shall have filed with the US Food and Drug Administration ("FDA") or an equivalent foreign regulatory authority, an investigational new drug ("IND") or equivalent application which covers a Licensed Product and which is not subject to a clinical hold imposed by such regulatory authority by March 31, 2018.

 

A5.1.8      Clinical Trials and Regulatory Approval

 

A5.1.8.1           By June 30, 2018, Company shall have dosed the first patient in a single dose clinical trial, conducted pursuant to applicable regulations of the FDA or an equivalent foreign regulatory authority, to evaluate the safety and tolerability of a Licensed Product.  

 

A5.1.8.2 By December 31, 2018, Company shall have dosed the first patient in a repeat dose clinical trial, conducted pursuant to applicable regulations of the FDA or an equivalent foreign regulatory authority, to evaluate the safety, tolerability, and clinical efficacy of a Licensed Product.

 

Page 35 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

A5.1.8.3 By December 31, 2018, Company and University shall negotiate dates for further performance milestones for Licensed Products, including initial dosing in a Phase II clinical trial (unless this performance milestone has already been achieved by initial dosing in clinical trial pursuant to Section A5.1.8.1 or A5.1.8.2), initial dosing in a Phase III clinical trial, and FDA regulatory approval for marketing of a Licensed Product. University and Company shall negotiate in good faith to determine appropriate timelines for these performance milestones.

 

A6.1         Payments

 

A6.1.1      Up-front Payment .  The Company shall pay to the University, within fourteen (14) days of the Company achieving Seed Funding, [****] Dollars ($[****] US) as an upfront payment.  This up-front payment shall be non-refundable and not creditable against future royalty obligations. In addition, Company shall pay to University [****] dollars ($[****] US) within thirty (30) days of August 8, 2008, with an additional [****] dollars ($[****]US) payment within thirty (30) days of June 9, 2009. This up-front payment shall be non-refundable and not creditable.

 

A6.1.2      Equity .  The Parties shall enter into a Stock Purchase Agreement and/or such other agreements as they deem necessary and desirable pursuant to which the Company shall issue to the University a number of shares of its common stock equal to [****] percent ([****]%) of the outstanding common stock of the Company as of the Effective Date of this Agreement, such [****]% of common stock representing [****]% of the total equity in the Company as of the Effective Date.  Each share shall have voting rights and shall be non-assessable.

 

A6.1.3      License Maintenance Fee .  The Company shall pay to the University within thirty (30) days after each anniversary of the Effective Date during the term of this Agreement [****] dollars ($[****] US) as an annual license maintenance fee, provided such payments of license maintenance fees (i) shall be deferred until Company has achieved Qualified Funding, and (ii) shall not be due in any year Company pays Minimum Annual Royalties pursuant to A6.1.6 below.  This annual payment shall be non-refundable and not creditable against the Company's other royalty obligations.

 

A6.1.4      Simple Running Royalty Payments – Licensed Therapeutic Products .  The Company shall pay to the University within thirty (30) days after the last day of each calendar quarter during the term of the Agreement and the Post-termination Period an amount equal to [****] percent ([****]%) of Net Sales of all sales, leases, or dispositions of Licensed Therapeutic Products made by the Company and its Sublicensees during such quarter as a running royalty payment.

 

Page 36 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

A6.1.5      Third Party Royalties Deduction .  If Company or its Sublicensees are required to pay royalties to a Third Party based on Company's, or such Sublicensee's manufacture, use, or sale of Licensed Products subject to one or more patents of such Third Party, the royalty rate specified in Section A6.1.4 of this Exhibit A (“Simple Running Royalty Payments”) due to University in any given year shall be reduced by an amount equal to [****] of the royalties actually paid to the Third Party in such given year, provided that use of any Third Party patent is required for such manufacture, use, or sale of Licensed Products, and provided that the royalty to University shall under no circumstances fall below [****] percent ([****]%).  For avoidance of doubt, Company shall not be entitled to recalculate past royalties paid to University or reduce ongoing royalty payments to compensate for past royalties due by Company to a Third Party.

 

A6.1.6      Minimum Annual Royalty . Regardless of Net Sale, Company shall pay minimum annual royalties of [****] Dollars ($[****] US) per year, beginning with the second full calendar year following regulatory approval from the US FDA to market Licensed Therapeutic Products, and continuing during the term of this Agreement, such that, if the cumulative royalties for Net Sales in any such year do not equal or exceed $[****] US, Licensee shall pay University the balance of such $[****] US concurrently with the payment of Royalties for the last quarter of such year.

 

A6.1.7      Financial Milestones . Company shall pay to University the following noncreditable, non-cumulative, and non-refundable milestone achievement payments within thirty (30) days of achieving the corresponding milestone, whether achieved by Company or its Sublicensee:

 

A6.1.7.1  [****] Dollars ($[****] US) payable upon initiation of each first Phase II clinical trial in the U.S., the European Union, Japan or other major market, initiation defined as first dosing of a human with a Licensed Therapeutic Product, for each Licensed Therapeutic Product; and

 

A6.1.7.2  [****] Dollars ($[****] US) payable upon initiation of each first Phase III clinical trial or its foreign equivalent in the U.S., European Union, Japan or other major market, initiation defined as first dosing of a human with a Licensed Therapeutic Product, for each Licensed Therapeutic Product; and

 

A6.1.7.3  [****] Dollars ($[****] US) payable upon receipt of regulatory approval to market and sell Licensed Therapeutic Product from the FDA, for each Licensed Therapeutic Product; and

 

A6.1.7.4  [****] Dollars ($[****] US) payable upon receipt of regulatory approval to market and sell Licensed Therapeutic Product, for each Licensed Therapeutic Product, from (a) the European equivalent governmental authority to the FDA and (b) the Japanese equivalent governmental authority to the FDA.

 

Page 37 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

The foregoing milestones shall be paid only once per specific drug target or combination of drug targets (e.g. specific biological marker or nucleic acid, etc.), irrespective of the number of Licensed Products directed to such drug target or combination thereof unless more than one Licensed Product directed to such drug target or combination receives regulatory approval to market by the FDA in which case milestones shall be due for all Licensed Products receiving FDA approval.  For purposes of clarity (i) no more than one milestone achievement payment shall be due under subsections A6.1.7.1 with respect to a given clinical trial of a Licensed Product, irrespective of whether such clinical trial is conducted in multiple countries or geographic regions, and (ii) no more than one milestone achievement payment shall be due under subsections A6.1.7.2 with respect to a given clinical trial of a Licensed Product, irrespective of whether such clinical trial is conducted in multiple countries or geographic regions.

 

A6.1.8      Sublicensing Consideration Fee .  In addition to the royalty due pursuant to Section A6.1.4 of this Exhibit A on Net Sales by any Sublicensee, Company will pay University a percentage of all Sublicensing Consideration, depending upon the milestones achieved in developing Licensed Products at time of execution of Sublicense according to the schedule below.  The Sublicensing Consideration fee shall be due thirty (30) days after Sublicensing Consideration is payable to Company by such Sublicensee.  Sublicensing Consideration shall be fully creditable against milestone payments due to University based upon activities of the same Sublicensee from which Sublicensing Consideration was received.

 

A6.1.8.1     Licensed Therapeutic Product Sublicensing Consideration Schedule

 

(a)       [****] percent ([****]%) of all Sublicensing Consideration except where additional milestones have been achieved by Company at time of execution of Sublicense as follows:

 

(b)       [****] percent ([****]%) of all Sublicensing Consideration where Company has achieved, through Company sponsored research, reproducible, well-controlled in vitro proof of concept data for delivery of macromolecules incorporating the Licensed Therapeutic Products and has achieved Seed Funding and at least one (1) year has passed from the Effective Date of this Agreement; or

 

(c)       [****] percent ([****]%) of all Sublicensing Consideration where Company has achieved, through Company sponsored research, reproducible, well-controlled in vivo proof of concept data for delivery of macromolecules incorporating the Licensed Therapeutic Products and has achieved Qualified Funding, and all past and current patent expenses have been and continue to be reimbursed to University by Company and at least two (2) years have passed from the Effective Date of this Agreement; or

 

Page 38 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(d)         [****] percent ([****]%) of all Sublicensing Consideration where Company has initiated a Phase II clinical trial of Licensed Therapeutic Product as defined by first dosing of a human patient.

 

A6.1.8.2  There will be a reduction of the otherwise applicable percentage of Sublicensing Consideration payable to University under this Agreement of [****] percent ([****]%) where, in addition to the Sublicense of any rights granted to Company hereunder, Company also grants a Sublicensee a license (i) under other patents and patent applications owned or controlled by Company that are necessary for freedom to operate for the development of Licensed Products by Sublicensee, or (ii) to a therapeutic owned or controlled by Company which will be used in conjunction with University Licensed Patents and Licensed Technology by Sublicensee, in each case only to the extent that the total aggregate consideration for such combined license is treated as Sublicensing Consideration, and only to the extent that such license is required for the manufacture, use, or sale of Licensed Products.

 

A.6.1.8.3  In the event that Company received Sublicensing Consideration prior to Company having achieved Qualified Funding, Company may defer payment to University of up to [****] Dollars ($[****]US) in Sublicensing Consideration Fees based upon such Sublicensing Consideration until such time as Company achieves Qualified Funding.  Notwithstanding the foregoing, Company may not defer payment of any Sublicensing Consideration Fees if University has not been reimbursed for all past and current Patent Costs except to the extent such deferral amount is actually used to reimburse University for such past and current Patent Costs. Use of deferral amount to reimburse University for past and current Patent Costs shall not excuse company from paying University its full Sublicensing Consideration Fee, including all deferred amounts, when Qualified Funding is achieved.  Where Qualified Funding has been guaranteed but not received by Company, University and Company shall negotiate in good faith to determine an appropriate schedule for payment of any deferred Sublicensing Consideration Fees.

 

Page 39 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Exhibit B

 

Sales Report Form

 

[Date]

 

[Company Name & Address]

 

License Number: _________________

 

Reporting Period:            Report Due Date:      

 

This report must be submitted regardless of whether royalties are owed. Please do not leave any column blank. State all information requested below.

 

 

Product Description

 

Royalty Rate

Quantity/

Net Sales

 

Royalty Due

       
       
       
       
       
       

 

Report Completed by: ___________________ Total Royalties Due: ________________

 

Telephone Number: ___________________

 

If you have questions please contact: ___________________

 

Please make check payable to: University of Washington

 

Page 40 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Exhibit C

 

Materials Transfer Agreement

 

The University of Washington, acting through UW CoMotion, Innovation Development, a public institution of higher education and agency of the state of Washington, with administrative offices at 4311-11th Avenue NE, Suite 500, Seattle, WA 98105 ("University") will provide to (insert name of Company) ("Company"), having a place of business at (insert Company's address), the (insert name of material) ("Material") as well as any progeny or unmodified derivatives. The Material is available to Company on a non-exclusive basis. The terms are as follows:

 

1. Company and University have entered into an Exclusive Patent License Agreement, effective as of August_2006 (the "License Agreement"), pursuant to which University has granted Company certain rights and licenses under the Licensed Patents, Licensed Technology and Know How (each as defined in the License Agreement) for purposes of permitting Company to develop and commercialize the Licensed Technology and to make, use, sell, offer for sale and import Licensed Products, all as further described in the License Agreement. Company agrees to utilize the Material solely for the purposes permitted under the License Agreement ("Purpose") and will not distribute the Material to any person external to the Company except in accordance with the terms of the License Agreement.

 

2. THE MATERIAL DELIVERED HEREBY IS EXPERIMENTAL IN NATURE. THE UNIVERSITY MAKES NO WARRANTIES, REPRESENTATION OR UNDERTAKING WITH RESPECT TO THE UTILITY, EFFICACY, NON TOXICITY, SAFETY OR APPROPRIATENESS OF USING THE MATERIAL. UNIVERSITY MAKES NO REPRESENTATION OR WARRANTY THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.

 

3. Company acknowledges that the Materials shall be considered the Confidential Information (as defined in the License Agreement) of University and agrees not to use or distribute the Material except as permitted under Article 15 of the License Agreement.

 

4. The Material provided will not be used on any human subjects and in so far as it is administered to animals, no animal to which the Material is administered, or animal products derived therefrom, will be used for food, therapeutic or diagnostic purposes, or kept as a domestic pet or livestock. Any cells which are treated with the Material will not be used for therapeutic or diagnostic purposes.

 

PhaseRx, Inc./University of Washington

Exclusive Patent License Agreement

UW CoMotion Ref. 37984A

 

Page 41 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

5. Company will use the Material in compliance with all laws, governmental regulations and guidelines that may be applicable to the Material, including without limitation export laws, current NIH guidelines, and any regulations or guidelines pertaining to research with recombinant DNA. Company agrees to abide by all U.S. export laws and regulations. Accordingly, Company is solely responsible for securing any necessary permission or license.

 

6. Company agrees that any person with the Company utilizing the Material, or authorized by Company to use Material, will be advised of, and is subject to, the conditions in this Agreement ("Agreement").

 

7. Company assumes all liability for damages that may arise from its use, storage, or disposal of the Material, and will indemnify, defend, and hold harmless University and its employees, students, and agents from any loss, claim, damage, or liability, of any kind, which may arise from Third Party claims resulting from Company's use and handling of the Material. In no case will University or its employees, students, or agents be liable for any claim, loss, or demand made by Company, or made against Company by any other Party, including any incidental, special, or consequential damages resulting from Company's use or handling of the Material.

 

8. The University scientific contact shall be: (insert UW Investigator's name)

 

9. The Company scientific contact shall be: (insert Company Investigator's name)

 

10. The term of this Agreement shall commence on the last date of signature and shall continue for so long as the License Agreement remains in effect. Upon expiration of this Agreement, Company agrees to provide to University a written statement that all samples of Material have been destroyed.

 

11. Articles10 (Warranty) and 9 (Indemnification) and other provisions which by their context would survive, shall survive the termination of this Agreement.

 

12. This Agreement and all rights and obligations hereunder will not be assigned, licensed, sub-licensed, mortgaged, pledged, or otherwise transferred, encumbered, or disposed of, including by operation of law, in whole or in part, by either Party except (i) Company may assign this Agreement in connection with the assignment of the License Agreement and shall be free to extend the rights and licenses granted to it hereunder to its Sublicensees (as defined in the License Agreement), or (ii) as agreed to in writing by an authorized representative of both Parties. This Agreement will be binding upon any such permitted assigns.

 

Page 42 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

13. Company shall not use the name of University in any public announcements, publicity, or advertising except (i) to the extent permitted under Section 5.4 of the License Agreement, or (ii) for appropriate acknowledgement in publications of University scientific contact as the source of the Material.

 

If the foregoing terms are acceptable, please have a representative of the Company sign in the space indicated for signature. Please return two (2) copies of this Agreement to UW CoMotion, Innovation Development, 4311 - 11 th Avenue NE, Suite 500, Seattle, WA 98105.  Please reference the following number on all correspondence (and

payment): (insert A#)

 

After receipt of the executed Agreement, we will arrange to provide Company with the Material.

 

This Agreement may be executed by facsimile or duplicate originals.  This Agreement may be executed in several Counterparts, all of which taken together will constitute effective execution.

 

The undersigned agrees with and accepts the foregoing:

 

Company:

 

     
Signature of Authorized Representative   Signature of Company Investigator
     
     
Print/Type Name   Print/Type Name

 

             
Title   Date   Title   Date
Phone: (insert phone #)       Phone: (insert phone #)    
Fax: (insert fax #)       Fax: (insert fax #)    
E-mail: (insert e-mail)       E-mail: (insert e-mail)    

 

University of Washington:

 

 

UW CoMotion, Innovation Development

University of Washington

4311 - 11th Ave NE. Suite 500

Seattle, WA 98105

P: 206/543-3970

F: 206/685-4767

 

Page 43 of 44
 

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

   
Date  

 

Page 44 of 44

 

 

Exhibit 10.2

 

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

 

Amended and Restated
RAFT Non-Exclusive

Licence Agreement

 

Commonwealth Scientific

and Industrial Research

Organisation

(CSIRO)

 

and

 

PhaseRx, Inc.

(PhaseRx)

 

 

 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

 

CONTENTS

 

1 Definitions and interpretation 1
  1.1 Definitions 1
  1.2 Interpretation 5
       
2 Term 6
  2.1 Term of Agreement 6
  2.2 Patents and patent applications separately licensed 6
       
3 Licence grant 6
  3.1 Grant of licence 6
  3.2 Sublicensing rights to manufacture 6
  3.3 Sublicensing rights to make and sell Licensed Products 7
  3.4 Sale of Licensed Products 8
       
4 PhaseRx obligations 8
  4.1 Responsibilities and acknowledgements 8
  4.2 Performance 9
  4.3 RAFT Improvements 9
  4.4 Annual progress reporting 9
       
5 Royalties and payments 9
  5.1 Royalties and payments 9
  5.2 Royalty offset 10
  5.3 Royalty term 11
  5.4 Payment terms 11
  5.5 No Deduction 11
  5.6 GST 11
       
6 Records and audit 12
  6.1 Record keeping and audit rights 12
  6.2 Discrepancy 12
       
7 Patent abandonment and lapsing 12
       
8 Infringement 12
  8.1 Notice of Infringement 12
  8.2 Conferral and action 13
       
9 Confidentiality and use of name 13
  9.1 Permitted use and disclosure 13
  9.2 A party's Own Confidential Information. 13
  9.3 Onus 14
  9.4 Employees 14
  9.5 Security 14
  9.6 Disclosure to DuPont 14
  9.7 Use of name 14
  9.8 Publicity 15

 

 

Confidential Page i
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

 

10 Liability 15
  10.1 Risks 15
  10.2 Mutual warranties 15
  10.3 CSIRO warranties and excluded warranties 15
  10.4 Indemnities 16
       
11 Insurance 17
  11.1 Required insurance 17
  11.2 Insurance details 17
       
12 Dispute resolution 17
  12.1 Application of this provision 17
  12.2 Notice of Dispute 17
  12.3 Elevation of Dispute 18
  12.4 Referral to the ACDC for arbitration 18
  12.5 Interlocutory relief 18
  12.6 Confidentiality 18
       
13 Termination 18
  13.1 Termination by CSIRO 18
  13.2 Termination by PhaseRx 18
  13.3 Consequences of termination 19
  13.4 Survival 19
  13.5 Other events 20
       
14 Notices 20
       
15 General 21
  15.1 Relationship 21
  15.2 Assignment 21
  15.3 Entire agreement 21
  15.4 Further assurance 22
  15.5 Amendment 22
  15.6 No waiver 22
  15.7 Remedies cumulative 22
  15.8 Severance 22
  15.9 Governing law 22
  15.10 Counterparts 22
       
Schedule 1 – Licensed Patents 24
   
Schedule 2 – Media Release 26

 

Confidential Page ii
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

   
Date  
     
Parties 1. Commonwealth Scientific and Industrial Research Organisation
(ABN 41 687 119 230) of Ian Wark Laboratory, Bayview Avenue, Clayton, Victoria 3168, Australia (CSIRO) ; and
     
  2. PhaseRx, Inc. , a Delaware corporation, of 454 N34 th Street, Seattle, Washington 98103, United States of America (PhaseRx)
     
Recitals A. PhaseRx and CSIRO are parties to the RAFT Non-Exclusive Licence Agreement having an effective date of October 26, 2009, whereby CSIRO granted to PhaseRx a licence to make and distribute Licensed Products on the terms set forth therein.
     
  B. PhaseRx and CSIRO mutually agree to amend and restate the RAFT Non-Exclusive Licence Agreement in its entirety, as set forth herein.
     

 

IT IS AGREED as follows.

 

1 Definitions and interpretation

 

1.1 Definitions

 

The following definitions apply unless the context requires otherwise.

 

Affiliate means any company, partnership, joint venture or other entity which directly or indirectly controls, is controlled by or is under common control, with a party. For the purpose of this definition, “control” shall mean the possession of at least fifty percent (50%) of the voting stock or the power to control the management and policies of the controlled entity, whether through ownership of voting securities, by contract, or otherwise.

 

Agreement means this agreement, its schedules and any amendment to it made in accordance with clause 15.4.

 

Business Day means a day that is not a Saturday, Sunday or public holiday in Melbourne, Victoria, Australia.

 

Claims or Allegations has the meaning given to it in clause 8.1 .

 

Commencement Date means the date of execution of this Agreement.

 

Confidential Information means:

 

(a) any information relating to this Agreement in any form or media that is by its nature confidential and identified by a party in writing as confidential; and

 

(b) which is disclosed by the Discloser to the Recipient, whether before or after the Commencement Date; and

 

Confidential Page 1
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(c) without limiting (a) and (b) , includes unpublished information relating to the Licensed Patents;

 

(d) all copies and notes of the information in (a) to (c) ;

 

(e) but does not include information which:

 

(i) prior to disclosure is in the public domain or subsequent to disclosure to the Recipient becomes part of the public domain other than as a result of the Recipient’s breach of this Agreement or other obligation owed to the Discloser;

 

(ii) is received by the Recipient from a third party without any obligation to hold in confidence and which has not been obtained by that third party directly or indirectly from the Recipient; or

 

(iii) is independently developed by an employee or officer of the Recipient while having no knowledge of the Discloser’s Confidential Information.

 

For clarity, CSIRO Confidential Information means Confidential Information owned or controlled by CSIRO, and PhaseRx Confidential Information means Confidential Information owned or controlled by PhaseRx.

 

Discloser means the party disclosing Confidential Information to the other party.

 

Due Cause in relation to a party means:

 

(a) the party takes any corporate action or steps are taken or legal proceedings are started for:

 

(i) its winding up, dissolution, liquidation or re-organisation, other than to reconstruct or amalgamate while solvent on terms approved by the other party (which approval will not be unreasonably withheld); or

 

(ii) the appointment of a controller, receiver, administrator, official manager, trustee or similar officer of it or of any of its revenues and assets; or

 

(b) if the party commits a material breach of its obligations under this Agreement, which is not remedied within 90 days of notice from the other party specifying the material breach and requiring it to be remedied, or if the party commits a material breach of its obligations under this Agreement which is not capable of remedy, provided however, in the event of a good faith dispute with respect to the existence of a material breach, the 90 day cure period shall be tolled, or in the case of a material breach which the non-breaching party claims can not be remedied the Agreement shall remain in full force and effect, until such time as the dispute is resolved pursuant to clause 12 .

 

Independent Expert means an independent expert agreed by the parties or, if the parties are unable to agree, an independent expert nominated by the then President of the Licensing Executives Society International and appointed by, and at the equal cost of, the parties.

 

Intellectual Property includes all copyright and industrial and intellectual property rights of whatever nature throughout the world, including without limitation all rights in relation to know-how, inventions, plant varieties, registered and unregistered trade marks (including service marks), registered designs, confidential information and circuit layouts, and all other rights resulting from intellectual activity in the industrial, scientific, literary and artistic fields.

 

Confidential Page 2
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Law means:

 

(a) Federal, State, Territory or local government legislation, including regulations, by-laws, declarations, ministerial directions and other subordinate legislation;

 

(b) common law;

 

(c) government agency requirement or authorisation (including conditions in respect of any authorisation), and including in the case of CSIRO, a request by its responsible Minister or in response to a request by a House of Parliament or a Committee of Parliament; or

 

(d) mandatory code of conduct, writ, order, injunction, or judgment.

 

Licensed Field means membrane destabilizing polymers that are used for the delivery of nucleic acids, proteins, peptides and/or other molecules in the diagnosis, prophylaxis or treatment of human disease.

 

Licensed Patents mean all patents and patent applications listed in Schedule 1 . Licensed Patents also include any further patent issued during the term of this Agreement by the United States Patent and Trademark Office or any like foreign body with respect to a patent application that is part of Licensed Patents, as well as any reissues, reexaminations, continuations, continuations-in-part, divisionals, substitutions and extensions of Licensed Patents.

 

Licensed Polymers mean polymers made using RAFT Agents (whether alone or mixed with other materials).

 

Licensed Products mean products or compounds that utilise or contain or are made from or made using Licensed Polymers, or which otherwise exploit any or all of the Licensed Patents.

 

Loss has the meaning given to it in clause 10.4 .

 

Net Sales Revenue means the gross sales price paid to PhaseRx or any of its Affiliates or Sublicensees in respect of the sale of any and all Licensed Products (including the proceeds or benefits of any legal or dispute resolution proceedings relating to amounts on which a royalty under this Agreement would have been payable), less the following amounts actually paid or credited by PhaseRx or its Affiliates or Sublicensees in respect of those Licensed Products:

 

(a) normal and customary trade discounts (including volume discounts), credits, chargebacks, rebates and allowances, as well as administrative, management and other fees, commissions, reimbursements and similar payments to wholesalers and other third party distributors, government authorities, benefit management organizations, health insurance carriers, hospitals, group purchasing organizations and other institutions, and adjustments due to rejections, recalls, outdated products, returns, in each case whether voluntary or required; and

 

(b) freight, shipping and insurance costs, and sales, use and value-added taxes, tariffs or duties (but always excluding income taxes) separately charged and identified on any invoice relating to those Licensed Products.

 

For clarity:

 

(c) if there is overlap between any of the above deductions, each individual item will only be deducted once in calculating the Net Sales Revenue;

 

(d) it is understood that sales between or among PhaseRx, its Affiliates and Sublicensees shall be excluded from the computation of Net Sales Revenue if such sales are not intended for end use, but Net Sales shall include the subsequent final sales to third parties by any such Affiliates or Sublicensees;

 

Confidential Page 3
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(e) it is understood and agreed that Net Sales Revenue will not include amounts received for Licensed Products used in clinical trials when supplied at a substantially discounted price, used for research related to the development of Licensed Products where no sale occurs, supplied as commercial samples, or as charitable or humanitarian donations when supplied without charge, and provided always that such Licensed Products are not further resold on a different basis;

 

(f) the above deductions are intended to cover only those amounts directly related to the sale of Licensed Products and do not cover the overheads of PhaseRx or any of its Affiliates or Sublicensees; and

 

(g) deductions in respect of a calendar year will only be permitted to the extent they are identified as deductions in the Royalty Statement relating to that calendar year in a manner that enables those deductions to be reasonably verified.

 

If a sale, transfer or other disposal of a Licensed Product is other than on reasonable arms’ length terms or involves consideration other than cash paid to PhaseRx or its Affiliates or Sublicensees on which a Royalty is payable, then the Net Sales Revenue applicable to that Licensed Product will be deemed to be:

 

(h) the arms’ length fair market value of the Licensed Product based on the average sales price of Licensed Products sold by PhaseRx or its Affiliates or Sublicensees in the calendar quarter in the country in which the sale, transfer or other disposal took place; or

 

(i) if Licensed Products are not so sold by PhaseRx or its Affiliates or Sublicensees, a value proposed by PhaseRX and accepted by CSIRO in writing. If the parties are unable to agree that value, the value will be determined by an Independent Expert.

 

RAFT Agents mean any chain transfer agent disclosed (other than as prior art) in a Valid Claim in the Licensed Patents, or any chain transfer agent which is used predominantly in the carrying out of reversible addition–fragmentation chain transfer polymerization as disclosed (other than as prior art) in a Valid Claim in the Licensed Patents and which such chain transfer agent is not described (either specifically or as part of a class) by the Licensed Patents . RAFT Agents exclude Xanthate Chain Transfer Agents.

 

RAFT Improvements means any improvements, modification, adaptation or enhancement of or based on the CSIRO Confidential Information, generated by PhaseRx during the term of the Agreement, and which constitutes a method of free radical polymerisation (and excluding novel chain transfer agents, Licensed Polymers and Licensed Products), whether patentable or not, that cannot be exploited without infringing rights in the Licensed Patents anywhere in the world.

 

Recipient means the party receiving Confidential Information from the other party.

 

Research means carrying out internal research, supplying or transferring material samples to third parties solely for research or evaluation purposes, carrying out collaborative research and development activities, and providing funded research services.

 

Royalty means the royalties payable by PhaseRx to CSIRO pursuant to clause 5.1 .

 

Royalty Statement means the royalty statement to be provided by PhaseRx to CSIRO pursuant to clause 5.1 .

 

Confidential Page 4
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Sublicense means to sublicense (or to grant any other right, including any option to negotiate or to take a sublicense, or any similar transaction in respect of) any right (in whole or in part) under the license set out in clause 3.1 .

 

Sublicensee means any third party (including any of PhaseRx’s Affiliates, but excluding any distributor) to whom PhaseRx grants a Sublicense in accordance with clauses 3.3 , and any third party (but excluding any distributor) whose rights under the Licensed Patents derive or originate from the licence set out in clause 3.1 (including any third party sublicensee and any sub-sublicensee pursuant to clause 3.3 ).

 

Term means the term described in clause 2.1 below.

 

Valid Claim means a claim of an unexpired issued patent that has not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken. Valid Claim will also include the claims of pending patent applications, provided such claims are issued within 5 years from receipt of the first examination report in the relevant jurisdiction, or provided that the applicant is actively prosecuting such claims in the relevant jurisdiction, including defending or endeavouring to settle any inter partes proceedings before any patent office (including interferences or opposition proceedings).

 

Xanthate Chain Transfer Agent means a chain transfer agent or precursor compound for carrying out controlled free radical polymerisation comprising a xanthate transfer group of formula
–O-C(=S)-S- where O represents oxygen, C carbon, and S sulphur.

 

1.2 Interpretation

 

The following rules apply unless the context requires otherwise:

 

(a) The headings are for convenience only and do not affect interpretation.

 

(b) A reference to:

 

(i) a singular word includes the plural, and vice versa;

 

(ii) legislation (including subordinate legislation) is to that legislation as amended, re-enacted or replaced, and includes any subordinate legislation issued under it;

 

(iii) a party to this document or to any other document or agreement includes a permitted substitute or a permitted assign of that party;

 

(iv) a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator and successor in law of the person and permitted assigns;

 

(v) a word which suggests one gender includes the other gender; and

 

(vi) to a clause, schedule or annexure is a reference to a clause of, a schedule or annexure to this Agreement.

 

(c) The meaning of general words is not limited by specific examples introduced by ‘including’, ‘for example’, or similar expressions.

 

(d) No provision of this Agreement will be construed adversely to a party on the ground that such party was responsible for the preparation of this Agreement or that provision.

 

(e) If the day on or by which a person must do something under this Agreement is not a Business Day, the person must do it on or by the next Business Day.

 

Confidential Page 5
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

2 Term

 

2.1 Term of Agreement

 

The term of this Agreement is the period commencing on the Commencement Date until the expiration, lapsing or cessation (including by revocation or as a result of a final declaration of invalidity or unenforceability) of the last to expire, lapse or cease of the Licensed Patents, unless earlier terminated in accordance with this Agreement.

 

2.2 Patents and patent applications separately licensed

 

Each Licensed Patent is separately licensed under this Agreement such that if a Licensed Patent ceases to be in force or is not granted (and the decision is not appealed):

 

(a) Schedule 1 is amended to remove that Licensed Patent; and

 

(b) this Agreement continues as a licence in respect of the remaining Licensed Patents.

 

3 Licence grant

 

3.1 Grant of licence

 

CSIRO grants to PhaseRx a non-exclusive, royalty-bearing, worldwide licence, with the right to sublicense pursuant to this Agreement, under the Licensed Patents for the Term within the Licensed Field:

 

(a) to make and use RAFT Agents and Licensed Polymers for the sole purpose of making Licensed Products in accordance with paragraph (b) below;

 

(b) to make, use, import, export, transfer, offer for sale and sell Licensed Products to third parties in accordance with clause 3.4 ; and

 

(c) to have made RAFT Agents, Licensed Polymers and Licensed Products under written sublicenses in accordance with clause 3.2 .

 

For clarity, PhaseRx acknowledges that the licence under this clause is intended to facilitate the sale of Licensed Products by PhaseRx, its Affiliates and Sublicensees within the Licensed Field and that the sale by PhaseRx, its Affiliates or its Sublicensees of Licensed Products outside the Licensed Field are not authorised or permitted under the licence. PhaseRx further acknowledges that the licence under this clause is not intended to facilitate the sale of RAFT Agents, and that the sale of RAFT Agents by PhaseRx, its Affiliates or its Sublicensees in any field are not authorised or permitted under the licence.

 

3.2 Sublicensing rights to manufacture

 

PhaseRx may sublicense its rights to make RAFT Agents, Licensed Polymers and Licensed Products to a third party for the sole purposes (and not for any other purpose) of that third party making those RAFT Agents for use by PhaseRx, and making those Licensed Polymers and Licensed Products for use or sale by PhaseRx in accordance with clause 3.4 , and provided that the third party sublicensee is subject to a legally binding agreement with PhaseRx under which the third party:

 

Confidential Page 6
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(a) acknowledges that it has no right to grant further sublicenses and is prohibited from assigning its rights or subcontracting its obligations under the sublicense;

 

(b) acknowledges that its rights constitute a sublicense to the license granted by CSIRO to PhaseRx;

 

(c) agrees to observe terms and conditions similar to and at least as onerous as those contained in clauses 8.1 and 9 , so far as they are capable of observance and performance by the sublicensee; and

 

(d) agrees that the sublicense is capable of being terminated in the event and at the same time as termination of the agreement by CSIRO.

 

PhaseRx will remain responsible for the acts or omissions of its sublicensee in the making of RAFT Agents, Licensed Polymers and Licensed Products, and must promptly provide notice in writing to CSIRO of the identity of the sublicense.

 

3.3 Sublicensing rights to make and sell Licensed Products

 

(a) PhaseRx may Sublicense its rights under the license set out in clause 3.1 through multiple tiers of sublicensees within the scope of such license set forth in clause 3.1 for the purpose of enabling, and to the extent necessary to enable, the Sublicensee to exploit any Licensed Products developed by PhaseRx in the Licensed Field, and/or any Intellectual Property owned or controlled by PhaseRx in the Licensed Field, provided that each third party Sublicensee is subject to a legally binding agreement under which the third party:

 

(i) acknowledges that its rights constitute a sublicense to the license granted by CSIRO to PhaseRx;

 

(ii) agrees to observe terms similar to, consistent with and at least as onerous as those contained in this Agreement so far as they are capable of observance and performance by the Sublicensee;

 

(iii) agrees that the Sublicense is capable of being terminated in the event and at the same time as termination of the agreement by CSIRO, provided that, upon the Sublicensee's written request to CSIRO, CSIRO will enter directly into a new agreement with each Sublicensee under the applicable Licensed Patents on substantially the same terms as the relevant terms of this agreement within the scope of the rights granted to such Sublicensee; provided that: (a) the Sublicensee is not in material breach of its sublicense agreement at the time of termination of this Agreement with respect to provisions of this Agreement applicable to the Sublicensee; (b) the Sublicensee can reasonably demonstrate that it has financial and technical capabilities reasonably sufficient to pursue such sublicense rights; and (c) the entering into that new agreement will not, in CSIRO’s reasonable opinion, materially adversely affect CSIRO’s reputation; and

 

(iv) agrees that PhaseRx has audit rights in respect of the sublicense equivalent to CSIRO’s rights under clause 6 , and that PhaseRx may provide information in relation to the Sublicense or arising from that audit to CSIRO on a confidential basis.

 

(b) PhaseRx must promptly provide notice in writing to CSIRO of the identity of the Sublicensee, and must within 30 days of executing a Sublicense, confirm in writing to CSIRO that the Sublicense complies with the requirements of this clause.

 

Confidential Page 7
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(c) For clarity, clauses 3.2 and 3.4 will apply mutatis mutandis to any such Sublicense granted by PhaseRx, with references to PhaseRx being replaced with references to the Sublicensee.

 

3.4 Sale of Licensed Products

 

(a) ( Direct sales ) PhaseRx is authorised to sell Licensed Products within the Licensed Field to third party end users provided that each sale of a Licensed Product constitutes a sale under PhaseRx’s own name which is on reasonable arms’ length terms. For clarity, PhaseRx is not authorised to transfer or otherwise dispose of Licensed Products outside the Licensed Field.

 

(b) ( Distributors ) PhaseRx is authorised to sell Licensed Products to its third party distributors provided that:

 

(i) each sale of a Licensed Product constitutes a sale under PhaseRx’s own name on reasonable arms’ length terms, and is for the sole purpose of re-sale by the distributor, under the distributor’s own name, to an end-user of the Licensed Product within the Licensed Field; and

 

(ii) PhaseRx pays the Royalty on the basis of its Net Sales Revenue related to sales of Licensed Products to those distributors.

 

For clarity, PhaseRx is not authorised to transfer or otherwise dispose of Licensed Products outside the Licensed Field, or to sell Licensed Products to a distributor where that sale is not conditional on the distributor agreeing that Licensed Products (or any part thereof) may only be re-sold within the Licensed Field.

 

(c) PhaseRx may sublicense its rights under clause 3.1(b) solely to the extent required to give effect to the authorisations granted under paragraph (b) of this clause.

 

4 PhaseRx obligations

 

4.1 Responsibilities and acknowledgements

 

PhaseRx:

 

(a) will be solely responsible for the marketing and promotion of the Licensed Products (and any part thereof) to be sold by PhaseRx;

 

(b) will be solely responsible for ensuring that appropriate quality control procedures are implemented in relation to the Licensed Products (and any part thereof) to be sold by PhaseRx;

 

(c) will be solely responsible for ensuring that its manufacture and sale of the Licensed Products (and any part thereof) comply with all applicable Laws and regulations;

 

(d) will not represent that it has any ownership interest in the Licensed Patents. PhaseRx acknowledges that CSIRO is the owner of the Licensed Patents and nothing effects an assignment or transfer of the Licensed Patents or any proprietary interest therein to PhaseRx or any third party;

 

(e) acknowledges that it does not act as the agent of CSIRO in sublicensing the Licensed Patents or making and distributing Licensed Products (or any part thereof), and must not enter into any contract or incur any obligation or liability, or make any representation, on behalf of CSIRO;

 

Confidential Page 8
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(f) must maintain, in good standing, the reputation of CSIRO and the Licensed Patents, and not do any act or make any omission which would adversely affect the reputation of CSIRO or the Licensed Patents; and

 

(g) acknowledges that no license or right is granted by implication or otherwise with respect to any other intellectual property of CSIRO.

 

4.2 Performance

 

PhaseRx must use its reasonable commercial endeavours to exploit the Licensed Patents within the Licensed Field in such a way as will maximise the return from that exploitation to both parties (including through the payment of Royalties).

 

4.3 RAFT Improvements

 

PhaseRx must promptly notify CSIRO of any RAFT Improvements developed by or on behalf of, and which are owned or controlled by, PhaseRx during the Term. PhaseRx grants to CSIRO a non-exclusive, royalty-free licence under such RAFT Improvements for the purpose of Research, and a non-exclusive, royalty-bearing licence to use those RAFT Improvements for commercial purposes on reasonable commercial terms to be negotiated in good faith by the parties (or in default of agreement, will be determined by an Independent Expert).

 

4.4 Annual progress reporting

 

PhaseRx must within 30 days of the end of each calendar year during the Term during which PhaseRx is conducting development or seeking regulatory approval of Licensed Products, provide CSIRO with a written report summarizing the development activities relating to Licensed Products. Each report will constitute the Confidential Information of PhaseRx.

 

5 Royalties and payments

 

5.1 Royalties and payments

 

(a) ( Upfront license fee ) CSIRO acknowledges that following execution of the RAFT Non-Exclusive Licence Agreement dated October 26, 2009, PhaseRx timely paid to CSIRO the upfront license fee of US$[****], and that no further upfront license fees are due under this Agreement.

 

(b) ( Product based royalties ) Within 60 days of the end of each calendar year, PhaseRx must:

 

(i) pay CSIRO a royalty of [****]% of Net Sales Revenue in respect of that calendar year in US dollars. Any amounts accrued in another currency will be converted based on the US dollar buying rate published in the Wall Street Journal (or comparable agreed publication) on the last business day of that calendar six month period);

 

(ii) provide CSIRO with a royalty statement setting out the basis on which the Royalty was calculated (or if no Royalties are due, a statement to that effect).

 

Royalties due under this clause 5.1(b) in respect of a calendar year are creditable against any minimum annual royalties paid to CSIRO under clause 5.1(c) in that calendar year.

 

Confidential Page 9
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(c) ( Minimum annual royalties ) CSIRO acknowledges that PhaseRx has timely paid to CSIRO the minimum annual royalties of (i) US$[****] payable on 1 January 2011 and on 1 January 2012; and (ii) US$[****] payable on 1 January 2013, on 1 January 2014, and on 1 January 2015, in accordance with the RAFT Non-Exclusive Licence Agreement dated October 26, 2009. PhaseRx must pay CSIRO a minimum annual royalty of US$[****] payable on 1 January 2016 and on 1 January in each subsequent year of during the Term.

 

CSIRO will provide an invoice to PhaseRx for those minimum annual royalties. Payment must be made by PhaseRx within 30 days of the date of CSIRO’s invoice.

 

(d) ( Royalty statement details ) Unless otherwise notified in writing, the Royalty Statement must be sent to:

 

Director, CSIRO Manufacturing
Ian Wark Laboratory
Bayview Avenue, Clayton, Victoria 3168
Australia

 

(e) ( Payment details ) Unless otherwise notified in writing, the Royalty and payment under this clause 5.1 shall be paid to:

 

[****]  
SWIFT: [****]
ADDRESS: [****]
BSB: [****]
A/C: [****]
A/C NAME: [****]
EMAIL: [****]

 

5.2 Royalty offset

 

If PhaseRx is required to obtain a license from a third party under a patent owned or controlled by that third party in order to:

 

(a) enable PhaseRx to exercise its rights under the Licensed Patents to perform polymerisation processes using RAFT Agents as disclosed (other than as prior art) in the Licensed Patents (but excluding always patents owned or controlled by that third party relating to a specific polymer or product formulations); and

 

(b) avoid (in the reasonable opinion of PhaseRx’s attorney) PhaseRx’s manufacture and sale of a Licensed Product otherwise infringing that third party patent,

 

then PhaseRx may reduce the Royalty payable to CSIRO in respect of that Licensed Product under clause 5.1(b) by [****]% of the amount of the royalty paid to that third party in respect of that Licensed Product under that third party license, provided always that:

 

(c) the Royalty paid to CSIRO in respect of that Licensed Product is not reduced by more than [****]% as a consequence of the operation of this clause in aggregate (and any such amounts not so deducted as a result of the application of the foregoing limitation shall be carried forward and deducted on the same basis from subsequent payments of Royalties until fully absorbed); and

 

Confidential Page 10
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(d) PhaseRx first provides written notice to CSIRO setting out details of that third party patent, the opinion of PhaseRx’s attorney, and the amount by which the Royalty payable to CSIRO is to be reduced. CSIRO acknowledges that PhaseRx may require CSIRO to enter into a specific confidentiality or common interest agreement for the purpose of protecting any legal or patent attorney privilege that may apply to the opinion of PhaseRx’s attorney and CSIRO shall comply with any such requirement.

 

5.3 Royalty term

 

PhaseRx’s obligations to pay Royalties in respect of a particular Licensed Product will cease where that Licensed Product ceases to be covered by a Valid Claim in one of the Licensed Patents in both the country of its manufacture and the country of its sale.

 

5.4 Payment terms

 

(a) Royalties paid by PhaseRx will be deemed received when the funds are accredited to CSIRO’s bank account referred to in clause 5.1(e) .

 

(b) Late payments will be subject to an additional charge, calculated at the rate [****] percent above the interest rate of the weighted average yield of the [****] week Treasury Notes allotted in the Reserve Bank of Australia tender current at the time of the due date until the date of payment.

 

5.5 No Deduction

 

Except as permitted by this Agreement, the Royalties must be paid free and clear of and without deduction and deferment for any demand, withholding, set-off, counter claim or other dispute. PhaseRx will not deduct US withholding tax from any payment due to CSIRO, until such time as CSIRO ceases to have withholding tax exemption in the United States of America. CSIRO must promptly advise PhaseRx of any change in its status.

 

5.6 GST

 

(a) In this clause 5.6 , words and expressions which have a defined meaning in the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act ) have the same meaning as in the GST Act. All Royalties payable under this Agreement are exclusive of GST. If GST is payable by a supplier on any supply made under this Agreement, the recipient, upon receiving a tax invoice from the supplier, will pay to the supplier an amount equal to the GST payable on the supply. This amount will be paid in addition to, and at the same time, that the consideration for the supply is to be provided.

 

(b) Goods or services supplied to PhaseRx under this Agreement will be treated as GST-free supplies for such period as:

 

(i) PhaseRx is a non-resident for Australian income tax purposes; and

 

(ii) PhaseRx is not registered or required to be registered for GST purposes in Australia.

 

PhaseRx must promptly advise CSIRO of any change in its status.

 

Confidential Page 11
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

6 Records and audit

 

6.1 Record keeping and audit rights

 

PhaseRx shall keep for three (3) years from the date of each payment hereunder complete and accurate books of account and records in sufficient detail to enable amounts payable under this Agreement to be determined. CSIRO shall have the right for a period of three (3) years after receiving any invoice, report or statement with respect to payments due and payable hereunder to obtain at its expense an audit of the relevant records of PhaseRx performed by a certified public accountant or other auditor, in each case, mutually agreed upon by the parties in order to verify such invoice, report or statement. PhaseRx shall make its records available for inspection by such certified public accountant or auditor during regular business hours at PhaseRx’s principal place of business, upon reasonable notice from CSIRO, to the extent reasonably necessary to verify the accuracy of the invoices, reports and statements and any payments made pursuant thereto. Such inspection right shall not be exercised more than once in any calendar year, unless an inspection reveals discrepancies that, in the reasonable opinion of the accountant or auditor, warrant more frequent inspection. CSIRO shall hold in confidence all such information and all confidential information learned in the course of any audit or inspection, except to the extent necessary to enforce its rights under this Agreement or as required by applicable law. The findings of any such inspection shall be binding on all parties. PhaseRx must take reasonable steps to review the records and accounts of any Sublicensees to ensure that reporting of sales of Licensed Products, and the calculation of Net Sales Revenue in respect of those Licensed Products, by those Sublicensees are complete and accurate in all material respects.

 

6.2 Discrepancy

 

If the audit referred to in clause 6.1 reveals that any amounts to be paid are outstanding, PhaseRx must immediately pay those amounts to CSIRO, and if those amounts represent 5% (or more) of the total amount of payments due to CSIRO for that year, PhaseRx must immediately reimburse CSIRO for its costs of that audit. If the audit identifies any overpayment of Royalties to CSIRO then PhaseRx may deduct the amount of such overpayment from future Royalties to be paid to CSIRO.

 

7 Patent abandonment and lapsing

 

CSIRO may, at its discretion, allow any Licensed Patent to lapse, provided that if CSIRO intends not to pay a maintenance fee on any patent within the Licensed Patents or to prosecute any patent application within the Licensed Patents, CSIRO shall endeavour to notify PhaseRx in writing of its intention at least sixty (60) days before the date on which the patent or patent application is due to lapse, but in any event shall notify PhaseRx as soon as it makes such decision.

 

8 Infringement

 

8.1 Notice of Infringement

 

Each party must give the other prompt written notice if it becomes aware of a third party:

 

(a) infringing or threatening to infringe the Licensed Patents;

 

(b) challenging the validity of the Licensed Patents;

 

(c) using or disclosing, or threatening to use or disclose Confidential Information; or

 

Confidential Page 12
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(d) taking action or threatening to take action on the basis that the Licensed Patents, or that the exercise of rights under this Agreement, infringe the rights of a third party.

 

( Claims or Allegations )

 

8.2 Conferral and action

 

(a) The parties will confer as to what steps, if any, are to be taken in respect of any Claims or Allegations.

 

(b) CSIRO retains the right to commence or defend legal proceedings in respect of any Claims or Allegations in its sole discretion, having regard to the discussions between the parties, and retains the sole right to enforce the Licensed Patents.

 

(c) At the expense of CSIRO, PhaseRx must provide such reasonable assistance to CSIRO as may be necessary in relation to any such legal proceedings.

 

9 Confidentiality and use of name

 

9.1 Permitted use and disclosure

 

The Recipient must not use, or disclose the Confidential Information of the Discloser, except to the extent required to:

 

(a) fulfil its obligations and exercise its rights under this Agreement;

 

(b) disclose Confidential Information to its:

 

(i) employees;

 

(ii) directors and officers; and

 

(iii) legal, financial advisers and other advisers,

 

who have a need to know for the purposes of this Agreement (and only to the extent that each has a need to know), provided the disclosure is made in accordance with clause 9.4 ; or

 

(c) comply with requirements of the Law but before making any disclosure the Recipient must:

 

(i) notify the Discloser in writing as soon as reasonably practicable to enable the Discloser to take steps to protect its Confidential Information; and

 

(ii) only disclose that part of the Confidential Information as is necessary to comply with relevant legal requirements.

 

In addition, each party may disclose the terms and conditions of this Agreement to actual and potential accredited investors such as venture capitalists, investment bankers, prospective business partners (including potential acquirers or acquisition targets) and others, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this clause 9 .

 

9.2 A party's own Confidential Information.

 

A party is not obliged to maintain the confidentiality of its own Confidential Information, provided that the terms of this Agreement shall be considered the Confidential Information of both parties and neither party shall be permitted to disclose the terms and conditions of this Agreement, except as expressly permitted hereunder.

 

Confidential Page 13
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

9.3 Onus

 

If the Recipient asserts that any information it receives from the Discloser is not Confidential Information then the Recipient has the onus of showing that the information is not confidential.

 

9.4 Employees

 

The Recipient must use its reasonable efforts to ensure that:

 

(a) its employees, directors, officers and advisers who acquire access to Confidential Information of the Discloser, comply with the obligation of confidentiality under this clause 9 as though parties to this Agreement; and

 

(b) any of the above mentioned employees, directors, officers and advisers who cease to be employees, directors, officers or advisers must continue to be bound by such obligations of confidentiality.

 

9.5 Security

 

Each party must take reasonable steps to protect the Confidential Information of the other party and keep it secure from unauthorised persons.

 

9.6 Disclosure to DuPont

 

Notwithstanding any other provision of this Agreement, CSIRO is permitted to disclose the terms and conditions of this Agreement, and the Royalty Statement to E.I. du Pont de Nemours and Company on a confidential basis. PhaseRx may redact any confidential information of any third party contained in any such Royalty Statement prior to providing it to CSIRO.

 

9.7 Use of name

 

(a) Except as expressly permitted or required under this Agreement, neither party may use the name, logo, trademarks, or other indicia of the other party (or any shortened or phonetically similar version of such name, logo or indicia) in any way whatsoever to:

 

(i) represent a connection with or a sponsorship or endorsement of the other party whether in writing or orally (such as in presentations or discussions with any third party); or

 

(ii) refer to the involvement of the other party in connection with this Agreement, save as required by applicable Law,

 

without the prior written consent of that other party.

 

(b) Where consent to use the a party’s ( granting party ) name is granted to the other party ( using party ), either pursuant to this Agreement or by express written consent, the granting party reserves the right, acting reasonably, to withdraw that consent on thirty (30) days’ written notice. Where a granting party provides written notification of its intention to withdraw such consent the using party must cease any further use and withdraw all references to the granting party’s name within a reasonable period not to exceed thirty (30) days.

 

Confidential Page 14
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(c) Where a party’s consent is given subject to conditions, the other party must comply with those conditions.

 

9.8 Publicity

 

CSIRO may publicise the signing of the RAFT Non-Exclusive Licence Agreement having an effective date of October 26, 2009, solely in substantially the form as set out in Schedule 2 . PhaseRx may, subject to this clause 9 , make such further disclosures as to its use of the Licensed Patents in its sole discretion.

 

10 Liability

 

10.1 Risks

 

PhaseRx will sell Licensed Products (and any part thereof) and exercise its rights under the Licensed Patents at its own risk.

 

10.2 Mutual warranties

 

Each party represents and warrants to the other party that:

 

(a) it has full power and authority to enter into, and to perform its obligations under this Agreement;

 

(b) it has taken all necessary action to authorise the execution, delivery and performance of this Agreement; and

 

(c) this Agreement constitutes its legal, valid and binding obligations.

 

10.3 CSIRO warranties and excluded warranties

 

(a) CSIRO warrants that it is (or is entitled to be recorded as) the owner of the Licensed Patents.

 

(b) CSIRO warrants that it has the right to grant the licence under clause 3.1 .

 

(c) PhaseRx acknowledges that CSIRO warranted, as at the commencement of the RAFT Non-Exclusive Licence Agreement dated October 26, 2009, that to the best of the actual knowledge of the specified personnel, and without making any additional enquiry or seeking an legal or patent attorney opinion, CSIRO was not aware of any issued third party patent that would prevent PhaseRx from performing polymerisation processes using RAFT Agents as disclosed (other than as prior art) in the Licensed Patents for the purpose of creating polymers for use in the Licensed Field. PhaseRx acknowledges that the warranty did not extend to, and CSIRO gave no warranty in relation to, specific polymer or product formulations created by PhaseRx or disclosed in any third party patents. PhaseRx acknowledges that the warranty is not repeated on the Commencement Date.

 

(d) PhaseRx acknowledges that CSIRO represented, as at the commencement of the RAFT Non-Exclusive Licence Agreement dated October 26, 2009, that except for the Licensed Patents, and the inventions disclosed therein, CSIRO did not own or control rights to any patent, patent application or invention which would dominate any practice of the polymerisation processes using RAFT Agents as disclosed (other than as prior art) in the Licensed Patents. PhaseRx acknowledges that the representation did not extend to specific polymer or product formulations, and that the representation is not repeated on the Commencement Date.

 

Confidential Page 15
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(e) CSIRO does not make any representation or give any other warranty in relation to the Licensed Patents (including any representation or give any warranty that the use of the Licensed Patents will not infringe any third party’s intellectual property rights). CSIRO must give PhaseRx prompt written notice if it receives written notice of any third party claims that allege that the Licensed Patents infringe that third party’s intellectual property rights.

 

(f) All implied terms, conditions, representations or warranties not expressly stated (including those of merchantability or fitness for a particular purpose) are, to the extent permitted by law, excluded.

 

10.4 Indemnities

 

(a) Subject to paragraphs (c) and (d) of this Clause 10.4 , PhaseRx releases and indemnifies and holds CSIRO harmless from all claims, costs, losses and expenses, including but not limited to, reasonable attorney’s fees, for compensatory and punitive damages arising from personal injury, wrongful death, property damage, or any other type of damages, costs or expenses, whether or not based on any alleged breach of warranty, contract, statute, or regulation, or negligence or any tort ( Loss ) arising out of or pertaining to any exploitation by any of PhaseRx, PhaseRx’s Affiliates and PhaseRx’s Sublicensees of the Licensed Patents under this Agreement and including, without limitation, any Loss arising out of any sales, transfers or other disposals of Licensed Products by any of PhaseRx, PhaseRx’s Affiliates and PhaseRx’s Sublicensees. PhaseRx’s liability to indemnify CSIRO will be reduced to the extent that any negligent act or omission or breach of this Agreement by CSIRO contributed to the relevant Loss.

 

(b) Subject to paragraphs (c) and (d) of this Clause 10.4 , CSIRO must indemnify and keep indemnified PhaseRx, its directors, and employees against any Loss as a result of or in respect of any third party claim against PhaseRx which may be brought or commenced as a direct result of (i) CSIRO’s breach of this Agreement; and/or (ii) breach by CSIRO of any of its representations and warranties under this Agreement. CSIRO’s liability to indemnify PhaseRx will be reduced to the extent that any negligent act or omission or breach of this Agreement by PhaseRx contributed to the relevant Loss.

 

(c) Each party seeking indemnification ( Indemnified Party ) from the other party ( Indemnifying Party ) pursuant to this Clause 10.4 must:

 

(i) promptly notify the Indemnifying Party in writing of any Loss in respect of which it intends to claim indemnification;

 

(ii) provide the Indemnifying Party with sole control of the defence or settlement of such Loss. The Indemnified Party will have the right to participate in any such defence or settlement with counsel of its choosing at its own expense; and

 

(iii) provide the Indemnifying Party with all reasonable assistance and full information with respect to that Loss, defence or settlement.

 

(d) An obligation to indemnify shall not apply to amounts paid in settlement of any Loss if that settlement is effected without the consent of the Indemnifying Party.

 

Confidential Page 16
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

11 Insurance

 

11.1 Required insurance

 

Prior to commencing:

 

(a) clinical trials of Licensed Products; or

 

(b) selling or otherwise transferring Licensed Polymers or Licensed Products,

 

PhaseRx shall obtain, and maintain during the Term of this Agreement and six (6) years thereafter, commercial general liability insurance (including product liability coverage) with a limit of liability (per occurrence and in the aggregate) customary for companies selling products in the Licensed Field. If the level of insurance obtained and maintained by PhaseRx pursuant to this clause is less than:

 

(c) US$[****] per occurrence (combined single limit for bodily injury and property damage per occurrence); and

 

(d) US$[****] per year in aggregate,

 

then that level of insurance must be agreed with CSIRO, which agreement may be limited to specific stages of development of, or activities relating to the, Licensed Products (for example, relating to a period during which PhaseRx will carry out clinical trials). If PhaseRx sublicenses its rights hereunder to a Sublicensee, upon such Sublicensee initiating clinical trials of a Licensed Product, PhaseRx shall obtain the insurance set forth in this provision 11.1, unless such Sublicensee agrees to obtain the above insurance and agrees to indemnify CSIRO pursuant to clause 10.4 .

 

11.2 Insurance details

 

(a) The insurance policies specified in clause 11.1 must be held with a sound and reputable insurer.

 

(b) The insurance policies must comply with all applicable Laws.

 

(c) PhaseRx will produce confirmation of the currency of the insurance policies within fourteen (14) days of receipt of a written request from CSIRO.

 

(d) PhaseRx must at all times comply with the terms of the insurance policies it is required to hold.

 

(e) Nothing in this clause 11 limits the other obligations and liabilities of PhaseRx under this Agreement or at law.

 

12 Dispute resolution

 

12.1 Application of this provision

 

Any dispute, controversy or claim arising between the parties under this Agreement (a Dispute ) must be dealt with in accordance with this clause 12 .

 

12.2 Notice of Dispute

 

The party claiming that a Dispute exists must give the other party written notice of such Dispute together with details of that Dispute.

 

Confidential Page 17
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

12.3 Elevation of Dispute

 

If the Dispute is not settled by the parties within 30 days of receipt of written notice of the Dispute, it will be referred to, in the case of CSIRO, the Director of CSIRO Manufacturing and in the case of PhaseRx, its Chief Executive Officer, or their delegates who have appropriate authority to resolve the Dispute on behalf of the particular party, and who will negotiate in good faith to resolve the Dispute.

 

12.4 Referral to the ACDC for arbitration

 

If the Dispute is not resolved under clause 12.3 within 30 days then the parties must refer the Dispute for arbitration through the Australian Commercial Disputes Centre (ACDC) in accordance with the UNCITRAL Arbitration Rules as present in force. The number of arbitrators is to be one. The place of arbitration is to be Melbourne, Australia, and the language used in the arbitral proceedings will be English. The decision of the arbitrator (including any award as to costs) will be final and binding on the parties. The arbitration, the decision of the arbitrator and any offers of settlement will be confidential and without prejudice unless otherwise agreed by the parties. Judgments upon such award may be entered in any court having competent jurisdiction. The parties agree that, in the event of a good faith Dispute over the nature or quality of PhaseRx’s performance under clause 4.2 , neither party may terminate this Agreement until final resolution of the Dispute through arbitration pursuant to this clause 12.4 . The parties further agree that any payments made pursuant to this Agreement pending resolution of the Dispute shall be refunded if an arbitrator or court determines that such payments are not due

 

12.5 Interlocutory relief

 

Nothing in this clause 12 prevents any party from seeking urgent interlocutory relief.

 

12.6 Confidentiality

 

The dispute resolution process, including the details of the Dispute and the existence of such a Dispute, shall be confidential among the parties.

 

13 Termination

 

13.1 Termination by CSIRO

 

CSIRO may immediately terminate this Agreement by notice in writing to PhaseRx if Due Cause arises in respect of PhaseRx, or in the event that PhaseRx:

 

(a) initiates proceedings in a court of competent jurisdiction or any patent office, to contest the validity or enforceability of any Licensed Patent;

 

(b) lodges third party observations to contest the validity or enforceability of any Licensed Patent or otherwise supplies prior art to an examiner or patent office in respect of any Licensed Patent; or

 

(c) actively assists a third party to take any of the above actions.

 

13.2 Termination by PhaseRx

 

PhaseRx may terminate this Agreement:

 

(a) on 6 months notice in writing to CSIRO; or

 

Confidential Page 18
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(b) immediately by notice in writing to CSIRO if Due Cause arises in respect of CSIRO.

 

13.3 Consequences of termination

 

On termination of this Agreement:

 

(a) PhaseRx must immediately:

 

(i) in the event of termination pursuant to clause 13.2 , cease selling Licensed Products, provided that, the Company may offer to sell and sell, offer to lease and lease, and otherwise offer to dispose of or dispose of Licensed Products in the Territory that were manufactured prior to the termination of this Agreement and pay the Royalty on any such Licensed Products; or

 

(ii) in the event of termination pursuant to clause 13.1 , cease selling Licensed Products and must (unless otherwise agreed in writing) destroy all remaining stocks of Licensed Products and provide a written certificate to CSIRO as to that destruction;

 

and

 

(iii) inform third parties who contact PhaseRx to purchase Licensed Products that it is no longer offering those products;

 

(b) PhaseRx must promptly pay CSIRO any outstanding payments due to CSIRO at the date of termination and any Royalties in respect of the period between the end of the last period in respect of which Royalties were paid and the date of termination;

 

(c) all licences granted under this Agreement will cease;

 

(d) each party which is a Recipient must return to the Discloser or destroy all Confidential Information provided by the Discloser no later than fourteen (14) days after the date of termination, save that the Recipient may retain one (1) archive copy of each document containing Confidential Information of the Discloser for the sole purpose of enabling the Recipient to determine the scope of its legal obligations under this Agreement.

 

13.4 Survival

 

(a) The following clauses survive termination or expiration of this Agreement: this clause, clauses 4.1(c), 4.1(d), 4.1(e), 4.1(g), 4.3 (second sentence), 6.1, 9, 12 , 15.9 and any other clause which is required to interpret those clauses.

 

(b) Each indemnity arising in respect of this Agreement survives the performance of obligations arising out of or under this Agreement and the expiry or termination of this Agreement.

 

(c) Termination or expiry of this Agreement is without prejudice to the rights and remedies of the parties arising before the date of termination or expiry and neither party shall be relieved of any liability or obligation accrued prior to the date of such termination.

 

Confidential Page 19
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

13.5 Other events

 

In the event that PhaseRx:

 

(a) makes or commences negotiations with a view to making a general re-scheduling of its indebtedness, a general assignment, scheme of arrangement or composition with its creditors;

 

(b) ceases to carry on business or disposes of the whole or a material part of its business other than to reconstruct or amalgamate while solvent; or

 

(c) seeks protection or is granted protection from its creditors under any applicable legislation;

 

PhaseRx must within 30 days of that event, notify CSIRO in writing. At CSIRO’s request, the parties must consult in good faith as to the circumstances of that event, the likelihood of that event continuing or being repeated, and the likely consequences that event will have on PhaseRx’s ability to comply with this Agreement.

 

14 Notices

 

Any notice given under this Agreement:

 

(a) must be in writing and signed by a person who has authority to give such notice on behalf of the sender;

 

(b) must be addressed to the recipient’s nominated representative(s) at the nominated address or facsimile number specified below, or the representative, address or facsimile number last notified in writing by the recipient to the sender;

 

(c) must be delivered personally or sent by pre paid mail or by facsimile to the nominated address or facsimile number; and

 

(d) will be regarded as having been given by the sender and received by the intended recipient:

 

(i) if delivered in person, when it is left at the nominated address of the recipient; or

 

(ii) if by post, three days from and including the date of posting; or

 

(iii) if by facsimile, when the facsimile machine transmits a confirmation of receipt; and

 

(iv) if delivery occurs on a day when business is not generally carried on in the place to which the notice is sent, or occurs later than 4pm (local time), it will be taken to have been given at 10am (local time) on the next day when business is generally carried on in that place.

 

Confidential Page 20
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

For the purposes of this clause, the nominated details of each party are as follows:

 

CSIRO PhaseRx
CSIRO PhaseRx Inc.,
Ian Wark Laboratory, Bayview Avenue, Attn: Robert Overell
Clayton, Victoria 3168, Australia 454 N34th Street, Seattle, Washington 98103
Attention: Director, CSIRO Manufacturing E-mail: Robert@phaserx.com
Fax: +61 3 9545 2446  

 

15 General

 

15.1 Relationship

 

This Agreement does not create a relationship of employment, agency, joint venture or partnership between the parties. A party must not represent itself, and must ensure its personnel do not represent themselves, as:

 

(a) being employees, partners, joint venturers or agents of any of the parties; or.

 

(b) having any authority to act on behalf of any other party or to bind any other party to any course of action.

 

15.2 Assignment

 

(a) Subject to the following, PhaseRx may not assign, novate, charge, transfer, encumber, subcontract or otherwise deal with any of its rights or obligations under this Agreement unless it has the prior written consent of CSIRO, such consent not to be unreasonably withheld.

 

(b) PhaseRx may assign its rights under this Agreement to any successor of its business, or purchaser of substantially all of the assets of its business, to which this Agreement relates, without the prior written consent of CSIRO, provided that PhaseRx provides written notice to CSIRO setting out the identity of that successor or purchaser and provided that successor or purchaser confirms in writing that the successor or purchaser will continue to comply with the terms and conditions of this Agreement (including those set out in clauses 4, 5 and 10 ) as if it were PhaseRx.

 

(c) CSIRO may assign its rights under the Agreement without consent, or novate its rights and obligations to a special purpose company established for the purpose of exploiting the Licensed Patent and in conjunction with an assignment or other grant of rights under the Licensed Patents to that special purpose company. PhaseRx must not unreasonably withhold its agreement to such novation.

 

15.3 Entire agreement

 

This Agreement:

 

(a) contains the entire agreement of the parties as to its subject matter;

 

Confidential Page 21
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

(b) supersedes all previous agreements, undertakings and negotiations with respect to its subject matter, except for that certain Confidentiality Agreement between the Parties, effective May 10, 2008 ( Prior Agreement ). All information exchanged between the Parties under the Prior Agreement shall continue to be shall be subject to the terms of such Prior Agreement; and

 

(c) sets out the only representations and warranties relied on by the parties when entering into this Agreement.

 

15.4 Further assurance

 

Each party must do anything (including execute any document), and must ensure that its employees and agents do anything (including execute any document), that the other party may reasonably require to give full effect to this Agreement.

 

15.5 Amendment

 

This Agreement or a right created under it may only be amended, supplemented, replaced, novated, waived or varied by another written agreement executed by all parties.

 

15.6 No waiver

 

No failure to exercise and no delay in exercising any right, power or remedy under this Agreement will operate as a waiver. Nor will any single or partial exercise of any right, power or remedy preclude any other or further exercise of that or any other right, power or remedy.

 

15.7 Remedies cumulative

 

The rights, powers and remedies provided to a party in this Agreement are in addition to, and do not exclude or limit, any right, power or remedy provided by law or equity or any agreement.

 

15.8 Severance

 

(a) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will be severed to the extent necessary to make the Agreement valid and enforceable. The severance of a provision will not invalidate the remaining provisions of this Agreement nor affect the validity or enforceability of that provision in any other jurisdiction.

 

(b) If a provision is severed that would materially change the substance of the Agreement then the parties must negotiate in good faith to seek agreement on a replacement provision:

 

(i) that is valid and enforceable; and

 

(ii) as far as possible, will give effect to the intention of the parties as expressed in this Agreement at the date of execution.

 

15.9 Governing law

 

This Agreement is governed by the laws of the England.

 

15.10 Counterparts

 

This Agreement may be executed in counterparts, including by facsimile or .pdf (or similar electronic format), each of which shall constitute an original and all of which will be taken to constitute one instrument.

 

Confidential Page 22
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

EXECUTED as an Agreement

 

Signed for and on behalf of Commonwealth
Scientific and Industrial Research
Organisation
by:
   
     
/s/ Paul Savage   Paul Savage
(Signature of authorised person)   (Print name of authorised person)
in the presence of:    
     
/s/ Linda Berkahn   Linda Berkahn
(Signature of witness)   (Print name of witness)
     
22 January 2016  
(Date)    

 

Signed for an on behalf of PhaseRx, Inc. by:    
     
/s/ Robert Overell   Robert Overell
(Signature of authorised person)   (Print name of authorised person)
in the presence of:    
     
/s/ Helen Tsui  

Helen Tsui

(Signature of witness)

 

January 20, 2016

  (Print name of witness)
(Date)    

 

Confidential Page 23
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Schedule 1 – Licensed Patents

 

Group Patent Number Title Class/Type
1 WO/1998/001478A1
EP0910587A1
EP0910587B1
US20040171777 (10/784425)
20080139836  (11/805929)
20080139764  (11/805949)
US7250479  (10/784425)
Polymerisation with living characteristics RAFT
2 WO/1999/005099A1
EP1149075A1
EP1149075A4
US6512081
Method of dithioester chain transfer agents RAFT CTA synthesis
3 WO/1999/031144A1
EP1054906A1
EP1054906B1
US6642318
20040024132  (10/623041)
US6747111  (10/623041)
Polymerisation process with living characteristics. RAFT
4 WO/2005/113612A1
EP1751194B1
EP1751194A1
20070225447  (11/578226)
Method of removing sulfur
containing end
groups
RAFT/Novel characteristics of polymer
5 WO/2007/100719A1
EP1989237A1
US20070232783  (11/710305)
Process for Synthesizing of Thiol terminated polymers RAFT/Novel characteristics of polymer

 

Confidential Page 24
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Group Patent Number Title Class/Type
6 WO/2008/103144A1
PCT/US07/04702
Process for transforming the end groups of polymers RAFT/Novel characteristics of polymer
7 WO/2000/002939A1
EP1123332B1
EP1123332A1
US20020019475  (09/969784)
US20020022683  (09/969672)
US20020019476  (09/969710)
US6355718          (09/350243)
US6646055          (09/969706)
US6822056          (09/969784)
US6462114          (09/969710
US6653407          (09/969672)
Microgels &
process for their preparation.
Architecture
8 WO/2001/077198A1
EP1268591A1
US20060142404   (10/257991)
US7064151           (10/257991)
Process of microgel synthesis. Architecture

 

Confidential Page 25
 

 

Amended and Restated RAFT Non-Exclusive Licence Agreement CSIRO

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

 

Schedule 2 – Media Release

 

20 October 2009
Ref 09/191

 

RAFT accelerates upstream in drug delivery

 

CSIRO has licensed its patented Reversible Addition-Fragmentation chain Transfer polymerization technology, RAFT, to a recently established US biotechnology company, PhaseRx.

 

RAFT is a powerful polymerisation process for the synthesis of tailor-made polymers with predetermined molecular weights, narrow polydispersities and highly complex architectures.

 

Established in 2008 and based in Seattle, Washington, PhaseRx will use RAFT to develop novel polymeric vehicles for the delivery of macromolecular therapeutics, including siRNA.

 

The development of the RAFT process has given rise to a new branch of polymer chemistry.

 

Approximately 2500 papers have been published on RAFT developments, coupled with over 200 patents granted to research and commercial institutions globally.

 

"This new technology is creating global impact and has been licensed to a wide range of Australian and international companies," says CSIRO's Business Development Manager, RAFT, Kate Dawson.

 

"RAFT has generated major improvements in the areas of coatings and paints, electroactives, fuel additives, biomaterials, polymer synthesis and personal care."

 

The company's President and Chief Executive Officer, Dr Robert Overell, said the licensing agreement would enable PhaseRx to utilise a tried and tested approach to developing polymers.

 

Image available at: http://www.scienceimage.csiro.au/mediarelease/mr09-191.htmI

 

Further Infonnation:

 

Kate Dawson, CSIRO Molecular and Health Technologies Ph: 03 9545 2533
   
  Mb: 0434 072555
   
  E: kate.dawson@csiro.au
   
Background information available at: www.csiro.au/products/RAFT.html
   
Media Assistance:  
   
Samantha Carroll, CSIRO Molecular and Health Technologies Ph: 03 9662 7354
   
  Mb: 0417 360 803
   
  E: sam.carroll@csiro.au

 

www.csiro.au

 

If you would like to be removed from this mailing list, please contact CSIROMedia@csiro.au

 

Confidential Page 26

 

 

Exhibit 10.3

 

LEASE AGREEMENT

 

THIS LEASE AGREEMENT (this “ Lease ”) is made this 9th day of February, 2010, between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (“ Landlord ”), and PHASERX INC. , a Delaware corporation (“ Tenant ”).

 

Address: 410 Elliott, Seattle, Washington

 

Premises: The entire building (the “ Building ”), containing approximately 2,896 rentable square feet, as shown on Exhibit A .

 

Project: The real property on which the Building is located, together with all improvements thereon and appurtenances thereto as described on Exhibit B .

 

Base Rent: $11.00 per rentable square foot of the Premises per annum, subject to adjustment as provided for in Section 4 hereof.

 

Rentable Area of Premises: 2,896 sq. ft.

 

Rentable Area of Project:   2,896 sq. ft. Tenant’s Share of Operating Expenses:   100%
   
Security Deposit:   None Target Commencement Date:   March 31, 2010

 

Rent Adjustment Percentage: 3%

 

Base Term : Beginning on the Commencement Date and ending 65 months from the first day of the first full month of the Term (as defined in Section 2 ) hereof.

 

Permitted Use: Laboratory, related office and other related uses as permitted by Landlord and otherwise in compliance with the provisions of Section 7 hereof.

 

Address for Rent Payment: Landlord’s Notice Address:
P.O. Box 975383 385 E. Colorado Boulevard, Suite 299
Dallas, TX 75397-5383 Pasadena, CA 91101
  Attention:  Corporate Secretary

 

Tenant’s Notice Address:
410 West Harrison
Seattle, WA 98119
Attention:  Lease Administrator

 

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

 

x    EXHIBIT A - PREMISES DESCRIPTION x    EXHIBIT B - DESCRIPTION OF PROJECT
x    EXHIBIT C - INTENTIONALLY OMITTED x    EXHIBIT D - COMMENCEMENT DATE
x    EXHIBIT E - RULES AND REGULATIONS x    EXHIBIT F - TENANT’S PERSONAL PROPERTY
x    EXHIBIT G - ASBESTOS DISCLOSURE x    EXHIBIT H – APPROVED ALTERATIONS

 

1.           Lease of Premises . Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the “ Common Areas .” Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use.

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 2

 

2.           Delivery; Acceptance of Premises; Commencement Date . Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date (“ Delivery ” or “ Deliver ”). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 90 days of the Target Commencement Date for any reason other than Force Majeure Delays and delays caused by Tenant, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant, neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. If Tenant does not elect to void this Lease within 5 business days of the lapse of such 90 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect. In the event that the Other Lease (as defined in Section 20(h) ) is terminated pursuant to Section 2 of the Other Lease, this Lease shall automatically terminate concurrently with the Other Lease.

 

The “Commencement Date ” shall be the earlier of: (i) the date Landlord Delivers the Premises to Tenant; or (ii) the date Landlord could have Delivered the Premises but for delays caused by Tenant. Notwithstanding anything to the contrary contained herein, in no event shall Landlord be required to Deliver the Premises to Tenant nor shall the Commencement Date under this Lease occur prior to the Commencement Date (as defined in the Other Lease) of the Other Lease. The “ Rent Commencement Date ” shall be the date that is 5 months after the Commencement Date. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date, the Rent Commencement Date and the expiration date of the Term when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D ; provided , however , Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder. The “ Term ” of this Lease shall be the Base Term, as defined above on the first page of this Lease and, if applicable, the Extension Term which Tenant may elect pursuant to Section 39 hereof. Notwithstanding the foregoing, Landlord and Tenant agree that, so long as ARE-Seattle No. 10, LLC, a Delaware limited liability company, remains the Landlord under this Lease and the Other Lease, the Term of this Lease shall be automatically extended through the expiration date of the Other Lease in the event that Tenant, as the tenant under the Other Lease, timely exercises its Additional Expansion Right (as defined in the Other Lease) under Section 39(b) of the Other Lease.

 

Landlord hereby agrees to permit Tenant access, at Tenant's sole risk and expense, to the Building 3 business days prior to the Commencement Date to perform any work (" Tenant's Work ") required by Tenant, provided that such Tenant's Work is coordinated with Landlord, and complies with this Lease and all other reasonable restrictions and conditions Landlord may impose. Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, excluding the obligation to pay Base Rent and Operating Expenses.

 

Except as set forth in this Lease: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, except the obligation to pay Base Rent.

 

For the period of 24 months after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any replacements that are required to be made to the mechanical, plumbing and electrical systems serving the Premises, except to the extent Tenant was responsible for the cause of such replacement, in which case Tenant shall pay the cost. Any repairs and maintenance of the mechanical, plumbing and electrical systems serving the Premises shall be undertaken by Landlord as part of Operating Expenses.

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 3

 

Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.

 

3.           Rent .

 

(a)           Base Rent . Base Rent for the month in which the Rent Commencement Date occurs shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off (except as may otherwise be provided in this Lease), equal monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof after the Rent Commencement Date, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5 ) due hereunder except for any abatement as may be expressly provided in this Lease.

 

(b)           Additional Rent . In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“ Additional Rent ”): (i) Tenant’s Share of “Operating Expenses” (as defined in Section 5 ), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

 

4.           Base Rent Adjustments . Commencing on the second anniversary of the Commencement Date and continuing thereafter on each annual anniversary of the Commencement Date (each, an “ Adjustment Date ”), Base Rent shall be increased by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date. For example, if the Rent Adjustment Percentage is 3%, then on the second anniversary of the Commencement Date, Base Rent would increase to $11.33 per rentable square foot of the Premises per annum (i.e., $11.00 x 103%). Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar month shall be prorated.

 

5.           Operating Expense Payments . Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “ Annual Estimate ”), which may be revised by Landlord from time to time during such calendar year. Commencing on the Commencement Date and continuing thereafter on the first day of each month during the Term, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.

 

The term “ Operating Expenses ” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9 ), capital repairs and improvements amortized over the lesser of 7 years and the useful life of such capital items, and the costs of Landlord’s third party property manager (not to exceed 5% of Base Rent) or, if there is no third party property manager, administration rent in the amount of 5.0% of Base Rent), excluding only:

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 4

 

(a)          the original hard and soft construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation or other costs related to such original construction or renovation to the extent such costs are actually recovered by Landlord pursuant to construction or renovation warranties;

 

(b)          capital expenditures for expansion of the Project;

 

(c)          any costs incurred to remove, study, test, remediate or otherwise related to the presence of Hazardous Materials (including without limitation ACMs and PACMs as defined in Section 42 below) in or about the Building or the Project, which Hazardous Materials Tenant proves (i) existed prior to the Commencement Date, except to the extent caused by or contributed to by Tenant or any Tenant Party, (ii) originated from any separately demised tenant space within the Project other than the Premises, except to the extent caused by or contributed to by Tenant or any Tenant Party, or (iii) were not brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Project by Tenant or any Tenant Party;

 

(d)          interest, principal payments of Mortgage (as defined in Section 27 ) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments or base rent (but not taxes or operating expenses) under any ground lease of all or any portion of the Project;

 

(e)          depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);

 

(f)          advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

 

(g)          legal and other expenses incurred in the negotiation or enforcement of leases, subordination, non-disturbance and/or attornment agreements, estoppels or consents in connection with other tenants of the Project;

 

(h)          completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

 

(i)          costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

 

(j)          salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project;

 

(k)          general organizational, administrative and overhead costs relating to maintaining Landlord‘s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

 

(l)          costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 5

 

(m)          costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7 );

 

(n)          penalties, fines or interest incurred as a result of Landlord‘s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord«‘s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

 

(o)          overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

 

(p)          costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project;

 

(q)          costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

 

(r)           costs incurred in the sale or refinancing of the Project;

 

(s)          net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein;

 

(t)           costs incurred in connection with the performance of alterations or modifications to the Project that are required solely due to the non-compliance of the Project with Legal Requirements applicable to the Project as of the date of this Lease;

 

(u)          costs resulting from the breach of this Lease by Landlord or from the gross negligence or willful misconduct of Landlord or any Landlord Parties (as defined in Section 17 )(including any attorneys’ fees);

 

(v)          the costs incurred by Landlord in connection with providing janitorial services within the premises of any other tenant of the Project, but not within the Common Areas of the Project which shall be an Operating Expense;

 

(w)         costs incurred by Landlord for the restoration or repair of uninsured earthquake damage to the Project (excluding deductibles the cost of which are includable in Operating Expenses;

 

(x)          costs incurred by Landlord to restore or repair the Project following a casualty or condemnation to the extent not paid due to Landlord’s failure to apply insurance or condemnation proceeds to such restoration or repair or Landlord’s failure to carry insurance as required to be carried by Landlord under this Lease (excluding deductibles, which Tenant shall be required to pay); and

 

(y)          any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project including, without limitation, reimbursements from insurance proceeds actually received by Landlord.

 

Notwithstanding anything to the contrary contained herein, the per square foot amount of Operating Expenses payable by Tenant for the Premises during any calendar year during the Term shall not exceed the per square foot amount of Operating Expenses (as defined in the Other Lease) payable by Tenant for the premises subject to the Other Lease during the same calendar year.

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 6

 

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “ Annual Statement ”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

 

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenant’s questions (the “ Expense Information ”). If after Tenant’s review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant shall have the right to have a regionally recognized independent public accounting firm selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld or delayed), working pursuant to a fee arrangement other than a contingent fee (at Tenant’s sole cost and expense), audit and/or review the Expense Information for the year in question (the “ Independent Review ”). The results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenant’s payments with respect to Operating Expenses for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review. Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenant’s Share of Operating Expenses for such year shall be computed as though the Project had been 95% occupied on average during such year.

 

Tenant’s Share ” shall be the percentage set forth on the first page of this Lease as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Notwithstanding anything to the contrary contained herein, the rentable square footage of the Premises shall not be subject to re-measurement by either party during the Term. Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “ Rent .”

 

6.           Intentionally Omitted .

 

 
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7.           Use . The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ ADA ”) (collectively, “ Legal Requirements ” and each, a “ Legal Requirement ”). Tenant shall, upon the earlier of (i) 30 days’ written notice from Landlord, or (ii) the date required by the applicable Governmental Authority (as defined in Section 9), discontinue any use of the Premises which is declared by any Governmental Authority having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use. Landlord shall not voluntarily cause the zoning of the Project to be changed from the existing designation to a designation that would prohibit the Tenant from conducting the Permitted Use within the Premises.

 

Landlord shall, at Landlord’s sole cost and expense, be responsible for the compliance of the Premises and the Common Areas of the Project with Legal Requirements as of the Commencement Date. Thereafter, Landlord shall, as an Operating Expense or at Tenant’s expenses (to the extent such Legal Requirement is applicable solely by reason of Tenant’s particular use of the Premises) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements, including the ADA. Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenant’s use or occupancy of the Premises and Tenant’s construction or installation of Alterations in the Premises. Notwithstanding any other provision herein to the contrary, and except in connection with Legal Requirements which are Landlord’s responsibility pursuant to the first sentence of this paragraph, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “ Claims ”) arising out of or in connection with Legal Requirements, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement.

 

8.           Holding Over . If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant’s holding over, including consequential damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

 

 
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9.           Taxes . Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind, existing as of the Commencement Date or thereafter enacted (collectively referred to as “ Taxes ”), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “ Governmental Authority ”) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, but only to the extent that such Taxes have been imposed upon Landlord as a replacement for on in lieu of other Taxes required to be paid by Landlord as of the Commencement Date, (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes; provided, however, that Tenant’s Share of Operating Expenses for any retroactive reduction in Taxes applicable to the Term shall be credited to Tenant, net of Landlord’s reasonable expenses in obtaining such reduction. Notwithstanding anything to the contrary herein, Landlord shall only charge Tenant for such assessments as if those assessments were paid in installments by Landlord over the longest possible term which Landlord is permitted to pay for the applicable assessments without additional charge other than interest, if any, provided under the terms of the underlying assessments, with Tenant liable for only Tenant’s Share of Operating Expenses for those installments applicable to the Lease Term. Taxes shall not include any net income taxes imposed on Landlord or any franchise, capital stock, gift, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or another tenant of the Project, or retroactive assessments to the extent imposed for periods prior to the Commencement Date, except to the extent any of the foregoing are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes, provided that Landlord shall not assess any excess portion of Taxes against Tenant unless Landlord excludes from Taxes as defined in this Lease, any excess portion of Taxes that should, as determined by Landlord, reasonably be assessed against other tenants of the Project using the same criteria as stated herein. Landlord’s reasonable determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord within 30 days of demand. Notwithstanding anything to the contrary contained herein and subject to the cap on Operating Expenses provided for in Section 5 , Tenant shall not be required during the Term to pay more than 65% of Taxes which are based on the assessed value of the Premises or the Project.

 

 
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10.          Parking . Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, in common with other tenants of the Project to use 5 parking spaces in those areas designated for non-reserved parking, subject in each case to Landlord’s rules and regulations. Tenant shall have access to the parking areas serving the Premises 24 hours per day, 7 days a week, except in the case of Emergencies (as defined in Section 13 ), as the result of Legal Requirements, the performance by Landlord of any maintenance or repairs, or any other temporary interruptions. Tenant’s parking rights shall be subject to payment by Tenant to Landlord of Landlord’s then current parking charge. The current charge is $100 per parking space per month. Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay any rent for parking commencing on the Commencement Date through December 31, 2010. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project. Landlord agrees not to lease to third parties more parking spaces in the aggregate than are available at the Project.

 

11.          Utilities, Services . Landlord shall provide, subject to the terms of this Section 11 , water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services for the Common Areas (collectively, “ Utilities ”). Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon, but in all instances only the actual amount charged by such Utility provider or Governmental Authority shall be included as part of Operating Expenses, and Landlord shall not add any surcharge or other internal charge to such amounts. Notwithstanding the foregoing, any late fees, penalties or other charges associated with Landlord’s failure to timely pay any amounts due and payable by Landlord for Utilities shall not be included as part of Operating Expenses unless Landlord’s failure to timely pay for Utilities is due to Tenant’s failure to pay any amounts due from Tenant hereunder. If Landlord determines, in its reasonable discretion, that Tenant is using more than its pro rata share of jointly metered Utilities, Landlord may cause, at Tenant’s expense, such Utilities to be separately metered or charged directly to Tenant by the provider. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use. Tenant shall be responsible for obtaining and paying for its own janitorial services for the Premises.

 

Notwithstanding the foregoing, if any Essential Services are interrupted as a result of the gross negligence or willful misconduct of Landlord or the Landlord Parties and Tenant is unable to and does not conduct Tenant’s business operations in the Premises as a result thereof for a period of more than 5 consecutive business days after written notice from Tenant to Landlord of such interruption, Base Rent for the Premises shall be abated commencing on the expiration of such notice period and continuing during the period of such interruption provided that Tenant is unable to and does not conduct Tenant’s business operations in the Premises. As used herein, the term “ Essential Services ” shall mean the following services: access to the Premises, HVAC serving the laboratory portions of the Premises, water (other than deionized water), electricity, and sewer, but in each case only to the extent that Landlord has an obligation to provide same to Tenant under this Lease.

 

Landlord’s sole obligation for either providing emergency generators or providing emergency back-up power to Tenant shall be: (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of the Commencement Date, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturer’s standard maintenance guidelines. Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the manufacturer’s standard guidelines or otherwise. During any period of replacement, repair or maintenance of the emergency generators when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power. Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be operational at all times or that emergency power will be available to the Premises when needed.

 

 
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12.          Alterations and Tenant’s Property . Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 13 ) (“ Alterations ”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld or delayed. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord’s reasonable discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. In connection with Alterations affecting the Building structure or Building Systems, and for any other Alterations costing in excess of $25,000, Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 5% of all hard costs incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlord’s overhead and expenses for plan review, coordination, scheduling and supervision. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup. Subject to its review and approval of more detailed plans and specifications, Landlord hereby approves of Tenant’ s installation within the Premises, at Tenant’s sole cost and expense, of the alterations described on Exhibit H attached hereto (“ Approved Alterations ”), which Approved Alterations shall be constructed by Tenant in accordance with the terms of this Section 12 .

 

Tenant shall furnish security or make other arrangements reasonably satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company reasonably satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) “as built” plans for any such Alteration (if the Alteration was of the type for which “as built” plans would typically be prepared). Notwithstanding anything to the contrary contained herein, Tenant shall not be required to furnish security for Alterations costing less than $25,000.

 

 
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Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof. Notwithstanding the forgoing, Landlord shall, if requested in writing by Tenant, at the time its approval of any such Installation is requested, notify Tenant whether Landlord will require Tenant to remove such Installation upon the expiration or earlier termination of the Term, in which event such Installation shall be included within the definition of Removable Installations and Tenant shall remove such Installation in accordance with the immediately succeeding sentence. Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes. During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay per diem Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant' Property to waive any lien Landlord may have against any of Tenant's Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.

 

For purposes of this Lease, (x) “ Removable Installations ” means any items listed on Exhibit F attached hereto, those Installations included within the definition of Removable Installations pursuant to the second sentence of the immediately preceding paragraph, and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) “ Tenant’s Property ” means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) “ Installations ” means, except as otherwise specifically agreed upon on Exhibit F , all property of any kind paid for with the TI Fund, all Alterations, all fixtures, and all partitions, hardware, built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.

 

13.          Landlord’s Repairs . Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“ Building Systems ”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “ Tenant Parties ”) excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or Emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided , however , that Landlord shall, except in case of Emergency, make a commercially reasonable effort to give Tenant 2 business days advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements and Landlord shall endeavor to minimize interference with Tenant’s business operations at the Premises. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18 . As used in this Lease, “ Emergency ” or “ Emergencies ” shall mean an imminent threat to health or safety or an imminent threat of material damage to property.

 

 
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14.          Tenant’s Repairs . Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Such repair and replacement may include reasonably required capital expenditures and repairs whose benefit may extend beyond the Term. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 15 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an Emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant within 10 days after demand therefor. Subject to Sections 17 and 18 , Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.

 

15.          Mechanic’s Liens . Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the date on which Tenant received notice of the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property and removable intangible property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property and removable intangible property, located in an identified suite held by Tenant.

 

16.          Indemnification . Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or gross negligence of Landlord. Except as otherwise expressly provided in the second paragraph of this Section 16 , Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

 

Landlord hereby indemnifies and agrees to defend, save and hold Tenant harmless from and against any and all Claims for injury or death to persons or damage to property occurring at the Project to the extent caused by the willful misconduct or gross negligence of Landlord.

 

 
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Landlord and Tenant acknowledge that the indemnification provisions of this Section 16 were mutually and specifically negotiated and agreed upon by Landlord and Tenant. Landlord and Tenant agree that the provisions of this Section 16 shall govern the rights and obligations of the parties with respect to the aforesaid indemnities and that the protections of any state law to the contrary are hereby waived. Landlord and Tenant each expressly waives its immunity under industrial insurance, Title 51 RCW, to the extent necessary to give effect to the provisions of this Section 16 .

 

17.          Insurance . Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost. Landlord shall further procure and maintain commercial general liability insurance limits of not less than $2,000,000 per occurrence and $2,000,000 annual aggregate for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.

 

Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with minimum limits of not less than $2,000,000 per occurrence and $2,000,000 annual aggregate for bodily injury and property damage with respect to Tenant’s Property in the Premises. The commercial general liability insurance policy shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, “ Landlord Parties ”), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 10 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). Copies of such policies (if required by the Holder of any Mortgage affecting the Property), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenant’s policy may be a “blanket policy” with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, prior to the expiration of such policies, furnish Landlord with renewal certificates.

 

In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

 

 
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The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (“ Related Parties ”), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.

 

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project, provided, however, that the increased amount of coverage is consistent with coverage amounts then being required by institutional owners of similar projects with tenants occupying similar size premises in the geographical area in which the Project is located.

 

18.          Restoration . If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “ Restoration Period ”). If the Restoration Period is estimated to exceed 9 months (the “ Maximum Restoration Period ”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction; provided, however , that notwithstanding Landlord’s election to restore, Tenant may elect to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period. Unless either Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30 ) in, on or about the Premises (collectively referred to herein as “ Hazardous Materials Clearances ”); provided, however , that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 5 business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in which event Landlord shall be relieved of its obligation to make repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.

 

Tenant shall have no obligation to perform any repair or restoration of the Premises, or to reoccupy the Premises; provided, however, that so long as the Lease has not been terminated pursuant to this Section 18 , Tenant shall continue to comply with all of the provisions of this Lease including, without limitation, the payment of Rent. Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration Period. Landlord shall also have the right to terminate this Lease if insurance proceeds are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18 , Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

 

 
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The provisions of this Lease, including this Section 18 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.

 

19.          Condemnation . If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “ Taking ” or “ Taken ”), and the Taking would in Landlord’s reasonable judgment, materially interfere with or impair Landlord’s ownership or operation of the Project or would in the reasonable judgment of Landlord and Tenant either prevent or materially interfere with Tenant’s use of the Premises (as resolved, if the parties are unable to agree, by arbitration by a single arbitrator with the qualifications and experience appropriate to resolve the matter and appointed pursuant to and acting in accordance with the rules of the American Arbitration Association), then upon written notice by Landlord this Lease shall terminate and Rent shall be apportioned as of said date. Notwithstanding the foregoing, Tenant shall have the right to terminate this Lease if more than 50% of the Premises is the subject of a Taking. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.

 

20.          Events of Default . Each of the following events shall be a default (“ Default ”) by Tenant under this Lease:

 

(a)           Payment Defaults . Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law.

 

(b)           Insurance . Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed below the coverage required to be maintained by Tenant pursuant to this Lease, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 10 days before the expiration of the current coverage.

 

(c)           Abandonment . Tenant shall abandon the Premises. Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, Tenant completes Tenant’s obligations with respect to the Surrender Plan in compliance with Section 28 , (ii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iii) Tenant continues during the balance of the Term to satisfy all of its obligations under the Lease as they come due.

 

 
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(d)           Improper Transfer . Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

 

(e)           Liens . Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after Tenant receives notice that any such lien has been filed against the Premises.

 

(f)            Insolvency Events . Tenant or any guarantor or surety of Tenant’s obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “ Proceeding for Relief ”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

 

(g)           Estoppel Certificate or Subordination Agreement . Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 days after a second notice requesting such document.

 

(h)           Other Lease . Tenant is in Default (as such term is defined in the Other Lease) under that certain Lease Agreement between Landlord and Tenant dated of even date herewith, pursuant to which Landlord leases to Tenant and Tenant leases from Landlord space at 410 W. Harrison, Seattle, Washington (“ Other Lease ”); provided, however, that this Section 20(h) shall only apply for so long as ARE-Seattle No. 10, LLC, a Delaware limited liability company, or an entity controlled by Alexandria Real Estate Equities, Inc. remains the Landlord under this Lease.

 

(i)            Other Defaults . Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20 , and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant.

 

Any notice given under Section 20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the same to completion; provided , however , that such cure shall be completed no later than 90 days from the date of Landlord’s notice.

 

21.           Landlord’s Remedies .

 

(a)           Payment By Landlord; Interest . Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “ Default Rate ”), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.

 

 
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(b)           Late Payment Rent . Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 6% of the overdue Rent as a late charge. Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

 

(c)           Remedies . Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

 

(i)          Terminate this Lease, or at Landlord’s option, Tenant’s right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;

 

(ii)         Upon any termination of this Lease, whether pursuant to the foregoing Section 21(c)(i) or otherwise, Landlord may recover from Tenant the following:

 

(A)         The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

 

(B)         The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

(C)         The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

(D)         Any other amount reasonably necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including, but not limited to, reasonable costs incurred for brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

 

(E)         At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

 

The term “ rent ” as used in this Section 21 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 21(c)(ii) (A) and (B) , above, the “ worth at the time of award ” shall be computed by allowing interest at the Default Rate. As used in Section 21(c)(ii)(C) above, the “ worth at the time of award ” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.

 

 
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(iii)        Landlord may continue this Lease in effect after Tenant’s Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.

 

(iv)        Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. Upon Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

 

(v)         Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d) hereof, at Tenant’s expense.

 

(d)           Effect of Exercise . Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, both Landlord and Tenant shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord or Tenant at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlord’s or Tenant’s right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord or Tenant of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by the party against whom such waiver is sought to be enforced. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenant’s Default.

 

 
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22.          Assignment and Subletting .

 

(a)           General Prohibition . Without Landlord’s prior written consent subject to and on the conditions described in this Section 22 , Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 49% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22 . Notwithstanding the foregoing, Tenant shall have the right to obtain financing from institutional investors (including venture capital funding and corporate partners) which regularly invest in private biotechnology companies or undergo a public offering which results in a change in control of Tenant without such change of control constituting an assignment under this Section 22 requiring Landlord consent. A grant by Tenant of a license with respect to Tenant’s equipment or research facilities (as opposed to a license for the Premises) to (i) any vendor or service provider, or (ii) any party sharing research or research facilities with Tenant (“ Research Party ”), pursuant to which such vendor, service provider or Research Party shall be entering the Premises as an invitee of Tenant and will not have any legal right to occupy any portion of the Premises, shall not constitute an assignment or subletting requiring Landlord consent under this Section 22 . Notwithstanding anything to the contrary contained herein, Tenant shall be fully responsible for the acts of the parties entering the Premises pursuant to the immediately preceding sentence and Landlord shall have no liability to or in connection with such parties.

 

(b)           Permitted Transfers . If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 10 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “ Assignment Date ”), Tenant shall give Landlord a notice (the “ Assignment Notice ”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its sole and absolute discretion, if the proposed assignment, hypothecation or other transfer or subletting concerns more than (together with all other then effective subleases) 50% of the Premises, (iii) refuse such consent, in its reasonable discretion, if the proposed subletting concerns (together with all other then effective subleases) 50% or less of the Premises (provided that Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any such subletting), or (iv) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an “ Assignment Termination ”). If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice; provided, however, that Landlord shall, at its sole cost and expense, demise and otherwise segregate the portion of the Premises subject to the Assignment Termination and agrees to use reasonable efforts to minimize interference with Tenant’s business operations in connection with such demising. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer. Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents. Notwithstanding the foregoing, Landlord’s consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a “ Control Permitted Assignment ”) shall not be required, provided that Landlord shall have the right to approve the form of any such sublease or assignment. In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a legitimate business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles (“ GAAP ”)) of the assignee is not less than the greater of the net worth (as determined in accordance with GAAP) of Tenant as of the Commencement Date, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a “ Corporate Permitted Assignment ”). Control Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as “ Permitted Assignments .” Notwithstanding anything to the contrary contained herein, Landlord shall not have the right to deliver an Assignment Termination to Tenant in connection with a Permitted Assignment.

 

 
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(c)           Additional Conditions . As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:

 

(i)          that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease beyond applicable notice and cure periods, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however , in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

 

(ii)         A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

 

(d)           No Release of Tenant, Sharing of Excess Rents . Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease. Except with respect to a Permitted Assignment, if the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease, (excluding however, any Rent payable under this Section) and all actual and reasonable brokerage fees, legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease) (“ Excess Rent ”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

 

 
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(e)           No Waiver . The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

 

(f)           Prior Conduct of Proposed Transferee . Notwithstanding any other provision of this Section 22 , except in connection with either a Control Permitted Assignment or a Corporate Permitted Assignment, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination was material in nature and resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

 

23.          Estoppel Certificate . Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver such statement within 5 days of Landlord’s second request therefor shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

 

24.          Quiet Enjoyment . So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord or any Landlord Party.

 

25.          Prorations . All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.

 

26.          Rules and Regulations . Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit E . If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

 

 
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27.          Subordination . This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided , however that so long as there is no Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof. Tenant hereby appoints Landlord attorney-in-fact for Tenant irrevocably (such power of attorney being coupled with an interest) to execute, acknowledge and deliver any such instrument and instruments for and in the name of Tenant and to cause any such instrument to be recorded. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term “ Mortgage ” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “ Holder ” of a Mortgage shall be deemed to include the beneficiary under a deed of trust. As of the date of this Lease, there is no existing Mortgage encumbering the Project. Upon written request from Tenant, Landlord shall endeavor to obtain for execution by Tenant a commercially reasonable form of non-disturbance and attornment agreement (“ SNDA ”) executed by the Holder of any future Mortgage with a lien on the Project which provides, among other things, that so long as Tenant is not in Default of its obligations under this Lease, foreclosure or other enforcement of such Mortgage shall not terminate this Lease and the successor to Landlord’s interest in the Project shall recognize this Lease and Tenant’s right to possession of the Premises. The SNDA shall be on the form proscribed by the Holder and Tenant shall pay the Holder's fees and costs in connection with obtaining such SNDA; provided, however, that Landlord shall request that Holder make any changes to the SNDA reasonably requested by Tenant. Landlord's failure to cause the Holder to enter into the SNDA with Tenant (or make any of the changes requested by Tenant) shall not be a default by Landlord under this Lease.

 

28.          Surrender . Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “ Tenant HazMat Operations ”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the “ Surrender Plan ”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and reasonable approval of Landlord’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

 

 
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If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28 ; provided, however, that if it is determined prior to Tenant’s surrender of the Premises (without any obligation on the part of Landlord to do so prior to Tenant’s surrender of the Premises or the expiration of the Term) that the Surrender Plan failed to adequately address the residual effect of Tenant HazMat Operations, Landlord shall first provide Tenant with written notice of such failure and Tenant shall have the right to address such residual effect prior to the expiration of the Term. Nothing contained herein shall preclude Landlord from undertaking such work, at Tenant’s sole cost and expense, whether before or after Tenant’s surrender of the Premises if Tenant does not or fails to adequately do so. Notwithstanding anything to the contrary contained herein, in no event shall Landlord be required to permit Tenant to remain in the Premises following the expiration of the Term to address any residual effect of Tenant HazMat Operations.

 

Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

 

29.          Waiver of Jury Trial . TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

 

 
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30.          Environmental Requirements .

 

(a)           Prohibition/Compliance/Indemnity . Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “ Environmental Claims ”) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, [ the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project. Notwithstanding anything to the contrary contained in Section 28 or this Section 30 , Tenant shall not be responsible for, and the indemnification and hold harmless obligation set forth in this paragraph shall not apply to (i) contamination in the Premises which Tenant can prove existed in the Premises immediately prior to the Commencement Date, or (ii) the presence of any Hazardous Materials in the Premises which Tenant can prove migrated from outside of the Premises into the Premises, unless in either case, to the extent the presence of such Hazardous Materials (x) is the result of a breach by Tenant of any of its obligations under this Lease, or (y) was caused, contributed to or exacerbated by Tenant or any Tenant Party.

 

(b)           Business . Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“ Hazardous Materials List ”). Tenant shall deliver to Landlord an updated Hazardous Materials List once a year and shall provide Landlord with access to Tenant’s Hazardous Materials data sheets and reports which data sheets and reports shall reflect the Hazardous Materials being kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises by Tenant. Tenant shall deliver to Landlord true and correct copies of the following documents (the “ Haz Mat Documents ”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with proprietary information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.

 

 
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(c)           Tenant Representation and Warranty . Tenant hereby represents and warrants to Landlord that as of the date of this Lease (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord reasonably determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.

 

(d)           Testing . Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use. Tenant shall be required to pay the cost of such annual test of the Premises if there is violation of this Section 30 or if contamination for which Tenant is responsible under this Section 30 is identified; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant’s use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section 30 , Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

 

(e)           Control Areas . Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage. As used in the preceding sentence, Tenant's pro rata share of any control areas or zones located within the Premises shall be determined based on the rentable square footage that Tenant leases within the applicable control area or zone. For purposes of example only, if a control area or zone contains 10,000 rentable square feet and 2,000 rentable square feet of a tenant's premises are located within such control area or zone (while such premises as a whole contains 5,000 rentable square feet), the applicable tenant's pro rata share of such control area would be 20%.

 

 
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(f)           Underground Tanks . Tenant shall not install any underground or other storage tanks storing Hazardous Materials on the Premises or the Project without first obtaining Landlord’s advance written consent, which may be given or withheld in Landlord sole and absolute discretion. If Tenant is permitted to install any such storage tanks, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks. Nothing contained in this Section 30(f) shall serve to prohibit Tenant from using nitrogen gas or other gases or liquids within the Premises required for Tenant’s use of nuclear magnetic resonance equipment or other uses consistent with the Permitted Use and otherwise in compliance within the terms of this Lease and applicable Legal Requirements.

 

(g)           Tenant’s Obligations . Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be prorated daily.

 

(h)           Definitions . As used herein, the term “ Environmental Requirements ” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term “Hazardous Materials ” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the “ operator ” of Tenant’s “ facility ” and the “ owner ” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

 

(i)           Costs for Required Removal . Landlord hereby agrees that any reasonable out-of-pocket costs incurred by Tenant to remove (i) ACMs and PACMs, or (ii) Hazardous Materials (which Tenant can prove existed in the Premises immediately prior to the Commencement Date) from the Premises required by applicable Governmental Authorities or Legal Requirements (“ Required Removal ”) will be reimbursed by Landlord to Tenant within 30 days after Landlord’s receipt of evidence reasonably satisfactory to Landlord that such out-of-pocket costs were incurred by Tenant; provided, however, that Tenant shall provide Landlord with advance written notice of any Required Removal and Landlord shall have the right to elect to reasonably undertake the Required Removal itself, at its own cost.

 

31.          Tenant’s Remedies/Limitation of Liability . Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.

 

 
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Notwithstanding the foregoing, if any claimed Landlord default hereunder will immediately, materially and adversely affect Tenant’s ability to conduct its business in the Premises (a “ Material Landlord Default ”), Tenant shall, as soon as reasonably possible, but in any event within 2 business days of obtaining knowledge of such claimed Material Landlord Default, give Landlord written notice of such claim which notice shall specifically state that a Material Landlord Default exists and telephonic notice to Tenant’s principal contact with Landlord. Landlord shall then have 2 business days to commence cure of such claimed Material Landlord Default and shall diligently prosecute such cure to completion. If such claimed Material Landlord Default is not a default by Landlord hereunder, or if Tenant failed to give Landlord the notice required hereunder within 2 business days of learning of the conditions giving rise to the claimed Material Landlord Default, Landlord shall be entitled to recover from Tenant, as Additional Rent, any costs incurred by Landlord in connection with such cure in excess of the costs, if any, that Landlord would otherwise have been liable to pay hereunder. If Landlord fails to commence cure of any claimed Material Landlord Default as provided above, Tenant may commence and prosecute such cure to completion provided that it does not affect any Building Systems affecting other tenants, the Building structure or Common Areas, and shall be entitled to recover the costs of such cure (but not any consequential or other damages) from Landlord by way of reimbursement from Landlord with no right to offset against Rent, to the extent of Landlord’s obligation to cure such claimed Material Landlord Default hereunder, subject to the limitations set forth in the immediately preceding sentence of this paragraph and the other provisions of this Lease.

 

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term “ Landlord ” in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.

 

32.          Inspection and Access . Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance notice (except in the case of Emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant’s use or occupancy of the Premises for the Permitted Use. At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions so long as such instruments do not modify Tenant’s rights and obligations (including, without limitation, Tenant’s exclusive use of the Premises) or Landlord’s obligations under this Lease. Tenant shall at all times, except in the case of Emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder. Landlord or its agents, representatives, contractors or guests shall not enter the Premises unless escorted by Tenant while the same are in the Premises except in the case of an Emergency. Tenant will make an escort available on the date and at the time specified by Landlord in its advance notice to Tenant required above. Notwithstanding the foregoing, if Tenant fails to provide an escort on the day specified in Landlord’s notice, Landlord or its agents, representatives and contractors may enter the Premises without an escort. Landlord shall use reasonable efforts to comply with Tenant’s written protocol with respect to entering restricted portions of the Premises; provided, however, that a copy of the same has previously been provided to Landlord.

 

 
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33.          Security . Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

 

34.          Force Majeure . Except for the payment of amounts due and payable by Landlord, Landlord shall not be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions (despite Landlord’s good faith efforts to obtain the same), orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits (including, without limitation, in connection with the Tenant Improvements (as defined in the Work Letter))(despite Landlord’s good faith efforts to obtain the same), enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord (“ Force Majeure ”). For purposes of the restoration and repair obligations under Sections 18 (Restoration) and 19 (Condemnation) hereof, extensions of the time periods required therein for Force Majeure shall not exceed 60 days, regardless of whether any Force Majeure event might otherwise still apply thereafter.

 

35.          Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker ") in connection with this transaction and that no Broker brought about this transaction, other than GVA Kidder Matthews. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35 , claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction. Landlord shall be responsible for all fees of GVA Kidder Matthews arising out of the execution of this Lease in accordance with the terms of a separate written agreement between GVA Kidder Matthews and Landlord.

 

36.          Limitation on Landlord’s Liability . NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

 

 
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37.          Severability . If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

 

38.          Signs; Exterior Appearance . Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s reasonable discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering. The directory tablet shall be provided exclusively for the display of the name and location of tenants.

 

39.          Right to Extend Term . Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:

 

(a)           Extension Rights . So long as Tenant exercises its Extension Right (as defined in the Other Lease) pursuant to the Other Lease, Tenant shall have 1 right (an “ Extension Right ”) to extend the term of this Lease for 5 years (an “ Extension Term ”) on the same terms and conditions as this Lease (other than with respect to Base Rent) by giving Landlord written notice of its election to exercise the Extension Right at least 9 months prior to the expiration of the Base Term of the Lease. Notwithstanding anything to the contrary contained herein, so long as ARE-Seattle No. 10, LLC, a Delaware limited liability company, remains the Landlord under this Lease and the Other Lease, Tenant shall be deemed to have automatically elected to exercise its Extension Right under this Section 39(a) if Tenant has timely elected to exercise its Extension Right (as defined in the Other Lease) pursuant to Section 40(a) of the Other Lease.

 

Upon the commencement of any Extension Term, Base Rent shall be payable at the Market Rate (as defined below). Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by the Rent Adjustment Percentage. As used herein, “ Market Rate ” shall mean the then market rental rate as determined by Landlord and agreed to by Tenant, which shall in no event be less than the Base Rent payable as of the date immediately preceding the commencement of such Extension Term increased by the Rent Adjustment Percentage multiplied by such Base Rent. In addition, Landlord may impose a market rent for the parking rights provided hereunder.

 

If, on or before the date which is 180 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 39(b) . Tenant acknowledges and agrees that, if Tenant has elected to exercise the Extension Right by delivering notice to Landlord as required in this Section 39(a) , Tenant shall have no right thereafter to rescind or elect not to extend the term of the Lease for the Extension Term.

 

 
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(b)           Arbitration .

 

(i)          Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate, each party shall deliver to the other a proposal containing the Market Rate that the submitting party believes to be correct (“ Extension Proposal ”). If either party fails to timely submit an Extension Proposal, the other party’s submitted proposal shall determine the Base Rent for the Extension Term. If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate. If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator. If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted proposal shall determine the Base Rent for the Extension Term. The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.

 

(ii)         The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable. The decision of the single Arbitrator shall be final and binding upon the parties. The average of the two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties. Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties. If the Market Rate are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by the Rent Adjustment Percentage until such determination is made. After the determination of the Market Rate, the parties shall make any necessary adjustments to such payments made by Tenant. Landlord and Tenant shall then execute an amendment recognizing the Market Rate for the Extension Term.

 

(iii)        An “ Arbitrator ” shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and: (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the greater Seattle metropolitan area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the greater Seattle metropolitan area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.

 

(c)           Rights Personal . Extension Rights are personal to Tenant and are not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.

 

(d)           Exceptions . Notwithstanding anything set forth above to the contrary, at Landlord’s option, Extension Rights shall not be in effect and Tenant may not exercise any of the Extension Rights:

 

(i)          during any period of time that Tenant is in Default under any provision of this Lease; or

 

 
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(ii)         if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise an Extension Right, whether or not the Defaults are cured.

 

(e)           No Extensions . The period of time within which any Extension Rights may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Extension Rights.

 

(f)           Termination . The Extension Rights shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of an Extension Right, if, after such exercise, but prior to the commencement date of an Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of an Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

 

40.          Intentionally Omitted .

 

41.          Asbestos .

 

(a)           Notification of Asbestos . Landlord hereby notifies Tenant of the presence of asbestos-containing materials (“ ACMs ”) and/or presumed asbestos-containing materials (“ PACMs ”) within or about the Premises in the location identified in Exhibit G .

 

(b)           Tenant Acknowledgement . Tenant hereby acknowledges receipt of the notification in paragraph (a) of this Section 41 and understands that the purpose of such notification is to make Tenant and any agents, employees, and contractors of Tenant, aware of the presence of ACMs and/or PACMs within or about the Building in order to avoid or minimize any damage to or disturbance of such ACMs and/or PACMs.

 

/s/ RO
Tenant’s Initials

 

(c)           Acknowledgement from Contractors/Employees . Tenant shall give Landlord at least 14 days’ prior written notice before conducting, authorizing or permitting any of the activities listed below within or about the Premises, and before soliciting bids from any person to perform such services. Such notice shall identify or describe the proposed scope, location, date and time of such activities and the name, address and telephone number of each person who may be conducting such activities. Thereafter, Tenant shall grant Landlord reasonable access to the Premises to determine whether any ACMs or PACMs will be disturbed in connection with such activities. Tenant shall not solicit bids from any person for the performance of such activities without Landlord’s prior written approval. Upon Landlord’s request, Tenant shall deliver to Landlord a copy of a signed acknowledgement from any contractor, agent, or employee of Tenant acknowledging receipt of information describing the presence of ACMs and/or PACMs within or about the Premises in the locations identified in Exhibit G prior to the commencement of such activities. Nothing in this Section 41 shall be deemed to expand Tenant’s rights under the Lease or otherwise to conduct, authorize or permit any such activities.

 

(i)          Removal of thermal system insulation (“ TSI ”) and surfacing ACMs and PACMs (i.e., sprayed-on or troweled-on material, e.g., textured ceiling paint or fireproofing material);

 

(ii)         Removal of ACMs or PACMs that are not TSI or surfacing ACMs or PACMs; or

 

(iii)        Repair and maintenance of operations that are likely to disturb ACMs or PACMs.

 

(d)           Indemnity Obligations for ACMs and PACMs . Notwithstanding anything to the contrary contained in this Lease (including, without limitation, Sections 16 and 30 ), Landlord agrees to indemnify, defend and hold Tenant and any Tenant Parties claiming by, through or under Tenant harmless from and against any and all Claims for injury or death to persons resulting from the presence of the ACMs and PACMs shown on Exhibit H , except to the extent caused by (i) the gross negligence or intentional misconduct of Tenant, or (ii) the breach of this Lease by Tenant or any Tenant Parties including, without limitation, the failure of Tenant or any Tenant Parties to comply with Section 42(c) of this Lease.

 

 
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42.          Roof Equipment . Subject to the provisions of this Lease, Tenant may, at its sole cost, install, maintain, and from time to time replace a satellite dish and/or antenna, security cameras and other equipment consistent with the Permitted Use of the Premises (e.g., supplemental HVAC) on the roof of the Building (collectively, “ Roof Equipment ”), at no additional rental expense to Tenant (other than reimbursing Landlord for any costs incurred by Landlord in connection with the exercise by Tenant of any rights granted to Tenant under this Section 42 ); provided, however, that (i) Tenant shall obtain Landlord’s prior written approval of the proposed size, weight and location of the Roof Equipment and method for fastening the same to the roof, (ii) Tenant shall, at its sole cost, comply with reasonable requirements imposed by Landlord and all Legal Requirements and the conditions of any bond or warranty maintained by Landlord on the roof, (iii) Tenant shall be responsible for paying for any structural upgrades that may be required by Landlord in connection with the Roof Equipment, and (iv) Tenant shall remove, at its expense, at the expiration or earlier termination of this Lease, any Roof Equipment which Landlord requires to be removed. Landlord shall have the right supervise any roof penetration. Tenant shall repair any damage to the Building caused by Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment. The Roof Equipment shall remain the property of Tenant. Tenant shall remove the Roof Equipment at its cost upon expiration or termination of the Lease or sooner, at the request of Landlord, if any of the same unreasonably interferes, as determined by Landlord, with the operation of any other tenant’s use of the Project. Landlord shall give Tenant written notice and 30 days to cure such interference before requiring Tenant to remove any Roof Equipment; provided, however, that if such interference causes Landlord to be in default under any other lease, Landlord may shorten the cure period as necessary to avoid being in default under such other lease. Tenant shall install, use, maintain and repair the Roof Equipment, and use the access areas, so as not to damage or interfere with the operation of the Building or with the occupancy or activities of any other tenant of the Building. Tenant shall protect, defend, indemnify and hold harmless Landlord from and against claims, damages, liabilities, costs and expenses of every kind and nature, including attorneys’ fees, incurred by or asserted against Landlord arising out of Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment. Tenant’s right to use the roof as contemplated in this Section 42 is not exclusive and Tenant may not install any Roof Equipment on the roof which is not directly and solely related to Tenant’s operations at the Premises. Tenant shall not have any right to place Roof Equipment on more than Tenant’s pro rata share of the space the roof available to tenants of the Project for the installation of Roof Equipment.

 

43.          Sales Tax Deferral/Exemption .

 

(a)          Retail sales tax otherwise applicable to portions of construction of the Tenant Improvements may be eligible for deferral pursuant to RCW 82.63 (the “ Sales Tax Deferral ”) as a result of Tenant's intended use of the Premises. Promptly following the execution of this Lease, Tenant shall prepare and process applications with the Washington State Department of Revenue for a deferral of state and local sales and use taxes with respect to the construction of the Tenant Improvements. Landlord shall, at no cost or expense to Landlord, cooperate with Tenant's preparation and processing of such applications. Tenant shall notify Landlord in writing once the Sales Tax Deferral has been granted by the Department of Revenue. If the retail sales tax for any of the Tenant Improvements requested by Tenant is deferred, and if, for any reason, any part of the retail sales tax so deferred is subsequently required to be repaid, Tenant shall promptly pay the same, together with any interest, penalties, or other charges that are or become due in connection therewith, and Tenant shall indemnify and hold Landlord harmless from any and all costs, expenses, losses, damages, liability and claims arising out of or related to any retail sales tax deferral for the Tenant Improvements. Tenant acknowledges and agrees that Landlord shall have no liability in the event that any design, construction, construction management services and/or any other activities performed by Landlord prior to the date hereof preclude or limit Tenant’s ability to obtain the Sales Tax Deferral. Landlord hereby agrees that, to the extent Landlord realizes cost savings because of the tax deferral, Landlord shall pass the economic benefit to Tenant in the form of an additional tenant improvement allowance. Any delay in the design or construction of the Tenant Improvements arising from or in connection with any Sales Tax Deferral shall constitute a Tenant Delay.

 

 
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(b)          Tenant shall on an annual basis report to Landlord the nature of Tenant’s use of the Premises and the extent to which such use does not qualify for the Sales Tax Deferral and complete the annual survey required by RCW 82.63.020. Tenant shall, after consultation with Landlord, be responsible for reporting any non-qualifying use to the State of Washington Department of Revenue and paying any tax (plus any interest or penalties) resulting from the non-qualifying use and shall deliver copies of the same to Landlord concurrently with its delivery of the same to the State of Washington Department of Revenue. Tenant acknowledges and agrees that, as between Landlord and Tenant, Tenant shall be solely responsible for paying for any tax resulting from any non-qualifying use.

 

(c)          Landlord will, at no cost or expense to Landlord, reasonably cooperate with and assist Tenant in any challenges or audits to the Sales Tax Deferral benefit. In any contest regarding the Sales Tax Deferral benefit, Tenant shall be the main contact with the Department of Revenue; provided, however, that Tenant shall promptly provide Landlord with copies of any correspondence between Tenant and the Department of Revenue and Landlord shall have the right to be present at any and all meetings or proceedings relating to any such contest. Landlord and Tenant shall promptly notify each other of any such challenges or audits that they become aware of and will promptly forward to one another any correspondence regarding any such challenge or audit. Tenant shall have the right to contest or review any proceedings regarding the Sales Tax Deferral benefit, which may be instituted either during or after the Term of this Lease. Landlord will on a timely basis execute all reasonably necessary instruments submitted by Tenant to Landlord for execution in connection with any such protest, appeal or other proceedings, provided, however, that the same are reasonably acceptable to Landlord. If any proceeding may only be instituted and maintained by Landlord, then Landlord shall do so at Tenant’s cost and expense upon the request of Tenant. Landlord shall not settle any appeal or other proceeding with respect to such Sales Tax Deferral without obtaining Tenant’s prior written approval in each instance (not to be unreasonably withheld, conditioned or delayed). Landlord shall not abandon any appeal without first offering to Tenant the right to prosecute such appeal at Tenant’s expense, which election Tenant shall make by written notice to Landlord within 15 days after notice by Landlord of its intent to so abandon its appeal. Tenant shall be entitled to any resulting refund obtained by reason of any such proceeding or otherwise, whether obtained during or after the expiration of the Term and whether obtained by Landlord or Tenant. Tenant shall indemnify and hold Landlord harmless from any and all costs, expenses, losses, damages, liability and claims arising out of or related to Landlord’s compliance with the provisions of this Section 43(c) , including, without limitation, as a result of the execution of any instruments provided to Landlord by Tenant for execution.

 

44.          Miscellaneous .

 

(a)           Notices . All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

 

(b)           Joint and Several Liability . If and when included within the term “ Tenant ,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

 

 
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(c)           Financial Information . Tenant shall furnish Landlord with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 120 days of the end of each of Tenant’s fiscal years during the Term, (ii) Tenant’s most recent unaudited quarterly financial statements within 60 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term, (iii) at Landlord’s request from time to time, but not more frequently than once each year, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders. So long as Tenant is a “public company” and its financial information is publicly available, then the foregoing delivery requirements of this Section 44(c) shall not apply.

 

(d)           Recordation . Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

 

(e)           Interpretation . The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

 

(f)            Not Binding Until Executed . The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

 

(g)           Limitations on Interest . It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

 

(h)           Choice of Law . Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

 

(i)            Time . Time is of the essence as to the performance of Tenant’s and Landlord’s obligations under this Lease.

 

(j)            OFAC . Both Landlord and Tenant are currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

 

(k)           Incorporation by Reference . All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 35

 

(l)           Entire Agreement . This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.

 

(m)           No Accord and Satisfaction . No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.

 

(n)           Hazardous Activities . Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

 

(o)           Landlord Lien Waiver . If Tenant shall lease or finance the acquisition of any specifically enumerated equipment/personal property not paid for in whole or in part by Landlord which Tenant is permitted under this Lease to remove at the expiration or earlier termination of this Lease, Landlord shall, upon written request from Tenant, enter into an agreement, utilizing Landlord’s standard form of lien waiver or another form acceptable to Landlord in its sole discretion, with Tenant and Tenant’s lender which agreement shall, among other things, govern the parties’ rights with respect to such specifically enumerated equipment/personal property.

 

[ Signatures are on the next page ]

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 36

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By: /s/ Robert W. Overell
  Its: President & CEO
   
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC ,
  a Delaware limited liability company
   
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
     
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
       
      By:        /s/ Eric S. Johnson
      Its: Eric S. Johnson, Vice President, Real Estate Legal Affairs

 

 
Net Multi-Tenant Laboratory 410 Elliott/PhaseRx - Page 37

 

[TENANT NOTARIAL ACKNOWLEDGMENT]

 

STATE OF WA )
    )  ss.
COUNTY OF King )

 

On ___ Feb 5, 2010 ___________ before me, Jenny Lee Zierman _ (here insert name and title of the officer), personally appeared Robert W. Overell ____, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

 

Signature /s/ Jenny Lee Zierman   (Seal)

 

[LANDLORD NOTARIAL ACKNOWLEDGMENT]

 

STATE OF California )
    )  ss.
COUNTY OF Los Angeles )

 

On February 9, 2010 before me, Charles L. Murphy (Notary Public here insert name and title of the officer ), personally appeared Eric S Johnson , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person (s) whose name (s) is /are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity (ies) , and that by his /her/their signature (s) on the instrument the person (s) , or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

 

Signature /s/ Charles L. Murphy   (Seal)

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT A TO LEASE

 

DESCRIPTION OF PREMISES

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT B TO LEASE

 

DESCRIPTION OF PROJECT

 

LOTS 7 THROUGH 11 INCLUSIVE, BLOCK 5, D.T. DENNY’S WATERFRONT ADDITION TO THE CITY OF SEATTLE, ACCORDING TO THE PLAT RECORDED IN VOLUME 2 OF PLATS, PAGE 61, RECORDS OF KING COUNTY, WASHINGTON.

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT C TO LEASE

 

INTENTIONALLY OMITTED

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT D TO LEASE

 

ACKNOWLEDGMENT OF COMMENCEMENT DATE

 

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this _____ day of _____________, ____________________________, between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (“ Landlord ”), and PHASERX INC. , a Delaware corporation (“ Tenant ”), and is attached to and made a part of the Lease dated ____________, __________ (the “ Lease ”), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

 

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date of the Base Term of the Lease is ____________, _____________, the Rent Commencement Date is ________________, __________ and the termination date of the Base Term of the Lease shall be midnight on ______________, __________. In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

 

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By:  
  Its:  
   
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC ,
  a Delaware limited liability company
   
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
     
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By:  
      Its:  

 

 
Rules and Regulations 410 Elliott/PhaseRx - Page 1

 

EXHIBIT E TO LEASE

 

Rules and Regulations

 

1.          The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.

 

2.          Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

 

3.          Except for animals assisting the disabled and in connection with the Permitted Use, no animals shall be allowed in the Project.

 

4.          Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

 

5.          If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant’s expense.

 

6.          Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. This paragraph shall not apply to those materials expressly permitted under the Lease.

 

7.          Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no “For Sale” or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

 

8.          Except in connection with the Permitted Use, Tenant shall maintain the Premises free from rodents, insects and other pests.

 

9.          Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

 

10.         Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness.

 

11.         Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

 

12.         Except as may be expressly provided for in the Lease, Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

 

 
Rules and Regulations 410 Elliott/PhaseRx - Page 2

 

13.         All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

 

14.         No auction, public or private, will be permitted on the Premises or the Project.

 

15.         No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

 

16.         The Premises shall not be used for lodging, sleeping or cooking or for any pornographic or illegal purposes or for any purpose other than that specified in the Lease; provided, however that cooking shall be permitted in a kitchen or employee break room. No gaming devices shall be operated in the Premises.

 

17.         Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

 

18.         Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

 

19.         Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s Permitted Use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

 

 
Rules and Regulations 410 Elliott/PhaseRx - Page 1

 

EXHIBIT F TO LEASE

 

TENANT’S PERSONAL PROPERTY

 

Any of the following items which have been installed in the Premises and paid for by Tenant are and shall remain Tenant ’s Personal Property and considered Removable Installations notwithstanding anything the contrary contained in the Lease:

 

1. Nuclear magnetic resonance equipment

 

2. Compressors

 

3. Fume hoods

 

4. Laminar flow hoods

 

5. Bio-safety cabinets

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT G TO LEASE

 

ASBESTOS DISCLOSURE

 

NOTIFICATION OF THE PRESENCE OF ASBESTOS CONTAINING MATERIALS

 

This notification provides certain information about asbestos within or about the Premises at 410 Elliot Street, Seattle, WA (“Building”) and in accordance with Washington Administrative Code, Chapter 296-62-07721.

 

Historically, asbestos was commonly used in building products used in the construction of buildings across the country. Asbestos-containing building products were used because they are fire-resistant and provide good noise and temperature insulation. Because of their prevalence, asbestos-containing materials, or ACMs, are still sometimes found in buildings today.

 

An asbestos survey of the Building has determined that ACMs and/or materials that might contain ACMs, referred to as presumed asbestos-containing materials or PACMs, are present within or about the Premises. The surveys found ACMs and/or PACMs of the types, in the amounts and at the following location in or about the Premises:

 

Material Description   Material Location
Linoleum and mastic, various colors (assumed)   Rooms 103,104, restroom, and portions of room 203
Roofing materials (assumed)   Throughout roof
Floor tile and mastic (beneath carpet)   Rooms 101 A, 103A, and closet

 

Because ACMs and PACMs are present and may continue to be present within or about the Building, we have hired an independent environmental consulting firm to prepare an operations and maintenance program (“ O&M Program ”). The O&M Program is designed to minimize the potential of any harmful asbestos exposure to any person within or about the Building. The O&M Program includes a description of work methods to be taken in order to maintain any ACMs or PACMs within or about the Building in good condition and to prevent any significant disturbance of such ACMs or PACMs. Appropriate personnel receive regular periodic training on how to properly administer the O&M Program.

 

The O&M Program describes the risks associated with asbestos exposure and how to prevent such exposure through appropriate work practices. ACMs and PACMs generally are not thought to be a threat to human health unless asbestos fibers are released into the air and inhaled. This does not typically occur unless (1) the ACMs are in a deteriorating condition, or (2) the ACMs have been significantly disturbed (such as through abrasive cleaning, or maintenance or renovation activities). If inhaled, asbestos fibers can accumulate in the lungs and, as exposure increases, the risk of disease (such as asbestosis or cancer) increases. However, measures to minimize exposure, and consequently minimize the accumulation of asbestos fibers, reduce the risks of adverse health effects.

 

The O&M Program describes a number of activities that should be avoided in order to prevent a release of asbestos fibers. In particular, you should be aware that some of the activities which may present a health risk include moving, drilling, boring, or otherwise disturbing ACMs. Consequently, such activities should not be attempted by any person not qualified to handle ACMs.

 

The O&M Program is available for review during regular business hours at our office located at 1600 Fairview Avenue East, Suite 100, Seattle WA 98102.

 

 
410 Elliott/PhaseRx - Page 1

 

EXHIBIT H TO LEASE

 

APPROVED ALTERATIONS

 

1. Addition of shower(s) adjacent to or near existing bathroom

 

2. Potential addition of double door near existing compressor

 

 

 

 

Exhibit 10.4

 

[410 Elliott/First Amendment]

 

FIRST AMENDMENT TO LEASE

 

THIS FIRST AMENDMENT TO LEASE (this " First Amendment ") is made as of October 1 , 2014, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010 (the " Lease ". Pursuant to the Lease, Tenant leases certain premises consisting of approximately 2,896 rentable square feet (" Premises ") in a building located at 410 Elliott, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.             The Base Term of the Lease expires on September 30, 2015.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 3 months to expire on December 31, 2015, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on December 31, 2015.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on September 30, 2015. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right .

 

(a) The first sentence of the first paragraph of Section 39(a) of the Lease is hereby deleted in its entirety and replaced with the following:

 

“So long as Tenant exercises its Extension Right (as defined in the Other Lease) pursuant to the Other Lease, Tenant shall have 1 right (an " Extension Right ") to extend the term of this Lease for 5 years (an " Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent) by giving Landlord written notice of its election to exercise the Extension Right on or before June 30, 2015.”

 

(b) The first sentence of the third paragraph of Section 39(a) of the Lease is hereby deleted in its entirety and replaced with the following:

 

lf, on or before the date which is 120 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord's determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 40(b).”

 

    1

 

 

[410 Elliott/First Amendment]  

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this First Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

5. Miscellaneous .

 

a.            This First Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This First Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this First Amendment, understands them, and is bound by them. Time is of the essence in this First Amendment.

 

d.            This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto.

 

e.            Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment.

 

[Signatures are on the next page]

 

    2

 

 

[410 Elliott/First Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this First Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By: /s/ Robert W. Overell
  Its: President & CEO

 

  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, VP Real Estate Legal Affairs

 

    3

 

 

Exhibit 10.5

 

[410 Elliott/Second Amendment]

 

SECOND AMENDMENT TO LEASE

 

THIS SECOND AMENDMENT TO LEASE (this " Second Amendment ") is made as of May 21 , 2015, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease Agreement (“ First Amendment ”) dated October 1, 2014 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 2,896 rentable square feet (" Premises ") in a building located at 410 Elliott, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.         The Base Term of the Lease expires on December 31, 2015.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 2 months to expire on February 29, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on February 29, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on December 31, 2015. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 39(a) of the Lease (as amended by Section 3 of the First Amendment) is hereby deleted in its entirety and replaced with the following:

 

“So long as Tenant exercises its Extension Right (as defined in the Other Lease) pursuant to the Other Lease, Tenant shall have 1 right (an " Extension Right ") to extend the term of this Lease for 5 years (an " Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent) by giving Landlord written notice of its election to exercise the Extension Right on or before August 31, 2015.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Second Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

  1

 

 

[410 Elliott/Second Amendment]

 

5. Miscellaneous .

 

a.            This Second Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Second Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Second Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Second Amendment, understands them, and is bound by them. Time is of the essence in this Second Amendment.

 

d.            This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto.

 

e.            Except as amended and/or modified by this Second Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Second Amendment. In the event of any conflict between the provisions of this Second Amendment and the provisions of the Lease, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment.

 

[Signatures are on the next page]

 

  2

 

 

[410 Elliott/Second Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Second Amendment as of the day and year first above written.

 

  TENANT:  
   
  PHASERX INC.,  
  a Delaware corporation  
         
  By: /s/ Robert W. Overell  
  Its: President & CEO  
     
  LANDLORD:  
   
  ARE-SEATTLE NO. 10, LLC,    
  a Delaware limited liability company  
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,   
    managing member  
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, Senior Vice President RE Legal Affairs

  

  3

 

Exhibit 10.6

 

[410 Elliott/Third Amendment]

 

THIRD AMENDMENT TO LEASE

 

THIS THIRD AMENDMENT TO LEASE (this " Third Amendment ") is made as of September 8 , 2015, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease Agreement (“ First Amendment ”) dated October 1, 2014, and that certain Second Amendment to Lease Agreement (“ Second Amendment ”) dated May 21, 2015 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 2,896 rentable square feet (" Premises ") in a building located at 410 Elliott, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.             The Base Term of the Lease expires on February 29, 2016.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 6 months to expire on August 31, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on August 31, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on February 29, 2016. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 39(a) of the Lease (as amended by Section 3 of the First Amendment and Section 3 of the Second Amendment) is hereby deleted in its entirety and replaced with the following:

 

“So long as Tenant exercises its Extension Right (as defined in the Other Lease) pursuant to the Other Lease, Tenant shall have 1 right (an " Extension Right ") to extend the term of this Lease for 5 years (an " Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent) by giving Landlord written notice of its election to exercise the Extension Right on or before February 29, 2016.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Third Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

    1

 

  

[410 Elliott/Third Amendment]

 

5. Miscellaneous .

 

a.            This Third Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Third Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Third Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Third Amendment, understands them, and is bound by them. Time is of the essence in this Third Amendment.

 

d.            This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto.

 

e.            Except as amended and/or modified by this Third Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Third Amendment. In the event of any conflict between the provisions of this Third Amendment and the provisions of the Lease, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment.

 

[Signatures are on the next page]

 

    2

 

 

[410 Elliott/Third Amendment]  

 

IN WITNESS WHEREOF , the parties hereto have executed this Third Amendment as of the day and year first above written.

 

  TENANT:
     
  PHASERX INC. ,
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Its: CEO

 

  LANDLORD:
     
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
     
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, Senior Vice President RE Legal Affairs

 

    3

 

 

Exhibit 10.7

 

LEASE AGREEMENT

 

THIS LEASE AGREEMENT (this “ Lease ”) is made this 9 th day of February , 2010, between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (“ Landlord ”), and PHASERX INC. , a Delaware corporation (“ Tenant ”).

 

Address: 410 West Harrison, Seattle, Washington
   
Premises: The entire third floor of the Project, containing approximately 11,291 rentable square feet, as shown on Exhibit A .
   
Project: The real property on which the building (the “ Building ”) in which the Premises are located, together with all improvements thereon and appurtenances thereto as described on Exhibit B .
   
Base Rent: $24.30 per rentable square foot of the Premises per annum, subject to adjustment as provided for in Section 4 hereof.

 

Rentable Area of Premises: 11,291 sq. ft.

 

Rentable Area of Project:    32,279 sq. ft. Tenant’s Share of Operating Expenses:    34.98%
   
Security Deposit:    $50,000.00 Target Commencement Date:    March 31, 2010
   

Rent Adjustment Percentage: 3%

 

Base Term: Beginning on the Commencement Date and ending 65 months from the first day of the first full month of the Term (as defined in Section 2 ) hereof.
   
Permitted Use: Laboratory, related office and other related uses consistent with the uses of other tenants of the Project as permitted by Landlord and otherwise in compliance with the provisions of Section 7 hereof.

 

Address for Rent Payment: Landlord’s Notice Address:
P.O. Box 975383 385 E. Colorado Boulevard, Suite 299
Dallas, TX 75397-5383 Pasadena, CA 91101
  Attention: Corporate Secretary

 

Tenant’s Notice Address:

410 West Harrison

Seattle, WA 98119

Attention: Lease Administrator

 

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

 

x EXHIBIT A - PREMISES DESCRIPTION x EXHIBIT B - DESCRIPTION OF PROJECT
x EXHIBIT C WORK LETTER x EXHIBIT D - COMMENCEMENT DATE
x EXHIBIT E - RULES AND REGULATIONS x EXHIBIT F TENANT’S PERSONAL PROPERTY
x EXHIBIT G REMAINING IMPROVEMENTS x EXHIBIT H ASBESTOS DISCLOSURE
x EXHIBIT I EXPANSION SPACE x EXHIBIT J APPROVED ALTERATIONS
x EXHIBIT K SPACE PLAN    

 

 
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1.           Lease of Premises . Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the “ Common Areas .” Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant’s use of the Premises for the Permitted Use.

 

2.           Delivery; Acceptance of Premises; Commencement Date . Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with Landlord’s Work (other than the Remaining Improvements (as defined below)) Substantially Completed (“ Delivery ” or “ Deliver ”). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 90 days of the Target Commencement Date for any reason other than Force Majeure Delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. As used herein, the terms “ Landlord’s Work ,” “ Tenant’s Work ,” “ Force Majeure Delays ,” “ Tenant Delays ” and “ Substantially Completed ” shall have the meanings set forth for such terms in the Work Letter. If Tenant does not elect to void this Lease within 5 business days of the lapse of such 90 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect. In the event that this Lease is terminated pursuant to this paragraph, the Other Lease (as defined in Section 20g ) shall automatically terminate concurrently with this Lease.

 

The “Commencement Date ” shall be the earlier of: (i) the date Landlord Delivers the Premises to Tenant; or (ii) the date Landlord could have Delivered the Premises but for Tenant Delays. The “ Rent Commencement Date ” shall be the date that is 5 months after the Commencement Date; provided, however, that, notwithstanding anything to the contrary contained in this Agreement, (i) Tenant shall be entitled to 1 day of abatement of Base Rent first coming due under this Lease, not to exceed 60 days, for each day after the Target Commencement Date through the date that Landlord’s Work would have been Substantially Completed but for Force Majeure delays or Tenant Delays, and (ii) the Base Term of the Lease shall be extended 1 day for each day that Base Rent is abated. Notwithstanding anything to the contrary contained herein, in no event shall Landlord have any obligation to deliver the Premises to Tenant prior to the expiration of the existing lease affecting the Premises as of the date of this Lease; provided, however, that in no event shall the failure of the existing tenant to timely surrender the Premises be considered a Force Majeure delay nor shall it cause a delay in the Target Commencement Date. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date, the Rent Commencement Date and the expiration date of the Term when such are established in the form of the “Acknowledgement of Commencement Date” attached to this Lease as Exhibit D ; provided , however , Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder. The “ Term ” of this Lease shall be the Base Term, as defined above on the first page of this Lease and, if applicable, the Extension Term which Tenant may elect pursuant to Section 40 hereof.

 

Tenant acknowledges that Landlord shall require access to portions of the Premises after the Commencement Date in order to complete Landlord’s Work in that portion of the Premises described on Exhibit G (“ Remaining Improvements ”). Landlord and its contractors and agents shall have the right to enter the Premises to complete the Remaining Improvements and Tenant shall cooperate with Landlord in connection with the same. Landlord shall use reasonable efforts (and shall cause its contractors and agents to use reasonable efforts) to minimize interference with Tenant’s business operations arising from the completion of the Remaining Improvements; provided, however, that in no event shall Landlord have any obligation to incur any additional or overtime costs to complete the Remaining Improvements. Tenant acknowledges that Landlord's completion of the Remaining Improvements may adversely affect Tenant’s use and occupancy of the Premises. Tenant waives all claims against Landlord in connection with the Remaining Improvements including, without limitation, claims for rent abatement.

 

 
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Landlord and Tenant acknowledge and agree that the Space Plan attached to this Lease as Exhibit K has been approved by both Landlord and Tenant.  Provided that Landlord is in a position to apply to the applicable Governmental Authorities for the building permits (based on the Space Plan) required for the construction of the Remaining Improvements by February 15, 2010 (“ Permit Submittal Date ”), Landlord shall use reasonable efforts to Substantially Complete the Remaining Improvements on or before July 1, 2010 (“ Target RI Completion Date ”).  The Target RI Completion Date shall be extended 1 day for each day  after the Permit Submittal Date that Landlord is not in a position to apply to the applicable Governmental Authorities for the building permits required for the construction of the Remaining Improvements as a result of changes to the Space Plan. If Landlord fails to timely Substantially Complete the Remaining Improvements, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Substantially Complete the Remaining Improvements on or before the Target RI Completion Date, Tenant’s obligation to pay Operating Expenses for the portion of the Premises in which the Remaining Improvements are being constructed shall be abated commencing on the Target RI Completion Date, through the date upon which Landlord Substantially Completes the Remaining Improvements. If Landlord does not Substantially Complete the Remaining Improvements within 90 days of the Target RI Completion Date for any reason other than Force Majeure delays and Tenant Delays, this Lease may be terminated by Tenant by written notice to Landlord, and if so terminated by Tenant: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) Tenant shall vacate the Premises and deliver possession thereof to Landlord in the condition required by the terms of this Lease within 30 days after Tenant delivers Landlord written notice of its election to terminate the Lease pursuant to this paragraph, and (c) Tenant shall have no further obligations under this Lease except for those accruing prior to the date that Tenant surrenders the Premises and those which, pursuant to the terms of the Lease, survive the expiration or early termination of the Lease. If Tenant does not elect to terminate this Lease within 5 business days of the lapse of such 90 day period (as extended by Force Majeure delays and Tenant Delays), such right to terminate this Lease shall be waived and this Lease shall remain in full force and effect. In the event that this Lease is terminated pursuant to this paragraph, the Other Lease shall automatically terminate concurrently with this Lease.

 

Landlord hereby agrees to permit Tenant access, at Tenant's sole risk and expense, to the Building (i) 3 business days prior to the Commencement Date to perform any work (" Tenant's Work ") required by Tenant other than Landlord's Work, provided that such Tenant's Work is coordinated with the TI Architect (as defined in the Work Letter) and the general contractor, and complies with this Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of Landlord's Work, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord. Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect. Any entry by Tenant shall comply with all established safety practices of Landlord's contractor and Landlord until completion of Landlord's Work and acceptance thereof by Tenant. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, excluding the obligation to pay Base Rent and Operating Expenses.

 

Except as set forth in the Work Letter or as otherwise set forth in this Lease: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises; and (iii) Tenant’s taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken. Any occupancy of the Premises by Tenant before the Commencement Date shall be subject to all of the terms and conditions of this Lease, except the obligation to pay Base Rent. Tenant, along with Landlord, shall be entitled to receive the benefit of all construction warranties and manufacturer's equipment warranties relating to Landlord’s Work.

 

 
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For the period of 24 months after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any replacements that are required to be made to the mechanical, plumbing and electrical systems serving the Premises, except to the extent Tenant was responsible for the cause of such replacement, in which case Tenant shall pay the cost. Any repairs and maintenance of the mechanical, plumbing and electrical systems serving the Premises shall be undertaken by Landlord as part of Operating Expenses.

 

Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant’s representations, warranties, acknowledgments and agreements contained herein.

 

3.            Rent .

 

(a)           Base Rent . Base Rent for the month in which the Rent Commencement Date occurs and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off (except as otherwise expressly provided in this Lease), equal monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof after the Rent Commencement Date, in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5 ) due hereunder except for any abatement as may be expressly provided in this Lease.

 

(b)           Additional Rent . In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent (“ Additional Rent ”): (i) Tenant’s Share of “Operating Expenses” (as defined in Section 5 ), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

 

4.           Base Rent Adjustments . On the second anniversary of the Commencement Date, Base Rent shall be increased to $42.28 per rentable square foot of the Premises per annum. Commencing on the third anniversary of the Commencement Date and continuing thereafter on each annual anniversary of the Commencement Date (each, an “ Adjustment Date ”), Base Rent shall be increased by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date. For example, if the Rent Adjustment Percentage is 3%, then on the third anniversary of the Commencement Date, Base Rent would increase to $43.55 per rentable square foot of the Premises per annum (i.e., $42.28 x 103%). Base Rent, as so adjusted, shall thereafter be due as provided herein. Base Rent adjustments for any fractional calendar month shall be prorated.

 

5.           Operating Expense Payments . Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the “ Annual Estimate ”), which may be revised by Landlord from time to time during such calendar year. Commencing on the Commencement Date and continuing thereafter on the first day of each month during the Term, Tenant shall pay Landlord an amount equal to 1/12th of Tenant’s Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.

 

 
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The term “ Operating Expenses ” means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9 ), capital repairs and improvements amortized over the lesser of 7 years and the useful life of such capital items, and the costs of Landlord’s third party property manager (not to exceed 5% of Base Rent) or, if there is no third party property manager, administration rent in the amount of 5.0% of Base Rent), excluding only:

 

(a)          the original hard and soft construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation or other costs related to such original construction or renovation to the extent such costs are actually recovered by Landlord pursuant to construction or renovation warranties;

 

(b)          capital expenditures for expansion of the Project;

 

(c)          any costs incurred to remove, study, test, remediate or otherwise related to the presence of Hazardous Materials (including without limitation ACMs and PACMs as defined in Section 42 below) in or about the Building or the Project, which Hazardous Materials Tenant proves (i) existed prior to the Commencement Date, except to the extent caused by or contributed to by Tenant or any Tenant Party, (ii) originated from any separately demised tenant space within the Project other than the Premises, except to the extent caused by or contributed to by Tenant or any Tenant Party, or (iii) were not brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Project by Tenant or any Tenant Party;

 

(d)          interest, principal payments of Mortgage (as defined in Section 27 ) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments or base rent (but not taxes or operating expenses) under any ground lease of all or any portion of the Project;

 

(e)          depreciation of the Project (except for capital improvements, the cost of which are includable in Operating Expenses);

 

(f)          advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

 

(g)          legal and other expenses incurred in the negotiation or enforcement of leases, subordination, non-disturbance and/or attornment agreements, estoppels or consents in connection with other tenants of the Project;

 

(h)          completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

 

(i)          costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

 

(j)          salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project;

 

 
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(k)          general organizational, administrative and overhead costs relating to maintaining Landlord‘s existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

 

(l)          costs (including attorneys’ fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

 

(m)          costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space in the Project or any Legal Requirement (as defined in Section 7 );

 

(n)          penalties, fines or interest incurred as a result of Landlord‘s inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord«‘s failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

 

(o)          overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

 

(p)          costs of Landlord’s charitable or political contributions, or of fine art maintained at the Project;

 

(q)          costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

 

(r)          costs incurred in the sale or refinancing of the Project;

 

(s)          net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stock, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein;

 

(t)          costs incurred in connection with the performance of alterations or modifications to the Project that are required solely due to the non-compliance of the Project with Legal Requirements applicable to the Project as of the date of this Lease;

 

(u)          costs resulting from the breach of this Lease by Landlord or from the gross negligence or willful misconduct of Landlord or any Landlord Parties (as defined in Section 17 )(including any attorneys’ fees);

 

(v)         the costs incurred by Landlord in connection with providing janitorial services within the premises of any other tenant of the Project, but not within the Common Areas of the Project which shall be an Operating Expense;

 

(w)          costs incurred by Landlord for the restoration or repair of uninsured earthquake damage to the Project (excluding deductibles the cost of which are includable in Operating Expenses);

 

(x)          costs incurred by Landlord to restore or repair the Project following a casualty or condemnation to the extent not paid due to Landlord’s failure to apply insurance or condemnation proceeds to such restoration or repair or Landlord’s failure to carry insurance as required to be carried by Landlord under this Lease (excluding deductibles, which Tenant shall be required to pay); and

 

 
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(y)          any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project including, without limitation, reimbursements from insurance proceeds actually received by Landlord.

 

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an “ Annual Statement ”) showing in reasonable detail: (a) the total and Tenant’s Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant’s payments in respect of Operating Expenses for such year. If Tenant’s Share of actual Operating Expenses for such year exceeds Tenant’s payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant’s payments of Operating Expenses for such year exceed Tenant’s Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

 

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 90 days after Tenant’s receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. If, during such 90 day period, Tenant reasonably and in good faith questions or contests the accuracy of Landlord’s statement of Tenant’s Share of Operating Expenses, Landlord will provide Tenant with access to Landlord’s books and records relating to the operation of the Project and such information as Landlord reasonably determines to be responsive to Tenant’s questions (the “ Expense Information ”). If after Tenant’s review of such Expense Information, Landlord and Tenant cannot agree upon the amount of Tenant’s Share of Operating Expenses, then Tenant shall have the right to have a regionally recognized independent public accounting firm selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld or delayed), working pursuant to a fee arrangement other than a contingent fee (at Tenant’s sole cost and expense), audit and/or review the Expense Information for the year in question (the “ Independent Review ”). The results of any such Independent Review shall be binding on Landlord and Tenant. If the Independent Review shows that the payments actually made by Tenant with respect to Operating Expenses for the calendar year in question exceeded Tenant’s Share of Operating Expenses for such calendar year, Landlord shall at Landlord’s option either (i) credit the excess amount to the next succeeding installments of estimated Operating Expenses or (ii) pay the excess to Tenant within 30 days after delivery of such statement, except that after the expiration or earlier termination of this Lease or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord. If the Independent Review shows that Tenant’s payments with respect to Operating Expenses for such calendar year were less than Tenant’s Share of Operating Expenses for the calendar year, Tenant shall pay the deficiency to Landlord within 30 days after delivery of such statement. If the Independent Review shows that Tenant has overpaid with respect to Operating Expenses by more than 5% then Landlord shall reimburse Tenant for all costs incurred by Tenant for the Independent Review. Operating Expenses for the calendar years in which Tenant’s obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term, Tenant’s Share of Operating Expenses for such year shall be computed as though the Project had been 95% occupied on average during such year.

 

Tenant’s Share ” shall be the percentage set forth on the first page of this Lease as Tenant’s Share as reasonably adjusted by Landlord for changes in the physical size of the Premises or the Project occurring thereafter. Notwithstanding anything to the contrary contained herein, the rentable square footage of the original Premises shall not be subject to re-measurement by either party during the Term. Landlord may equitably increase Tenant’s Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant’s Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as “ Rent .”

 

 
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6.           Security Deposit . Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security deposit (the “ Security Deposit ”) for the performance of all of Tenant’s obligations hereunder in the amount set forth on page 1 of this Lease, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the “ Letter of Credit ”): (i) in form and substance reasonably satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution reasonably satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the state of Landlord’s choice. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant’s obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Upon each occurrence of a Default (as defined in Section 20 ), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, future rent damages, and the cost of any damage, injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Landlord's right to use the Security Deposit under this Section 6 includes the right to use the Security Deposit to pay future rent damages following the termination of this Lease pursuant to Section 21(c) below. Upon any use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth on Page 1 of this Lease. Tenant hereby waives the provisions of any law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 business days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within 90 days after the expiration or earlier termination of this Lease.

 

Notwithstanding anything to the contrary contained herein, the parties hereto agree that Tenant may deposit the sum of $50,000.00 in cash with Landlord as the Security Deposit under this Lease concurrent with Tenant’s delivery to Landlord of an original of this Lease executed by Tenant; provided, however, that, on or before the date that is 60 days after the mutual execution and delivery of this Lease by the parties, Tenant shall replace the cash Security Deposit with a Letter of Credit. Promptly after the delivery to Landlord of the approved and effective Letter of Credit in the amount of $50,000.00, Landlord shall return the cash Security Deposit to Tenant.

 

If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming Landlord’s obligations under this Section 6 , or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant, Landlord shall have no further obligation with respect to the Security Deposit, and Tenant’s right to the return of the Security Deposit shall apply solely against Landlord’s transferee. The Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default. Landlord’s obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.

 

 
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Notwithstanding anything to the contrary contained in this Lease, Landlord shall have the right to apply the Security Deposit in connection with any Defaults (as such term is defined in the Other Lease (as defined in Section 20 ) under the Other Lease.

 

7.           Use . The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. § 12101, et seq. (together with the regulations promulgated pursuant thereto, “ ADA ”) (collectively, “ Legal Requirements ” and each, a “ Legal Requirement ”). Tenant shall, upon the earlier of (i) 30 days’ written notice from Landlord, or (ii) the date required by the applicable Governmental Authority (as defined in Section 9), discontinue any use of the Premises which is declared by any Governmental Authority having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant’s or Landlord’s insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a “place of public accommodation”, as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant’s failure to comply with the provisions of this Section or otherwise caused by Tenant’s use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Except as may be provided under the Work Letter, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant’s Share as usually furnished for the Permitted Use; provided, however, that the proportionality requirement contained in this sentence shall not apply to Landlord’s Work or the Remaining Improvements. Landlord shall not voluntarily cause the zoning of the Project to be changed from the existing designation to a designation that would prohibit the Tenant from conducting the Permitted Use within the Premises.

 

Landlord shall, at Landlord’s sole cost and expense, be responsible for the compliance of the Premises and the Common Areas of the Project with Legal Requirements as of the Commencement Date. Thereafter, Landlord shall, as an Operating Expense or at Tenant’s expenses (to the extent such Legal Requirement is applicable solely by reason of Tenant’s particular use of the Premises) make any alterations or modifications to the Common Areas or the exterior of the Building that are required by Legal Requirements, including the ADA. Tenant, at its sole expense, shall make any alterations or modifications to the interior of the Premises that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA) related to Tenant’s use or occupancy of the Premises and Tenant’s construction or installation of Alterations in the Premises, other than those alterations and modifications required in connection with Landlord’s Work and the Remaining Improvements, which shall be the responsibility of Landlord pursuant to the immediately preceding sentence. Notwithstanding any other provision herein to the contrary, and except in connection with Legal Requirements which are Landlord’s responsibility pursuant to the first sentence of this paragraph, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating or resisting the same (including, without limitation, reasonable attorneys’ fees, charges and disbursements and costs of suit) (collectively, “ Claims ”) arising out of or in connection with Legal Requirements, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement.

 

 
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8.           Holding Over . If, with Landlord’s express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount as Landlord may indicate, in Landlord’s sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant’s holding over, including consequential damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

 

9.           Taxes . Landlord shall pay, as part of Operating Expenses, all taxes, levies, fees, assessments and governmental charges of any kind, existing as of the Commencement Date or thereafter enacted (collectively referred to as “ Taxes ”), imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, “ Governmental Authority ”) during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to (or gross receipts received by) Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, but only to the extent that such Taxes have been imposed upon Landlord as a replacement for on in lieu of other Taxes required to be paid by Landlord as of the Commencement Date, (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from Legal Requirements, or interpretations thereof, promulgated by any Governmental Authority. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes; provided, however, that Tenant’s Share of Operating Expenses for any retroactive reduction in Taxes applicable to the Term shall be credited to Tenant, net of Landlord’s reasonable expenses in obtaining such reduction. Notwithstanding anything to the contrary herein, Landlord shall only charge Tenant for such assessments as if those assessments were paid in installments by Landlord over the longest possible term which Landlord is permitted to pay for the applicable assessments without additional charge other than interest, if any, provided under the terms of the underlying assessments, with Tenant liable for only Tenant’s Share of Operating Expenses for those installments applicable to the Lease Term. Taxes shall not include any net income taxes imposed on Landlord or any franchise, capital stock, gift, estate or inheritance taxes, or taxes that are the personal obligation of Tenant or another tenant of the Project, or retroactive assessments to the extent imposed for periods prior to the Commencement Date, except to the extent any of the foregoing are in substitution for any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes, provided that Landlord shall not assess any excess portion of Taxes against Tenant unless Landlord excludes from Taxes as defined in this Lease, any excess portion of Taxes that should, as determined by Landlord, reasonably be assessed against other tenants of the Project using the same criteria as stated herein. Landlord’s reasonable determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord within 30 days of demand.

 

 
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10.          Parking . Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder, Tenant shall have the right, in common with other tenants of the Project to use its pro rata share of parking spaces, up to 16 parking spaces (“ Parking Space Cap ”), in the parking garage serving the Project in those areas designated for non-reserved parking, subject in each case to Landlord’s rules and regulations. Tenant shall have access to the parking areas serving the Premises 24 hours per day, 7 days a week, except in the case of Emergencies (as defined in Section 13 ), as the result of Legal Requirements, the performance by Landlord of any maintenance or repairs, or any other temporary interruptions. Tenant’s parking rights shall be subject to payment by Tenant to Landlord of Landlord’s then current parking charge. The current charge is $100 per parking space per month. Notwithstanding anything to the contrary contained herein, Tenant shall not be required to pay any rent for parking commencing on the Commencement Date through December 31, 2010. Tenant shall deliver written notice to Landlord on or before the date 15 days prior to the Commencement Date reflecting the number of parking spaces, up to the Parking Space Cap, that Tenant has elected to use as of the Commencement Date. Tenant shall have the right, upon 30 days’ written notice to Landlord, to increase or decrease the number of parking spaces being used by Tenant; provided, however, that in no event shall Tenant be entitled to use any parking spaces in excess of the Parking Space Cap. Landlord shall not be responsible for enforcing Tenant’s parking rights against any third parties, including other tenants of the Project. Landlord agrees not to lease to third parties more parking spaces in the aggregate than are available at the Project. If Landlord is unable to provide Tenant with at least 16 parking spaces located within the parking areas serving the Project, Landlord shall endeavor to make arrangements for substitute parking reasonably acceptable to Tenant within 2 city blocks of the Project (“ Substitute Parking ”). Tenant shall pay market rates for any such Substitute Parking.

 

11.          Utilities, Services . Landlord shall provide, subject to the terms of this Section 11 , water, electricity, heat, light, power, sewer, and other utilities (including gas and fire sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services for the Common Areas (collectively, “ Utilities ”). Landlord shall pay, as Operating Expenses or subject to Tenant’s reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon, but in all instances only the actual amount charged by such Utility provider or Governmental Authority shall be included as part of Operating Expenses, and Landlord shall not add any surcharge or other internal charge to such amounts. Notwithstanding the foregoing, any late fees, penalties or other charges associated with Landlord’s failure to timely pay any amounts due and payable by Landlord for Utilities shall not be included as part of Operating Expenses unless Landlord’s failure to timely pay for Utilities is due to Tenant’s failure to pay any amounts due from Tenant hereunder. If Landlord determines, in its reasonable discretion, that Tenant is using more than its pro rata share of jointly metered Utilities, Landlord may cause, at Tenant’s expense, such Utilities to be separately metered or charged directly to Tenant by the provider. The immediately prior sentence shall not apply to the original Premises. Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord’s willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use. Tenant shall be responsible for obtaining and paying for its own janitorial services for the Premises.

 

 
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Notwithstanding the foregoing, if any Essential Services are interrupted as a result of the gross negligence or willful misconduct of Landlord or the Landlord Parties and Tenant is unable to and does not conduct Tenant’s business operations in the Premises as a result thereof for a period of more than 5 consecutive business days after written notice from Tenant to Landlord of such interruption, Base Rent for the Premises shall be abated commencing on the expiration of such notice period and continuing during the period of such interruption provided that Tenant is unable to and does not conduct Tenant’s business operations in the Premises. As used herein, the term “ Essential Services ” shall mean the following services: access to the Premises, HVAC serving the laboratory portions of the Premises, water (other than deionized water), electricity, and sewer, but in each case only to the extent that Landlord has an obligation to provide same to Tenant under this Lease.

 

Landlord’s sole obligation for either providing emergency generators or providing emergency back-up power to Tenant shall be: (i) to provide emergency generators with not less than the capacity of the emergency generators located in the Building as of the Commencement Date, and (ii) to contract with a third party to maintain the emergency generators as per the manufacturer’s standard maintenance guidelines. Landlord shall have no obligation to provide Tenant with operational emergency generators or back-up power or to supervise, oversee or confirm that the third party maintaining the emergency generators is maintaining the generators as per the manufacturer’s standard guidelines or otherwise. During any period of replacement, repair or maintenance of the emergency generators when the emergency generators are not operational, including any delays thereto due to the inability to obtain parts or replacement equipment, Landlord shall have no obligation to provide Tenant with an alternative back-up generator or generators or alternative sources of back-up power. Tenant expressly acknowledges and agrees that Landlord does not guaranty that such emergency generators will be operational at all times or that emergency power will be available to the Premises when needed.

 

12.          Alterations and Tenant’s Property . Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 13 ) (“ Alterations ”) shall be subject to Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion if any such Alteration affects the structure or Building Systems and shall not be otherwise unreasonably withheld or delayed. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord’s reasonable discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. In connection with Alterations affecting the Building structure or Building Systems, and for any other Alterations costing in excess of $25,000, Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 5% of all hard costs incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlord’s overhead and expenses for plan review, coordination, scheduling and supervision. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup. Subject to its review and approval of more detailed plans and specifications, Landlord hereby approves of Tenant’ s installation within the Premises, at Tenant’s sole cost and expense, of the alterations described on Exhibit J attached hereto (“ Approved Alterations ”), which Approved Alterations shall be constructed by Tenant in accordance with the terms of this Section 12 .

 

 
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Tenant shall furnish security or make other arrangements reasonably satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers’ compensation and other coverage in amounts and from an insurance company reasonably satisfactory to Landlord protecting Landlord against liability for personal injury or property damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) “as built” plans for any such Alteration (if the Alteration was of the type for which “as built” plans would typically be prepared). Notwithstanding anything to the contrary contained herein, Tenant shall not be required to furnish security for Alterations costing less than $25,000.

 

Except for Removable Installations (as hereinafter defined), all Installations (as hereinafter defined) shall be and shall remain the property of Landlord during the Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term, and shall remain upon and be surrendered with the Premises as a part thereof. Notwithstanding the forgoing, Landlord shall, if requested in writing by Tenant, at the time its approval of any such Installation is requested, notify Tenant whether Landlord will require Tenant to remove such Installation upon the expiration or earlier termination of the Term, in which event such Installation shall be included within the definition of Removable Installations and Tenant shall remove such Installation in accordance with the immediately succeeding sentence. Upon the expiration or earlier termination of the Term, Tenant shall remove (i) all wires, cables or similar equipment which Tenant has installed in the Premises or in the risers or plenums of the Building, (ii) any Installations for which Landlord has given Tenant notice of removal in accordance with the immediately preceding sentence, and (iii) all of Tenant’s Property (as hereinafter defined), and Tenant shall restore and repair any damage caused by or occasioned as a result of such removal, including, without limitation, capping off all such connections behind the walls of the Premises and repairing any holes. During any restoration period beyond the expiration or earlier termination of the Term, Tenant shall pay per diem Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant. If Landlord is requested by Tenant or any lender, lessor or other person or entity claiming an interest in any of Tenant' Property to waive any lien Landlord may have against any of Tenant's Property, and Landlord consents to such waiver, then Landlord shall be entitled to be paid as administrative rent a fee of $1,000 per occurrence for its time and effort in preparing and negotiating such a waiver of lien.

 

For purposes of this Lease, (x) “ Removable Installations ” means any items listed on Exhibit F attached hereto, those Installations included within the definition of Removable Installations pursuant to the second sentence of the immediately preceding paragraph, and any items agreed by Landlord in writing to be included on Exhibit F in the future, (y) “ Tenant’s Property ” means Removable Installations and, other than Installations, any personal property or equipment of Tenant that may be removed without material damage to the Premises, and (z) “ Installations ” means, except as otherwise specifically agreed upon on Exhibit F , all property of any kind paid for with the TI Fund, all Alterations, all fixtures, and all partitions, hardware, built-in machinery, built-in casework and cabinets and other similar additions, equipment, property and improvements built into the Premises so as to become an integral part of the Premises, including, without limitation, fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch.

 

 
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13.          Landlord’s Repairs . Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project (“ Building Systems ”), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant’s agents, servants, employees, invitees and contractors (collectively, “ Tenant Parties ”) excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant’s sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or Emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided , however , that Landlord shall, except in case of Emergency, make a commercially reasonable effort to give Tenant 2 business days advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements and Landlord shall endeavor to minimize interference with Tenant’s business operations at the Premises. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant’s written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord’s expense and agrees that the parties’ respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by Section 18 . As used in this Lease, “ Emergency ” or “ Emergencies ” shall mean an imminent threat to health or safety or an imminent threat of material damage to property.

 

14.          Tenant’s Repairs . Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Such repair and replacement may include reasonably required capital expenditures and repairs whose benefit may extend beyond the Term. Should Tenant fail to make any such repair or replacement or fail to maintain the Premises, Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 15 days of Landlord’s notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an Emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant within 10 days after demand therefor. Subject to Sections 17 and 18 , Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.

 

15.          Mechanic’s Liens . Tenant shall discharge, by bond or otherwise, any mechanic’s lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the date on which Tenant received notice of the filing thereof, at Tenant’s sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that such Financing Statement is applicable only to removable personal property and removable intangible property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property and removable intangible property, located in an identified suite held by Tenant.

 

 
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16.          Indemnification . Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out of use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder, except to the extent caused by the willful misconduct or gross negligence of Landlord. Except as otherwise expressly provided in the second paragraph of this Section 16 , Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further waives any and all Claims for injury to Tenant’s business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records). Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

 

Landlord hereby indemnifies and agrees to defend, save and hold Tenant harmless from and against any and all Claims for injury or death to persons or damage to property occurring at the Project to the extent caused by the willful misconduct or gross negligence of Landlord.

 

Landlord and Tenant acknowledge that the indemnification provisions of this Section 16 were mutually and specifically negotiated and agreed upon by Landlord and Tenant. Landlord and Tenant agree that the provisions of this Section 16 shall govern the rights and obligations of the parties with respect to the aforesaid indemnities and that the protections of any state law to the contrary are hereby waived. Landlord and Tenant each expressly waives its immunity under industrial insurance, Title 51 RCW, to the extent necessary to give effect to the provisions of this Section 16 .

 

17.          Insurance . Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost. Landlord shall further procure and maintain commercial general liability insurance limits of not less than $2,000,000 per occurrence and $2,000,000 annual aggregate for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers’ compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer’s cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant’s use of the Premises.

 

Tenant, at its sole cost and expense, shall maintain during the Term: all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant’s expense; workers’ compensation insurance with no less than the minimum limits required by law; employer’s liability insurance with such limits as required by law; and commercial general liability insurance, with minimum limits of not less than $2,000,000 per occurrence and $2,000,000 annual aggregate for bodily injury and property damage with respect to Tenant’s Property in the Premises. The commercial general liability insurance policy shall name Alexandria Real Estate Equities, Inc., and Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, “ Landlord Parties ”), as additional insureds; insure on an occurrence and not a claims-made basis; be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in “Best’s Insurance Guide”; shall not be cancelable for nonpayment of premium unless 10 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant’s policies). Copies of such policies (if required by the Holder of any Mortgage affecting the Property), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenant’s policy may be a “blanket policy” with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, prior to the expiration of such policies, furnish Landlord with renewal certificates.

 

 
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In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

 

The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors (“ Related Parties ”), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other’s insurer.

 

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project, provided, however, that the increased amount of coverage is consistent with coverage amounts then being required by institutional owners of similar projects with tenants occupying similar size premises in the geographical area in which the Project is located.

 

18.          Restoration . If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the “ Restoration Period ”). If the Restoration Period is estimated to exceed 9 months (the “ Maximum Restoration Period ”), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction; provided, however , that notwithstanding Landlord’s election to restore, Tenant may elect to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period. Unless either Landlord or Tenant so elects to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant), subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30 ) in, on or about the Premises (collectively referred to herein as “ Hazardous Materials Clearances ”); provided, however , that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, or Tenant may by written notice to Landlord delivered within 5 business days of the expiration of the Maximum Restoration Period or, if longer, the Restoration Period, elect to terminate this Lease, in which event Landlord shall be relieved of its obligation to make repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable by Tenant prior to such election by Landlord or Tenant.

 

 
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Tenant shall have no obligation to perform any repair or restoration of the Premises, or to reoccupy the Premises; provided, however, that so long as the Lease has not been terminated pursuant to this Section 18 , Tenant shall continue to comply with all of the provisions of this Lease including, without limitation, the payment of Rent. Notwithstanding the foregoing, either Landlord or Tenant may terminate this Lease upon written notice to the other if the Premises are damaged during the last year of the Term and Landlord reasonably estimates that it will take more than 2 months to repair such damage; provided, however, that such notice is delivered within 10 business days after the date that Landlord provides Tenant with written notice of the estimated Restoration Period. Landlord shall also have the right to terminate this Lease if insurance proceeds are not available for such restoration. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18 , Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

 

In the event that this Lease is terminated pursuant to this Section 18 , the Other Lease shall automatically terminate concurrently with this Lease.

 

The provisions of this Lease, including this Section 18 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.

 

19.          Condemnation . If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a “ Taking ” or “ Taken ”), and the Taking would in Landlord’s reasonable judgment, materially interfere with or impair Landlord’s ownership or operation of the Project or would in the reasonable judgment of Landlord and Tenant either prevent or materially interfere with Tenant’s use of the Premises (as resolved, if the parties are unable to agree, by arbitration by a single arbitrator with the qualifications and experience appropriate to resolve the matter and appointed pursuant to and acting in accordance with the rules of the American Arbitration Association), then upon written notice by Landlord this Lease shall terminate and Rent shall be apportioned as of said date. Notwithstanding the foregoing, Tenant shall have the right to terminate this Lease and the Other Lease if more than 50% of the Premises is the subject of a Taking. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant’s Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price or award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant’s interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord’s award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant’s trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project. In the event that this Lease is terminated pursuant to this Section 19 , the Other Lease shall automatically terminate concurrently with this Lease.

 

 
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20.          Events of Default . Each of the following events shall be a default (“ Default ”) by Tenant under this Lease:

 

(a)           Payment Defaults . Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 days of any such notice not more than once in any 12 month period and Tenant agrees that such notice shall be in lieu of and not in addition to, or shall be deemed to be, any notice required by law.

 

(b)           Insurance . Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed below the coverage required to be maintained by Tenant pursuant to this Lease, or Landlord shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 10 days before the expiration of the current coverage.

 

(c)           Abandonment . Tenant shall abandon the Premises. Tenant shall not be deemed to have abandoned the Premises if (i) Tenant provides Landlord with reasonable advance notice prior to vacating and, at the time of vacating the Premises, Tenant completes Tenant’s obligations with respect to the Surrender Plan in compliance with Section 28 , (ii) Tenant has made reasonable arrangements with Landlord for the security of the Premises for the balance of the Term, and (iii) Tenant continues during the balance of the Term to satisfy all of its obligations under the Lease as they come due.

 

(d)           Improper Transfer . Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant’s interest in this Lease or the Premises except as expressly permitted herein, or Tenant’s interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

 

(e)           Liens . Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after Tenant receives notice that any such lien has been filed against the Premises.

 

(f)           Insolvency Events . Tenant or any guarantor or surety of Tenant’s obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a “ Proceeding for Relief ”); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

 

(g)           Estoppel Certificate or Subordination Agreement . Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 days after a second notice requesting such document.

 

 
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(h)           Other Lease . Tenant is in Default (as such term is defined in the Other Lease) under that certain Lease Agreement between Landlord and Tenant dated of even date herewith, pursuant to which Landlord leases to Tenant and Tenant leases from Landlord space at 410 Elliott, Seattle, Washington (“ Other Lease ”); provided, however, that this Section 20(h) shall only apply for so long as ARE-Seattle No. 10, LLC, a Delaware limited liability company, or an entity controlled by Alexandria Real Estate Equities, Inc. remains the Landlord under this Lease.

 

(i)           Other Defaults . Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20 , and, except as otherwise expressly provided herein, such failure shall continue for a period of 30 days after written notice thereof from Landlord to Tenant.

 

Any notice given under Section 20(h) hereof shall: (i) specify the alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant’s default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 30 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 30 day period and thereafter diligently prosecutes the same to completion; provided , however , that such cure shall be completed no later than 90 days from the date of Landlord’s notice.

 

21.          Landlord’s Remedies .

 

(a)           Payment By Landlord; Interest . Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the “ Default Rate ”), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant’s Default hereunder.

 

(b)           Late Payment Rent . Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum equal to 6% of the overdue Rent as a late charge. Notwithstanding the foregoing, before assessing a late charge the first time in any calendar year, Landlord shall provide Tenant written notice of the delinquency and will waive the right if Tenant pays such delinquency within 5 days thereafter. The parties agree that this late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

 

(c)           Remedies . Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

 

(i)          Terminate this Lease, or at Landlord’s option, Tenant’s right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;

 

(ii)         Upon any termination of this Lease, whether pursuant to the foregoing Section 21(c)(i) or otherwise, Landlord may recover from Tenant the following:

 

 
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(A)         The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

 

(B)         The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

(C)         The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

(D)         Any other amount reasonably necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including, but not limited to reasonable costs incurred for brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

 

(E)         At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

 

The term “ rent ” as used in this Section 21 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 21(c)(ii) (A) and (B) , above, the “ worth at the time of award ” shall be computed by allowing interest at the Default Rate. As used in Section 21(c)(ii)(C) above, the “ worth at the time of award ” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.

 

(iii)        Landlord may continue this Lease in effect after Tenant’s Default and recover rent as it becomes due (Landlord and Tenant hereby agreeing that Tenant has the right to sublet or assign hereunder, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.

 

(iv)        Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. Upon Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

 

(v)         Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d) hereof, at Tenant’s expense.

 

 
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(d)           Effect of Exercise . Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding, both Landlord and Tenant shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord or Tenant at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlord’s or Tenant’s right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord or Tenant of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by the party against whom such waiver is sought to be enforced. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord’s intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished because of, Landlord’s failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenant’s Default.

 

22.          Assignment and Subletting .

 

(a)           General Prohibition . Without Landlord’s prior written consent subject to and on the conditions described in this Section 22 , Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 49% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22 . Notwithstanding the foregoing, Tenant shall have the right to obtain financing from institutional investors (including venture capital funding and corporate partners) which regularly invest in private biotechnology companies or undergo a public offering which results in a change in control of Tenant without such change of control constituting an assignment under this Section 22 requiring Landlord consent. A grant by Tenant of a license with respect to Tenant’s equipment or research facilities (as opposed to a license for the Premises) to (i) any vendor or service provider, or (ii) any party sharing research or research facilities with Tenant (“ Research Party ”), pursuant to which such vendor, service provider or Research Party shall be entering the Premises as an invitee of Tenant and will not have any legal right to occupy any portion of the Premises, shall not constitute an assignment or subletting requiring Landlord consent under this Section 22 . Notwithstanding anything to the contrary contained herein, Tenant shall be fully responsible for the acts of the parties entering the Premises pursuant to the immediately preceding sentence and Landlord shall have no liability to or in connection with such parties.

 

 
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(b)           Permitted Transfers . If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 10 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the “ Assignment Date ”), Tenant shall give Landlord a notice (the “ Assignment Notice ”) containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its sole and absolute discretion, if the proposed assignment, hypothecation or other transfer or subletting concerns more than (together with all other then effective subleases) 50% of the Premises, (iii) refuse such consent, in its reasonable discretion, if the proposed subletting concerns (together with all other then effective subleases) 50% or less of the Premises (provided that Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any such subletting), or (iv) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an “ Assignment Termination ”). If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord’s notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice; provided, however, that Landlord shall, at its sole cost and expense, demise and otherwise segregate the portion of the Premises subject to the Assignment Termination and agrees to use reasonable efforts to minimize interference with Tenant’s business operations in connection with such demising. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord’s consent to the proposed assignment, sublease or other transfer. Tenant shall pay to Landlord a fee equal to One Thousand Five Hundred Dollars ($1,500) in connection with its consideration of any Assignment Notice and/or its preparation or review of any consent documents. Notwithstanding the foregoing, Landlord’s consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant (a “ Control Permitted Assignment ”) shall not be required, provided that Landlord shall have the right to approve the form of any such sublease or assignment. In addition, Tenant shall have the right to assign this Lease, upon 30 days prior written notice to Landlord but without obtaining Landlord’s prior written consent, to a corporation or other entity which is a successor-in-interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a legitimate business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with generally accepted accounting principles (“ GAAP ”)) of the assignee is not less than the greater of the net worth (as determined in accordance with GAAP) of Tenant as of the Commencement Date, and (iii) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment (a “ Corporate Permitted Assignment ”). Control Permitted Assignments and Corporate Permitted Assignments are hereinafter referred to as “ Permitted Assignments .” Notwithstanding anything to the contrary contained herein, Landlord shall not have the right to deliver an Assignment Termination to Tenant in connection with a Permitted Assignment.

 

(c)           Additional Conditions . As a condition to any such assignment or subletting, whether or not Landlord’s consent is required, Landlord may require:

 

(i)          that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease beyond applicable notice and cure periods, such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided , however , in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

 

 
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(ii)         A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

 

(d)           No Release of Tenant, Sharing of Excess Rents . Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant’s obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant’s other obligations under this Lease. Except with respect to a Permitted Assignment, if the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease, (excluding however, any Rent payable under this Section) and all actual and reasonable brokerage fees, legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease) (“ Excess Rent ”), then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant. If Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

 

(e)           No Waiver . The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

 

(f)           Prior Conduct of Proposed Transferee . Notwithstanding any other provision of this Section 22 , except in connection with either a Control Permitted Assignment or a Corporate Permitted Assignment, if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination was material in nature and resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

 

 
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23.          Estoppel Certificate . Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant’s failure to deliver such statement within 5 days of Landlord’s second request therefor shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

 

24.          Quiet Enjoyment . So long as Tenant is not in Default under this Lease, Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord or any Landlord Party.

 

25.          Prorations . All prorations required or permitted to be made hereunder shall be made on the basis of a 360 day year and 30 day months.

 

26.          Rules and Regulations . Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project. The current rules and regulations are attached hereto as Exhibit E . If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

 

27.          Subordination . This Lease and Tenant’s interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided , however that so long as there is no Default hereunder, Tenant’s right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage. Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant’s quiet enjoyment of the Premises as set forth in Section 24 hereof. Tenant hereby appoints Landlord attorney-in-fact for Tenant irrevocably (such power of attorney being coupled with an interest) to execute, acknowledge and deliver any such instrument and instruments for and in the name of Tenant and to cause any such instrument to be recorded. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term “ Mortgage ” whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the “ Holder ” of a Mortgage shall be deemed to include the beneficiary under a deed of trust. As of the date of this Lease, there is no existing Mortgage encumbering the Project. Upon written request from Tenant, Landlord shall endeavor to obtain for execution by Tenant a commercially reasonable form of non-disturbance and attornment agreement (“ SNDA ”) executed by the Holder of any future Mortgage with a lien on the Project which provides, among other things, that so long as Tenant is not in Default of its obligations under this Lease, foreclosure or other enforcement of such Mortgage shall not terminate this Lease and the successor to Landlord’s interest in the Project shall recognize this Lease and Tenant’s right to possession of the Premises. The SNDA shall be on the form proscribed by the Holder and Tenant shall pay the Holder's fees and costs in connection with obtaining such SNDA; provided, however, that Landlord shall request that Holder make any changes to the SNDA reasonably requested by Tenant. Landlord's failure to cause the Holder to enter into the SNDA with Tenant (or make any of the changes requested by Tenant) shall not be a default by Landlord under this Lease.

 

 
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28.          Surrender . Upon the expiration of the Term or earlier termination of Tenant’s right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or Installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, “ Tenant HazMat Operations ”) and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the surrender of the Premises, Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the “ Surrender Plan ”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and reasonable approval of Landlord’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant’s expense as set forth below, to cause Landlord’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord’s environmental consultant with respect to the surrender of the Premises to third parties.

 

If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28 ; provided, however, that if it is determined prior to Tenant’s surrender of the Premises (without any obligation on the part of Landlord to do so prior to Tenant’s surrender of the Premises or the expiration of the Term) that the Surrender Plan failed to adequately address the residual effect of Tenant HazMat Operations, Landlord shall first provide Tenant with written notice of such failure and Tenant shall have the right to address such residual effect prior to the expiration of the Term. Nothing contained herein shall preclude Landlord from undertaking such work, at Tenant’s sole cost and expense, whether before or after Tenant’s surrender of the Premises if Tenant does not or fails to adequately do so. Notwithstanding anything to the contrary contained herein, in no event shall Landlord be required to permit Tenant to remain in the Premises following the expiration of the Term to address any residual effect of Tenant HazMat Operations.

 

 
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Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay to Landlord, at Landlord’s election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenant’s Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant’s expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord’s retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

 

29.          Waiver of Jury Trial . TO THE EXTENT PERMITTED BY LAW, TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

 

30.          Environmental Requirements .

 

(a)           Prohibition/Compliance/Indemnity . Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord’s employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys’, consultants’ and experts’ fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, “ Environmental Claims ”) which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord’s approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project. Notwithstanding anything to the contrary contained in Section 28 or this Section 30 , Tenant shall not be responsible for, and the indemnification and hold harmless obligation set forth in this paragraph shall not apply to (i) contamination in the Premises which Tenant can prove existed in the Premises immediately prior to the Commencement Date, or (ii) the presence of any Hazardous Materials in the Premises which Tenant can prove migrated from outside of the Premises into the Premises, unless in either case, to the extent the presence of such Hazardous Materials (x) is the result of a breach by Tenant of any of its obligations under this Lease, or (y) was caused, contributed to or exacerbated by Tenant or any Tenant Party.

 

 
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(b)           Business . Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and properly monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises (“ Hazardous Materials List ”). Tenant shall deliver to Landlord an updated Hazardous Materials List once a year and shall provide Landlord with access to Tenant’s Hazardous Materials data sheets and reports which data sheets and reports shall reflect the Hazardous Materials being kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises by Tenant. Tenant shall deliver to Landlord true and correct copies of the following documents (the “ Haz Mat Documents ”) relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord’s sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with Section 28 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with proprietary information which could be detrimental to Tenant’s business should such information become possessed by Tenant’s competitors.

 

(c)           Tenant Representation and Warranty . Tenant hereby represents and warrants to Landlord that as of the date of this Lease (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant’s or such predecessor’s action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord reasonably determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord’s sole and absolute discretion.

 

 
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(d)           Testing . Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant’s use. Tenant shall be required to pay the cost of such annual test of the Premises if there is violation of this Section 30 or if contamination for which Tenant is responsible under this Section 30 is identified; provided, however, that if Tenant conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests to be paid for by Tenant. In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant’s use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section 30 , Tenant shall pay all costs to conduct such tests. If no such contamination is found, Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

 

(e)           Control Areas . Tenant shall be allowed to utilize up to its pro rata share of the Hazardous Materials inventory within any control area or zone (located within the Premises), as designated by the applicable building code, for chemical use or storage. As used in the preceding sentence, Tenant's pro rata share of any control areas or zones located within the Premises shall be determined based on the rentable square footage that Tenant leases within the applicable control area or zone. For purposes of example only, if a control area or zone contains 10,000 rentable square feet and 2,000 rentable square feet of a tenant's premises are located within such control area or zone (while such premises as a whole contains 5,000 rentable square feet), the applicable tenant's pro rata share of such control area would be 20%.

 

(f)           Underground Tanks . Tenant shall not install any underground or other storage tanks storing Hazardous Materials on the Premises or the Project without first obtaining Landlord’s advance written consent, which may be given or withheld in Landlord sole and absolute discretion. If Tenant is permitted to install any such storage tanks, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks. Nothing contained in this Section 30(f) shall serve to prohibit Tenant from using nitrogen gas or other gases within the Premises in connection with the Permitted Use and otherwise in compliance within the terms of this Lease and applicable Legal Requirements.

 

(g)           Tenant’s Obligations . Tenant’s obligations under this Section 30 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord’s sole discretion, which Rent shall be prorated daily.

 

(h)           Definitions . As used herein, the term “ Environmental Requirements ” means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term “Hazardous Materials ” means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the “ operator ” of Tenant’s “ facility ” and the “ owner ” of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

 

 
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(i)           Costs for Required Removal . Landlord hereby agrees that any reasonable out-of-pocket costs incurred by Tenant to remove (i) ACMs and PACMs, or (ii) Hazardous Materials (which Tenant can prove existed in the Premises immediately prior to the Commencement Date) from the Premises required by applicable Governmental Authorities or Legal Requirements (“ Required Removal ”) will be reimbursed by Landlord to Tenant within 30 days after Landlord’s receipt of evidence reasonably satisfactory to Landlord that such out-of-pocket costs were incurred by Tenant; provided, however, that Tenant shall provide Landlord with advance written notice of any Required Removal and Landlord shall have the right to elect to reasonably undertake the Required Removal itself, at its own cost.

 

31.          Tenant’s Remedies/Limitation of Liability . Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder.

 

Notwithstanding the foregoing, if any claimed Landlord default hereunder will immediately, materially and adversely affect Tenant’s ability to conduct its business in the Premises (a “ Material Landlord Default ”), Tenant shall, as soon as reasonably possible, but in any event within 2 business days of obtaining knowledge of such claimed Material Landlord Default, give Landlord written notice of such claim which notice shall specifically state that a Material Landlord Default exists and telephonic notice to Tenant’s principal contact with Landlord. Landlord shall then have 2 business days to commence cure of such claimed Material Landlord Default and shall diligently prosecute such cure to completion. If such claimed Material Landlord Default is not a default by Landlord hereunder, or if Tenant failed to give Landlord the notice required hereunder within 2 business days of learning of the conditions giving rise to the claimed Material Landlord Default, Landlord shall be entitled to recover from Tenant, as Additional Rent, any costs incurred by Landlord in connection with such cure in excess of the costs, if any, that Landlord would otherwise have been liable to pay hereunder. If Landlord fails to commence cure of any claimed Material Landlord Default as provided above, Tenant may commence and prosecute such cure to completion provided that it does not affect any Building Systems affecting other tenants, the Building structure or Common Areas, and shall be entitled to recover the costs of such cure (but not any consequential or other damages) from Landlord by way of reimbursement from Landlord with no right to offset against Rent, to the extent of Landlord’s obligation to cure such claimed Material Landlord Default hereunder, subject to the limitations set forth in the immediately preceding sentence of this paragraph and the other provisions of this Lease.

 

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term “ Landlord ” in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner’s ownership.

 

 
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32.          Inspection and Access . Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord’s representatives may enter the Premises during business hours on not less than 48 hours advance notice (except in the case of Emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant’s use or occupancy of the Premises for the Permitted Use. At Landlord’s request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions so long as such instruments do not modify Tenant’s rights and obligations (including, without limitation, Tenant’s exclusive use of the Premises) or Landlord’s obligations under this Lease. Tenant shall at all times, except in the case of Emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord’s access rights hereunder. Landlord or its agents, representatives, contractors or guests shall not enter the Premises unless escorted by Tenant while the same are in the Premises except in the case of an Emergency. Tenant will make an escort available on the date and at the time specified by Landlord in its advance notice to Tenant required above. Notwithstanding the foregoing, if Tenant fails to provide an escort on the day specified in Landlord’s notice, Landlord or its agents, representatives and contractors may enter the Premises without an escort. Landlord shall use reasonable efforts to comply with Tenant’s written protocol with respect to entering restricted portions of the Premises; provided, however, that a copy of the same has previously been provided to Landlord.

 

33.          Security . Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant’s officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant’s cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

 

34.          Force Majeure . Except for the payment of amounts due and payable by Landlord, Landlord shall not be responsible or liable for delays in the performance of its obligations hereunder when caused by, related to, or arising out of acts of God, sinkholes or subsidence, strikes, lockouts, or other labor disputes, embargoes, quarantines, weather, national, regional, or local disasters, calamities, or catastrophes, inability to obtain labor or materials (or reasonable substitutes therefor) at reasonable costs or failure of, or inability to obtain, utilities necessary for performance, governmental restrictions (despite Landlord’s good faith efforts to obtain the same), orders, limitations, regulations, or controls, national emergencies, delay in issuance or revocation of permits (including, without limitation, in connection with the Tenant Improvements (as defined in the Work Letter))(despite Landlord’s good faith efforts to obtain the same), enemy or hostile governmental action, terrorism, insurrection, riots, civil disturbance or commotion, fire or other casualty, and other causes or events beyond the reasonable control of Landlord (“ Force Majeure ”). For purposes of the restoration and repair obligations under Sections 18 (Restoration) and 19 (Condemnation) hereof, extensions of the time periods required therein for Force Majeure shall not exceed 60 days, regardless of whether any Force Majeure event might otherwise still apply thereafter.

 

35.          Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker ") in connection with this transaction and that no Broker brought about this transaction, other than GVA Kidder Matthews. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35 , claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction. Landlord shall be responsible for all fees of GVA Kidder Matthews arising out of the execution of this Lease in accordance with the terms of a separate written agreement between GVA Kidder Matthews and Landlord.

 

 
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36.          Limitation on Landlord’s Liability . NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT’S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD’S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD’S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD’S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT’S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

 

37.          Severability . If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

 

38.          Signs; Exterior Appearance . Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord’s reasonable discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord’s standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for Tenant by Landlord at the sole cost and expense of Tenant, and shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering. The directory tablet shall be provided exclusively for the display of the name and location of tenants.

 

 
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39.          Right to Expand .

 

(a)           Expansion in the Project . Tenant shall have the right, exercisable on or before December 31, 2010 (“ Expansion Right Expiration Date ”), to elect to expand the original Premises (the “ Expansion Right ”) to include all and not less than all of that portion of the second floor of the Project described on Exhibit I (" Expansion Space "), upon the terms and conditions contained in this Section. If Tenant elects to exercise the Expansion Right, Tenant shall, on or before the Expansion Right Expiration Date, deliver written notice to Landlord of its election to exercise the Expansion Right (" Expansion Exercise Notice "). If Tenant elects to lease the Expansion Space by delivering an Expansion Exercise Notice prior to the Expansion Right Expiration Date, Tenant shall be deemed to agree to lease the Expansion Space on the same terms and conditions as this Lease, except that the terms of this Lease shall be modified as follows effective as of the ES Commencement Date (as defined below): (i) the Base Term of the Lease with respect to the Expansion Space shall commence on the date that Landlord delivers the Expansion Space to Tenant (" ES Commencement Date "); (ii) the definition of Premises shall be amended to include the Expansion Space; (iii) Tenant shall continue to pay Base Rent for the original Premises as provided for in this Lease and, in addition thereto, beginning on the ES Commencement Date, Tenant shall pay Base Rent for the Expansion Space in the amount of $34.48 per rentable square foot of the Expansion Space per annum, which shall be payable to Landlord in equal monthly installments; (iv) Base Rent for the Expansion Space shall be adjusted pursuant to Section 4 of this Lease; (v) except as provided in Section 18 and Section 19 of this Lease, Tenant shall not be entitled to any rent credit or any other abatement of Rent with respect to its lease of the Expansion Space, (vii) Tenant's Share of Operating Expenses of Building shall be proportionately adjusted; (vii) Tenant shall accept the Expansion Space in its “as is” condition as of the Expansion Commencement Date and Exhibit C shall not be applicable to the Expansion Space, (viii) Landlord shall make available to Tenant a tenant improvement allowance of up to $15.00 per rentable square foot of the Expansion Space (“ Expansion Space TI Allowance ”) for the construction of improvements in the Expansion Space desired by and performed by Tenant (subject to Landlord's supervision for which Landlord shall receive administrative rent equal to 3% of the cost of the Expansion Space Tenant Improvements for monitoring and inspecting the construction of the Expansion Space Tenant Improvements) which improvements shall be of a fixed and permanent nature approved by Landlord (“ Expansion Space Tenant Improvements ”), (ix) the Expansion Space TI Allowance shall be available for the construction of the Expansion Space Tenant Improvements until the date that is 12 months after the ES Commencement Date and Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the Expansion Space TI Allowance not timely used for the construction of the Expansion Space Tenant Improvements; (x) the Term of the Lease with respect to the Expansion Space shall be co-terminous with the Term of the Lease with respect to the original Premises; and (xi) the amount of the Security Deposit shall be proportionately increased. Tenant’s failure to deliver a Tenant Expansion Exercise Notice prior to the Expansion Right Expiration Date shall be deemed an election by Tenant not to exercise Tenant’s Expansion Right, in which case Tenant shall be deemed to have forever waived all of its rights under this Section 39(a) and the provisions of this Section 39(a) shall no longer apply. Notwithstanding anything to the contrary contained herein, the Expansion Right Expiration Date shall be extended 1 day for each day after the Target RI Completion Date that the Remaining Improvements are not Substantially Completed.

 

(b)           Additional Expansion Right . Tenant shall have the right during the first 51 months of the Term, but not the obligation, to expand the Premises (the “Additional Expansion Right ”) to include any Available Space in Project upon the terms and conditions in this Section. For purposes of this Section 39(b) , “Available Space ” shall mean any space in the Project (including the Expansion Space) which is not occupied by a tenant or which is occupied by an existing tenant whose lease is expiring within 6 months or less and such tenant does not wish to renew (whether or not such tenant has a right to renew) its occupancy of such space. If there is any Available Space in the Project, Landlord shall, at such time as Landlord shall elect so long as Tenant’s rights hereunder are preserved, deliver to Tenant written notice (the “Expansion Notice ”) of such Available Space, together with the terms and conditions on which Landlord is prepared to lease Tenant such Available Space. Tenant shall be entitled to exercise its right under this Section 39(b) only with respect to the entire portion of the Available Space identified in the Expansion Notice ( “Identified Space ”). Landlord agrees that it will not offer any new tenant rights superior to the rights granted to Tenant pursuant to this Section 39(b) ; provided, however, that Landlord shall not be precluded from providing any new tenants with extension rights superior to Tenant’s rights pursuant to this Section 39(b) . Tenant shall have 10 business days following delivery of the Expansion Notice to deliver to Landlord written notification of Tenant’s exercise of the Additional Expansion Right ( “AE Expansion Notice ”) with respect to the Identified Space. Provided that no right to expand is exercised by any tenant with superior rights, Tenant shall be entitled to lease the Identified Space upon the terms and conditions set forth in the Expansion Notice. Notwithstanding anything to the contrary contained herein, Tenant acknowledges and agrees that if Tenant exercises its Additional Expansion Right with respect to any Identified Space, the Base Term of this Lease with respect to the Identified Space, the original Premises and any other Available Space lease by Tenant shall be extended for a period of 4 years from the date that Landlord delivers the Identified Space to Tenant. Tenant’s failure to deliver an AE Expansion Notice to Landlord as required pursuant to this Section 39(b) shall be deemed to be an election by Tenant not to exercise Tenant’s Additional Expansion Right with respect to the Identified Space subject to the Expansion Notice, in which case Tenant shall have no further rights under this Section 39(b ) with respect to such Identified Space, and Landlord shall have the right to lease the Identified Space to any third party on any terms and conditions acceptable to Landlord.

 

 
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(c)           Amended Lease . If: (i) Tenant fails to deliver an Expansion Exercise Notice on or before the Expansion Right Expiration Date or timely deliver an AE Expansion Notice, as applicable, or (ii) following Tenant’s delivery to Landlord of an Expansion Exercise Notice or AE Expansion Notice, as applicable, no lease amendment or lease agreement for the Expansion Space or Available Space, as applicable, has been executed after the expiration of a period of 10 days from Landlord’s delivery to Tenant of a draft lease amendment or lease agreement for the Expansion Space or Available Space, as applicable, Tenant shall be deemed to have forever waived its right to lease the Expansion Space or the Available Space, as applicable.

 

(d)           Exceptions . Notwithstanding the above, the Expansion Right and the Additional Expansion Right, at Landlord’s option, shall not be in effect and may not be exercised by Tenant:

 

(i)          during any period of time that Tenant is in Default under any provision of the Lease; or

 

(ii)         if Tenant has been in Default under any provision of the Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period prior to the date on which Tenant seeks to exercise the Expansion Right or the Additional Expansion Right.

 

(e)           Termination . The Expansion Right and the Additional Expansion Right shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of the Expansion Right or the Additional Expansion Right, as applicable,, if, after such exercise, but prior to the commencement date of the lease of the Expansion Space or the Available Space, as applicable, (i) Tenant fails to timely cure any default by Tenant under the Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Expansion Right or the Additional Expansion Right, as applicable, to the date of the commencement of the lease of the Expansion Space or the Available Space, as applicable, whether or not such Defaults are cured.

 

(f)           Rights Personal . The Expansion Right and the Additional Expansion Right are personal to Tenant and are not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.

 

(g)           No Extensions . The period of time within which the Expansion Right or the Additional Expansion Right may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Expansion Right or the Additional Expansion Right, as applicable.

 

40.          Right to Extend Term . Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:

 

 
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(a)           Extension Rights . Tenant shall have 1 right (an “ Extension Right ”) to extend the term of this Lease for 5 years (an “ Extension Term ”) on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right at least 9 months prior to the expiration of the Base Term of the Lease.

 

Notwithstanding anything to the contrary contained herein, if Tenant does not (i) elect to exercise its Extension Right, or (ii) enter into a new lease for alternate space with Landlord or an entity controlled by Alexandria Real Estate Equities, Inc. (“ Affiliate ”), on or before the expiration of the Base Term of the Lease, which new lease shall be on terms and conditions acceptable to both Tenant and Landlord or Landlord’s Affiliate, as applicable, each in their sole and absolute discretion and without any obligation to do so, and be for a premises containing no less than the rentable square footage of the Premises as of the expiration of the Base Term in Seattle, Washington, then, on or before the expiration of the Base Term, Tenant shall pay Landlord an amount equal to (x) the unamortized portion of the Tenant Improvements (but not the Expansion Space TI Allowance)(which amount shall be fully amortized over a period of 10 years at an interest rate of 8%), and (y) any part of the retail sales tax so deferred pursuant to Section 44 required to be repaid, together with any interest, penalties, or other charges that are or become due in connection therewith.

 

Upon the commencement of any Extension Term, Base Rent shall be payable at the Market Rate (as defined below). Base Rent shall thereafter be adjusted on each annual anniversary of the commencement of such Extension Term by the Rent Adjustment Percentage. As used herein, “ Market Rate ” shall mean the then market rental rate as determined by Landlord and agreed to by Tenant, which shall in no event be less than the Base Rent payable as of the date immediately preceding the commencement of such Extension Term increased by the Rent Adjustment Percentage multiplied by such Base Rent. In addition, Landlord may impose a market rent for the parking rights provided hereunder.

 

If, on or before the date which is 180 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord’s determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 40(b) . Tenant acknowledges and agrees that, if Tenant has elected to exercise the Extension Right by delivering notice to Landlord as required in this Section 40(a) , Tenant shall have no right thereafter to rescind or elect not to extend the term of the Lease for the Extension Term.

 

(b)           Arbitration .

 

(i)          Within 10 days of Tenant’s notice to Landlord of its election (or deemed election) to arbitrate Market Rate, each party shall deliver to the other a proposal containing the Market Rate that the submitting party believes to be correct (“ Extension Proposal ”). If either party fails to timely submit an Extension Proposal, the other party’s submitted proposal shall determine the Base Rent for the Extension Term. If both parties submit Extension Proposals, then Landlord and Tenant shall meet within 7 days after delivery of the last Extension Proposal and make a good faith attempt to mutually appoint a single Arbitrator (and defined below) to determine the Market Rate. If Landlord and Tenant are unable to agree upon a single Arbitrator, then each shall, by written notice delivered to the other within 10 days after the meeting, select an Arbitrator. If either party fails to timely give notice of its selection for an Arbitrator, the other party’s submitted proposal shall determine the Base Rent for the Extension Term. The 2 Arbitrators so appointed shall, within 5 business days after their appointment, appoint a third Arbitrator. If the 2 Arbitrators so selected cannot agree on the selection of the third Arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such third Arbitrator by application to any state court of general jurisdiction in the jurisdiction in which the Premises are located, upon 10 days prior written notice to the other party of such intent.

 

 
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(ii)         The decision of the Arbitrator(s) shall be made within 30 days after the appointment of a single Arbitrator or the third Arbitrator, as applicable. The decision of the single Arbitrator shall be final and binding upon the parties. The average of the two closest Arbitrators in a three Arbitrator panel shall be final and binding upon the parties. Each party shall pay the fees and expenses of the Arbitrator appointed by or on behalf of such party and the fees and expenses of the third Arbitrator shall be borne equally by both parties. If the Market Rate are not determined by the first day of the Extension Term, then Tenant shall pay Landlord Base Rent in an amount equal to the Base Rent in effect immediately prior to the Extension Term and increased by the Rent Adjustment Percentage until such determination is made. After the determination of the Market Rate, the parties shall make any necessary adjustments to such payments made by Tenant. Landlord and Tenant shall then execute an amendment recognizing the Market Rate for the Extension Term.

 

(iii)        An “ Arbitrator ” shall be any person appointed by or on behalf of either party or appointed pursuant to the provisions hereof and: (i) shall be (A) a member of the American Institute of Real Estate Appraisers with not less than 10 years of experience in the appraisal of improved office and high tech industrial real estate in the greater Seattle metropolitan area, or (B) a licensed commercial real estate broker with not less than 15 years experience representing landlords and/or tenants in the leasing of high tech or life sciences space in the greater Seattle metropolitan area, (ii) devoting substantially all of their time to professional appraisal or brokerage work, as applicable, at the time of appointment and (iii) be in all respects impartial and disinterested.

 

(c)           Rights Personal . Extension Rights are personal to Tenant and are not assignable without Landlord’s consent, which may be granted or withheld in Landlord’s sole discretion separate and apart from any consent by Landlord to an assignment of Tenant’s interest in the Lease, except that they may be assigned in connection with any Permitted Assignment of this Lease.

 

(d)           Exceptions . Notwithstanding anything set forth above to the contrary, at Landlord’s option, Extension Rights shall not be in effect and Tenant may not exercise any of the Extension Rights:

 

(i)          during any period of time that Tenant is in Default under any provision of this Lease; or

 

(ii)         if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise an Extension Right, whether or not the Defaults are cured.

 

(e)           No Extensions . The period of time within which any Extension Rights may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise the Extension Rights.

 

(f)           Termination . The Extension Rights shall, at Landlord’s option, terminate and be of no further force or effect even after Tenant’s due and timely exercise of an Extension Right, if, after such exercise, but prior to the commencement date of an Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of an Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

 

41.          Intentionally Omitted .

 

42.          Asbestos .

 

(a)           Notification of Asbestos . Landlord hereby notifies Tenant of the presence of asbestos-containing materials (“ ACMs ”) and/or presumed asbestos-containing materials (“ PACMs ”) within or about the Premises in the location identified in Exhibit H .

 

 
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(b)           Tenant Acknowledgement . Tenant hereby acknowledges receipt of the notification in paragraph (a) of this Section 42 and understands that the purpose of such notification is to make Tenant and any agents, employees, and contractors of Tenant, aware of the presence of ACMs and/or PACMs within or about the Building in order to avoid or minimize any damage to or disturbance of such ACMs and/or PACMs.

 

  /s/ RO  
  Tenant’s Initials  

 

(c)           Acknowledgement from Contractors/Employees . Tenant shall give Landlord at least 14 days’ prior written notice before conducting, authorizing or permitting any of the activities listed below within or about the Premises, and before soliciting bids from any person to perform such services. Such notice shall identify or describe the proposed scope, location, date and time of such activities and the name, address and telephone number of each person who may be conducting such activities. Thereafter, Tenant shall grant Landlord reasonable access to the Premises to determine whether any ACMs or PACMs will be disturbed in connection with such activities. Tenant shall not solicit bids from any person for the performance of such activities without Landlord’s prior written approval. Upon Landlord’s request, Tenant shall deliver to Landlord a copy of a signed acknowledgement from any contractor, agent, or employee of Tenant acknowledging receipt of information describing the presence of ACMs and/or PACMs within or about the Premises in the locations identified in Exhibit H prior to the commencement of such activities. Nothing in this Section 42 shall be deemed to expand Tenant’s rights under the Lease or otherwise to conduct, authorize or permit any such activities.

 

(i)          Removal of thermal system insulation (“ TSI ”) and surfacing ACMs and PACMs (i.e., sprayed-on or troweled-on material, e.g., textured ceiling paint or fireproofing material);

 

(ii)         Removal of ACMs or PACMs that are not TSI or surfacing ACMs or PACMs; or

 

(iii)        Repair and maintenance of operations that are likely to disturb ACMs or PACMs.

 

(d)           Indemnity Obligations for ACMs and PACMs . Notwithstanding anything to the contrary contained in this Lease (including, without limitation, Sections 16 and 30 ), Landlord agrees to indemnify, defend and hold Tenant and any Tenant Parties claiming by, through or under Tenant harmless from and against any and all Claims for injury or death to persons resulting from the presence of the ACMs and PACMs shown on Exhibit H , except to the extent caused by (i) the gross negligence or intentional misconduct of Tenant, or (ii) the breach of this Lease by Tenant or any Tenant Parties including, without limitation, the failure of Tenant or any Tenant Parties to comply with Section 42(c) of this Lease.

 

43.          Roof Equipment . Subject to the provisions of this Lease, Tenant may, at its sole cost, install, maintain, and from time to time replace a satellite dish and/or antenna, security cameras and other equipment consistent with the Permitted Use of the Premises (e.g., supplemental HVAC) on the roof of the Building (collectively, “ Roof Equipment ”), at no additional rental expense to Tenant (other than reimbursing Landlord for any costs incurred by Landlord in connection with the exercise by Tenant of any rights granted to Tenant under this Section 43 ); provided, however, that (i) Tenant shall obtain Landlord’s prior written approval of the proposed size, weight and location of the Roof Equipment and method for fastening the same to the roof, (ii) Tenant shall, at its sole cost, comply with reasonable requirements imposed by Landlord and all Legal Requirements and the conditions of any bond or warranty maintained by Landlord on the roof, (iii) Tenant shall be responsible for paying for any structural upgrades that may be required by Landlord in connection with the Roof Equipment, and (iv) Tenant shall remove, at its expense, at the expiration or earlier termination of this Lease, any Roof Equipment which Landlord requires to be removed. Landlord shall have the right supervise any roof penetration. Tenant shall repair any damage to the Building caused by Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment. The Roof Equipment shall remain the property of Tenant. Tenant shall remove the Roof Equipment at its cost upon expiration or termination of the Lease or sooner, at the request of Landlord, if any of the same unreasonably interferes, as determined by Landlord, with the operation of any other tenant’s use of the Project. Landlord shall give Tenant written notice and 30 days to cure such interference before requiring Tenant to remove any Roof Equipment; provided, however, that if such interference causes Landlord to be in default under any other lease, Landlord may shorten the cure period as necessary to avoid being in default under such other lease. Tenant shall install, use, maintain and repair the Roof Equipment, and use the access areas, so as not to damage or interfere with the operation of the Building or with the occupancy or activities of any other tenant of the Building. Tenant shall protect, defend, indemnify and hold harmless Landlord from and against claims, damages, liabilities, costs and expenses of every kind and nature, including attorneys’ fees, incurred by or asserted against Landlord arising out of Tenant’s installation, maintenance, replacement, use or removal of the Roof Equipment. Tenant’s right to use the roof as contemplated in this Section 43 is not exclusive and Tenant may not install any Roof Equipment on the roof which is not directly and solely related to Tenant’s operations at the Premises. Tenant shall not have any right to place Roof Equipment on more than Tenant’s pro rata share of the space the roof available to tenants of the Project for the installation of Roof Equipment.

 

 
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44.          Sales Tax Deferral/Exemption .

 

(a)          Retail sales tax otherwise applicable to portions of construction of the Tenant Improvements may be eligible for deferral pursuant to RCW 82.63 (the “ Sales Tax Deferral ”) as a result of Tenant's intended use of the Premises. Promptly following the execution of this Lease, Tenant shall prepare and process applications with the Washington State Department of Revenue for a deferral of state and local sales and use taxes with respect to the construction of the Tenant Improvements. Landlord shall, at no cost or expense to Landlord, cooperate with Tenant's preparation and processing of such applications. Tenant shall notify Landlord in writing once the Sales Tax Deferral has been granted by the Department of Revenue. If the retail sales tax for any of the Tenant Improvements requested by Tenant is deferred, and if, for any reason, any part of the retail sales tax so deferred is subsequently required to be repaid, Tenant shall promptly pay the same, together with any interest, penalties, or other charges that are or become due in connection therewith, and Tenant shall indemnify and hold Landlord harmless from any and all costs, expenses, losses, damages, liability and claims arising out of or related to any retail sales tax deferral for the Tenant Improvements. Tenant acknowledges and agrees that Landlord shall have no liability in the event that any design, construction, construction management services and/or any other activities performed by Landlord prior to the date hereof preclude or limit Tenant’s ability to obtain the Sales Tax Deferral. Landlord hereby agrees that, to the extent Landlord realizes cost savings because of the tax deferral, Landlord shall pass the economic benefit to Tenant in the form of an additional tenant improvement allowance. Any delay in the design or construction of the Tenant Improvements arising from or in connection with any Sales Tax Deferral shall constitute a Tenant Delay.

 

(b)          Tenant shall on an annual basis report to Landlord the nature of Tenant’s use of the Premises and the extent to which such use does not qualify for the Sales Tax Deferral and complete the annual survey required by RCW 82.63.020. Tenant shall, after consultation with Landlord, be responsible for reporting any non-qualifying use to the State of Washington Department of Revenue and paying any tax (plus any interest or penalties) resulting from the non-qualifying use and shall deliver copies of the same to Landlord concurrently with its delivery of the same to the State of Washington Department of Revenue. Tenant acknowledges and agrees that, as between Landlord and Tenant, Tenant shall be solely responsible for paying for any tax resulting from any non-qualifying use.

 

 
Net Multi-Tenant Laboratory 410 W. Harrison/PhaseRx - Page 38

 

(c)          Landlord will, at no cost or expense to Landlord, reasonably cooperate with and assist Tenant in any challenges or audits to the Sales Tax Deferral benefit. In any contest regarding the Sales Tax Deferral benefit, Tenant shall be the main contact with the Department of Revenue; provided, however, that Tenant shall promptly provide Landlord with copies of any correspondence between Tenant and the Department of Revenue and Landlord shall have the right to be present at any and all meetings or proceedings relating to any such contest. Landlord and Tenant shall promptly notify each other of any such challenges or audits that they become aware of and will promptly forward to one another any correspondence regarding any such challenge or audit. Tenant shall have the right to contest or review any proceedings regarding the Sales Tax Deferral benefit, which may be instituted either during or after the Term of this Lease. Landlord will on a timely basis execute all reasonably necessary instruments submitted by Tenant to Landlord for execution in connection with any such protest, appeal or other proceedings, provided, however, that the same are reasonably acceptable to Landlord. If any proceeding may only be instituted and maintained by Landlord, then Landlord shall do so at Tenant’s cost and expense upon the request of Tenant. Landlord shall not settle any appeal or other proceeding with respect to such Sales Tax Deferral without obtaining Tenant’s prior written approval in each instance (not to be unreasonably withheld, conditioned or delayed). Landlord shall not abandon any appeal without first offering to Tenant the right to prosecute such appeal at Tenant’s expense, which election Tenant shall make by written notice to Landlord within 15 days after notice by Landlord of its intent to so abandon its appeal. Tenant shall be entitled to any resulting refund obtained by reason of any such proceeding or otherwise, whether obtained during or after the expiration of the Term and whether obtained by Landlord or Tenant. Tenant shall indemnify and hold Landlord harmless from any and all costs, expenses, losses, damages, liability and claims arising out of or related to Landlord’s compliance with the provisions of this Section 44(c) , including, without limitation, as a result of the execution of any instruments provided to Landlord by Tenant for execution.

 

45.          Miscellaneous .

 

(a)           Notices . All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

 

(b)           Joint and Several Liability . If and when included within the term “ Tenant ,” as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

 

(c)           Financial Information . Tenant shall furnish Landlord with true and complete copies of (i) Tenant’s most recent audited annual financial statements within 120 days of the end of each of Tenant’s fiscal years during the Term, (ii) Tenant’s most recent unaudited quarterly financial statements within 60 days of the end of each of Tenant’s first three fiscal quarters of each of Tenant’s fiscal years during the Term, (iii) at Landlord’s request from time to time, but not more frequently than once each year, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) any other financial information or summaries that Tenant typically provides to its lenders or shareholders. So long as Tenant is a “public company” and its financial information is publicly available, then the foregoing delivery requirements of this Section 44(c) shall not apply.

 

(d)           Recordation . Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

 

(e)           Interpretation . The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

 

 
Net Multi-Tenant Laboratory 410 W. Harrison/PhaseRx - Page 39

 

(f)           Not Binding Until Executed . The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

 

(g)           Limitations on Interest . It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord’s and Tenant’s express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

 

(h)           Choice of Law . Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

 

(i)           Time . Time is of the essence as to the performance of Tenant’s and Landlord’s obligations under this Lease.

 

(j)           OFAC . Both Landlord and Tenant are currently (a) in compliance with and shall at all times during the Term of this Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b) not listed on, and shall not during the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

 

(k)           Incorporation by Reference . All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

 

(l)           Entire Agreement . This Lease, including the exhibits attached hereto, constitutes the entire agreement between Landlord and Tenant pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party in connection with the subject matter hereof except as specifically set forth herein.

 

(m)           No Accord and Satisfaction . No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent will be other than on account of the earliest stipulated Base Rent and Additional Rent, nor will any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy provided in this Lease.

 

(n)           Hazardous Activities . Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant’s routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord’s reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant’s Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

 

 
Net Multi-Tenant Laboratory 410 W. Harrison/PhaseRx - Page 40

 

(o)           Landlord Lien Waiver . If Tenant shall lease or finance the acquisition of any specifically enumerated equipment/personal property not paid for in whole or in part by Landlord which Tenant is permitted under this Lease to remove at the expiration or earlier termination of this Lease, Landlord shall, upon written request from Tenant, enter into an agreement, utilizing Landlord’s standard form of lien waiver or another form acceptable to Landlord in its sole discretion, with Tenant and Tenant’s lender which agreement shall, among other things, govern the parties’ rights with respect to such specifically enumerated equipment/personal property.

 

[Signatures are on the next page]

 

 
Net Multi-Tenant Laboratory 410 W. Harrison/PhaseRx - Page 41

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

  

  TENANT:
   
  PHASERX INC.,
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Its: President & CEO
     
  LANDLORD:
     
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company

 

  By:   ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
      a Delaware limited partnership,
      managing member
         
      By: ARE-QRS CORP.,
        a Maryland corporation,
        general partner
           
        By: /s/ Eric S. Johnson
        Its: Eric S. Johnson, Vice President Real  Estate Legal Affairs

 

 
Net Multi-Tenant Laboratory 410 W. Harrison/PhaseRx - Page 42

 

[TENANT NOTARIAL ACKNOWLEDGMENT]

 

STATE OF     WA     )
  ) ss.
COUNTY OF    King    )

 

On Feb 5, 2010 before me, Jenny Lee Zierman (here insert name and title of the officer), personally appeared Robert W. Overell , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

 

WITNESS my hand and official seal.

 

Signature /s/ Jenny Lee Zierman        (Seal)

 

[LANDLORD NOTARIAL ACKNOWLEDGMENT]

 

STATE OF California )
  ) ss.
COUNTY OF Los Angeles )

 

On February 9, 2010 before me, Charles L. Murphy (Notary Public here insert name and title of the officer), personally appeared Eric S Johnson , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

 

WITNESS my hand and official seal.

 

Signature /s/ Charles L. Murphy      (Seal)

 

 
410 W. Harrison/PhaseRx - Page 1

   

EXHIBIT A TO LEASE

 

DESCRIPTION OF PREMISES

 

 

 
410 W. Harrison/PhaseRx - Page 1

 

EXHIBIT B TO LEASE

 

DESCRIPTION OF PROJECT

 

LOTS 3 THROUGH 6 INCLUSIVE, BLOCK 5, D.T. DENNY’S WATERFRONT ADDITION TO THE CITY OF SEATTLE, ACCORDING TO THE PLAT RECORDED IN VOLUME 2 OF PLATS, PAGE 61, RECORDS OF KING COUNTY, WASHINGTON.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 1

 

EXHIBIT C TO LEASE

 

WORK LETTER

 

THIS WORK LETTER dated February 9 , 2010 (this " Work Letter ") is made and entered into by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant "), and is attached to and made a part of the Lease Agreement dated February 9 , 2010 (the " Lease "), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

 

1.            General Requirements .

 

(a)           Tenant's Authorized Representative . Tenant designates Dr. Robert Overall (" Tenant's Representative ") as the only person authorized to act for Tenant pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry or other communication (" Communication ") from or on behalf of Tenant in connection with this Work Letter unless such Communication is in writing from Tenant's Representative. Tenant may change or include additional persons as Tenant's Representative at any time upon not less than 5 business days advance written notice to Landlord. Neither Tenant nor Tenant's Representative shall be authorized to direct Landlord's contractors in the performance of Landlord's Work (as hereinafter defined).

 

(b)           Landlord's Authorized Representative . Landlord designates Tim McBride (" Landlord's Representative ") as the only person authorized to act for Landlord pursuant to this Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or other Communication from or on behalf of Landlord in connection with this Work Letter unless such Communication is in writing from Landlord's Representative. Landlord may change Landlord's Representative at any time upon not less than 5 business days advance written notice to Tenant. Landlord's Representative shall be the sole persons authorized to direct Landlord's contractors in the performance of Landlord's Work.

 

(c)           Architects, Consultants and Contractors . Landlord and Tenant hereby acknowledge and agree that: (i) BN Builders, Lease Crutcher Lewis and Sellen have been approved by both Landlord and Tenant as potential general contractors for the Tenant Improvements (“ Pre-Approved Contractors ”) and that the general contractor for the Tenant Improvements shall be selected from among such Pre-Approved Contractors through a competitive bidding process, (ii) any subcontractors for the Tenant Improvements shall be selected by Landlord, subject to Tenant's approval, which approval shall not be unreasonably withheld, conditioned or delayed, and (ii) Stock & Associates shall be the architect (the " TI Architect ") for the Tenant Improvements.

 

2.            Tenant Improvements .

 

(a)           Tenant Improvements Defined . As used herein, " Tenant Improvements " shall mean all improvements to the Project of a fixed and permanent nature as shown on the TI Construction Drawings, as defined in Section 2(c) below.  The Tenant Improvements shall be Substantially Completed in 2 phases, with the Remaining Improvements (as defined in Section 2 of the Lease) being Substantially Completed pursuant to Section 2 of the Lease after the Substantial Completion of the initial Tenant Improvements.  Other than Landlord's Work (as defined in Section 3(a) below, Landlord shall not have any obligation whatsoever with respect to the finishing of the Premises for Tenant's use and occupancy

 

(b)           Tenant's Space Plans . Landlord and Tenant acknowledge and agree that the plan prepared by the TI Architect attached hereto as Exhibit K (the “ Space Plan ”) has been approved by both Landlord and Tenant.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 2

 

(c)           Working Drawings . Landlord shall cause the TI Architect to prepare and deliver to Tenant for review and comment construction plans, specifications and drawings for the Tenant Improvements (" TI Construction Drawings "), which TI Construction Drawings shall be prepared substantially in accordance with the Space Plan. Tenant shall be solely responsible for ensuring that the TI Construction Drawings reflect Tenant's requirements for the Tenant Improvements. Tenant shall deliver its written comments on the TI Construction Drawings to Landlord not later than 10 business days after Tenant's receipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the Space Plan without submitting a Change Request. Landlord and the TI Architect shall consider all such comments in good faith and shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments, but Tenant's review rights pursuant to the foregoing sentence shall not delay the design or construction schedule for the Tenant Improvements. Any disputes in connection with such comments shall be resolved in accordance with Section 2(d) hereof. Provided that the design reflected in the TI Construction Drawings is consistent with the Space Plan, Tenant shall approve the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request. Once approved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI Construction Drawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b) below).

 

(d)           Approval and Completion . Upon any dispute regarding the design of the Tenant Improvements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other, Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably and such final decision is either consistent with or a compromise between Landlord's and Tenant's positions with respect to such dispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (as defined in Section 5(d) below), and (iii) Tenant's decision will not materially affect the base Building, structural components of the Building or any Building systems. Any changes to the TI Construction Drawings following Landlord's and Tenant's approval of same requested by Tenant shall be processed as provided in Section 4 hereof.

 

3.            Performance of Landlord's Work .

 

(a)           Definition of Landlord's Work . As used herein, " Landlord's Work " shall mean the work of constructing the Tenant Improvements.

 

(b)           Commencement and Permitting . Landlord shall commence construction of the Tenant Improvements upon obtaining a building permit (the " TI Permit ") authorizing the construction of the Tenant Improvements consistent with the TI Construction Drawings approved by Tenant. The cost of obtaining the TI Permit shall be payable from the TI Fund. Tenant shall assist Landlord in obtaining the TI Permit. If any Governmental Authority having jurisdiction over the construction of Landlord's Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) are inconsistent with Landlord's obligations hereunder, (ii) increase the cost of constructing Landlord's Work, or (iii) will materially delay the construction of Landlord's Work, Landlord and Tenant shall reasonably and in good faith seek means by which to mitigate or eliminate any such adverse terms and conditions.

 

(c)           Completion of Landlord's Work . On or before the Target Commencement Date (subject to Tenant Delays and Force Majeure delays), Landlord shall substantially complete or cause to be substantially completed Landlord's Work (other than the Remaining Improvements) in a good and workmanlike manner, in accordance with the TI Permit subject, in each case, to Minor Variations and normal "punch list" items of a non-material nature that do not interfere with the use of the Premises for the Permitted Use (" Substantial Completion " or " Substantially Complete "). The Remaining Improvements will be Substantially Completed as provided for in Section 2 of the Lease. Tenant shall notify Landlord in writing of any punch-list items within 10 days after the Substantial Completion of the Tenant Improvements and Landlord shall cause all such punch-list items to be completed within 30 days of Landlord’s receipt of Tenant’s written notice. Upon Substantial Completion of Landlord's Work, Landlord shall require the TI Architect and the general contractor to execute and deliver, for the benefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (" AIA ") document G704. For purposes of this Work Letter, " Minor Variations " shall mean any modifications reasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit (including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlord's Work; (iii) to comport with good design, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviations or conditions encountered during the construction of Landlord's Work.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 3

 

(d)           Selection of Materials . Where more than one type of material or structure is indicated on the TI Construction Drawings approved by Landlord and Tenant, the option will be selected at Landlord's reasonable discretion. As to all building materials and equipment that Landlord is obligated to supply under this Work Letter, Landlord shall select the manufacturer thereof in its reasonable discretion. Notwithstanding the foregoing, it shall be considered unreasonable to make a selection pursuant to this paragraph (i) that would not be suitable, in Landlord’s reasonable discretion, for the Permitted Use, (ii) of materials and equipment that are not reasonably anticipated to be in operational condition when used for the Permitted Use for the entire Term of the Lease (as may be extended pursuant to Section 39(b) and Section 40 of the Lease), or (c) that would materially increase the cost to construct the Tenant Improvements above the cost of alternative materials, structures or equipment of which Landlord was aware and which would have otherwise been acceptable to Tenant, in its reasonable discretion.

 

Tenant shall have the right, in Tenant’s reasonable discretion, within 10 days after request from Landlord to approve the condition and manufacturer of any autoclave or cage wash equipment being installed in the Premises as part of the Tenant Improvements. If Tenant has not approved or disapproved of such autoclave or cage wash equipment within such 10 day period, Tenant shall be deemed to have approved such items.

 

(e)           Delivery of the Premises . When Landlord's Work is Substantially Complete, subject to the remaining terms and provisions of this Section 3(e) , Tenant shall accept the Premises on the date that Landlord Delivers the Premises to Tenant. Tenant's taking possession and acceptance of the Premises shall not constitute a waiver of: (i) any warranty with respect to workmanship (including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlord's Work with applicable Legal Requirements, or (iii) any claim that Landlord's Work was not completed substantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as are permitted hereunder) (collectively, a " Construction Defect "). Tenant shall have one year after Substantial Completion within which to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter. Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord's reasonable efforts, fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such Construction Defect other than to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor.

 

Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer's equipment warranties relating to equipment installed in the Premises. If requested by Tenant, Landlord shall attempt to obtain extended warranties from manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely out of the TI Fund. Landlord shall promptly undertake and complete, or cause to be completed, all punch list items as provided for in Section 3(c) .

 

(f)           Commencement Date Delay . Except as otherwise provided in the Lease, Delivery of the Premises shall occur when Landlord's Work has been Substantially Completed, except to the extent that completion of Landlord's Work shall have been actually delayed by any one or more of the following causes (" Tenant Delay "):

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 4

 

(i)          Tenant's Representative was not available to give or receive any Communication or to take any other action required to be taken by Tenant hereunder, during normal business hours, within the time periods provided for in this Work Letter or, if no such time period is provided for in this Work Letter, within 2 business days;

 

(ii)         Tenant's request for Change Requests (as defined in Section 4(a) below) whether or not any such Change Requests are actually performed;

 

(iii)        Construction of any Change Requests; provided, however, upon written request from Tenant, Landlord shall notify Tenant regarding the length of the anticipated Tenant Delay and Tenant shall have the right to withdraw or modify its request to reduce or eliminate any Tenant Delay;

 

(iv)        Tenant's request for materials, finishes or installations requiring unusually long lead times; provided, however, upon written request from Tenant, Landlord shall notify Tenant regarding the length of the anticipated Tenant Delay and Tenant shall have the right to withdraw or modify its request to reduce or eliminate any Tenant Delay;

 

(v)         Tenant's delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein;

 

(vi)        Tenant's delay in providing information critical to the normal progression of the Project. Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of any request for such information from Landlord;

 

(vii)       Tenant's delay in making payments to Landlord for Excess TI Costs (as defined in Section 5(d) below); or

 

(viii)      Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or persons employed by any of such persons.

 

If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the TI Architect to certify the date on which the Tenant Improvements would have been completed but for such Tenant Delay and such certified date shall be the date of Delivery.

 

4.            Changes . Any changes requested by Tenant to the Tenant Improvements after the delivery and approval by Landlord of the Space Plan shall be requested and instituted in accordance with the provisions of this Section 4 and shall be subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned or delayed.

 

(a)           Tenant's Request For Changes . If Tenant shall request changes to the Tenant Improvements (" Changes "), Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard change order form (a " Change Request "), which Change Request shall detail the nature and extent of any such Change. Such Change Request must be signed by Tenant's Representative. Landlord shall, before proceeding with any Change, use commercially reasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) the architectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paid from the TI Fund to the extent actually incurred, whether or not such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of the Change Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), an analysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the period of time, if any, that the Change will extend the date on which Landlord's Work will be Substantially Complete. Any such delay in the completion of Landlord's Work caused by a Change, including any suspension of Landlord's Work while any such Change is being evaluated and/or designed, shall be Tenant Delay.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 5

 

(b)           Implementation of Changes . If Tenant: (i) approves in writing the cost or savings and the estimated extension in the time for completion of Landlord's Work, if any, and (ii) deposits with Landlord any Excess TI Costs required in connection with such Change, Landlord shall cause the approved Change to be instituted. Notwithstanding any approval or disapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architect's determination of the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.

 

5.            Costs .

 

(a)           Budget For Tenant Improvements . Before the commencement of construction of the Tenant Improvements, Landlord shall obtain a detailed breakdown by trade of the costs incurred or that will be incurred in connection with the design and construction of the Tenant Improvements (the " Budget "); provided, however, that if the costs for Landlord’s Work set forth in the Budget exceed the amount of the TI Allowance, Tenant may require that Landlord make reasonable modifications to the proposed Tenant Improvements. Any such modifications required by Tenant pursuant to the immediately preceding sentence shall constitute a Change Request and any delay in the completion of Landlord’s Work caused by such modifications shall constitute a Tenant Delay. The Budget shall be based upon the TI Construction Drawings approved by Tenant and shall include a payment to Landlord of administrative rent (" Administrative Rent ") equal to 3% of the TI Costs for monitoring and inspecting the construction of the Tenant Improvements and Changes, which sum shall be payable from the TI Fund (as defined in Section 5(d) . Administrative Rent shall include, without limitation, all out-of-pocket costs, expenses and fees incurred by or on behalf of Landlord arising from, out of, or in connection with monitoring the construction of the Tenant Improvements and Changes, and shall be payable out of the TI Fund. If the Budget is greater than the TI Allowance, Tenant shall deposit with Landlord the difference, in cash, prior to the commencement of construction of the Tenant Improvements or Changes, for disbursement by Landlord as described in Section 5(d) .

 

(b)           TI Allowance . Landlord shall provide to Tenant a tenant improvement allowance (the " TI Allowance ") of $605,000.00 in the aggregate. The TI Allowance shall be disbursed in accordance with this Work Letter.

 

Any portion of the TI Allowance remaining unused after the Substantial Completion of the Tenant Improvements and the payment of all TI Costs (“ Remaining TI Allowance ”) shall be applied to reduce the monthly Base Rent payable by Tenant over the Base Term as provided in this paragraph. Monthly Base Rent shall be reduced by the monthly amount of principal and interest calculated by fully amortizing the Remaining TI Allowance over a period of 10 years at an interest rate of 8%. For example, if the Remaining TI Allowance equals $105,000.00, the monthly Base Rent payable by Tenant would be reduced by $1,274.93 per month during the Base Term of the Lease. Except as otherwise provided in this paragraph, Tenant shall have no right to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the TI Allowance not required for the construction of (i) the Tenant Improvements described in the TI Construction Drawings approved pursuant to Section 2(d) or (ii) any Changes pursuant to Section 4 .

 

(c)           Costs Includable in TI Fund . The TI Fund shall be used solely for the payment of design, permits and construction costs in connection with the construction of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection with the construction of the Tenant Improvements, the cost of preparing the Space Plan and the TI Construction Drawings, the cost of any commissioning services for the Tenant Improvements elected by Landlord to be performed, all costs set forth in the Budget, including Landlord's Administrative Rent, costs resulting from Tenant Delays and the cost of Changes (collectively, " TI Costs "). Notwithstanding anything to the contrary contained herein, the TI Fund shall not be used to purchase any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenant's voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Tenant Improvements. Notwithstanding anything to the contrary contained herein, Landlord shall, at Landlord’s sole cost and expense (not payable from the TI Fund or otherwise chargeable to Tenant) acquire the fume hoods located within the Premises as of the date of the Lease from the existing tenant at the Premises.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 6

 

(d)           Excess TI Costs . Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to the extent of the TI Allowance. If at any time the remaining TI Costs under the Budget exceed the remaining unexpended TI Allowance, Tenant shall, within 10 days after request from Landlord (along with reasonable support therefore) deposit with Landlord, as a condition precedent to Landlord's obligation to complete the Tenant Improvements, 100% of the then current TI Cost in excess of the remaining TI Allowance (" Excess TI Costs "). If Tenant fails to deposit any Excess TI Costs with Landlord, Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge). For purposes of any litigation instituted with regard to such amounts, those amounts will be deemed Rent under the Lease. The TI Allowance and Excess TI Costs are herein referred to as the " TI Fund ." Funds deposited by Tenant shall be the first disbursed to pay TI Costs. Notwithstanding anything to the contrary set forth in this Section 5(d) , Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the TI Allowance. If upon Substantial Completion of the Tenant Improvements and the payment of all sums due in connection therewith there remains any undisbursed portion of the TI Fund (in excess of the TI Allowance), Tenant shall be entitled to such undisbursed TI Fund (in excess of the TI Allowance) solely to the extent of any Excess TI Costs deposit Tenant has actually made with Landlord. Any portion of the TI Allowance remaining upon Substantial Completion of the Tenant Improvements and the payment of all sums due in connection therewith shall be applied to reduce monthly Base Rent as provided for in Section 5(b) above.

 

6.            Tenant Access .

 

(a)           Tenant's Access Rights . Landlord hereby agrees to permit Tenant access, at Tenant's sole risk and expense, to the Building (i) 3 business days prior to the Commencement Date to perform any work (" Tenant's Work ") required by Tenant other than Landlord's Work, provided that such Tenant's Work is coordinated with the TI Architect and the general contractor, and complies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completion of Landlord's Work, to inspect and observe work in process; all such access shall be during normal business hours or at such other times as are reasonably designated by Landlord. Notwithstanding the foregoing, Tenant shall have no right to enter onto the Premises or the Project unless and until Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that any insurance reasonably required by Landlord in connection with such pre-commencement access (including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is in full force and effect. Any entry by Tenant shall comply with all established safety practices of Landlord's contractor and Landlord until completion of Landlord's Work and acceptance thereof by Tenant.

 

(b)           No Interference . Neither Tenant nor any Tenant Party (as defined in the Lease) shall unreasonably interfere with the performance of Landlord's Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities, and upon any such interference, Landlord shall have the right to exclude Tenant and any Tenant Party from the Premises and the Project until Substantial Completion of Landlord's Work.

 

(c)           No Acceptance of Premises . The fact that Tenant may, with Landlord's consent, enter into the Project prior to the date Landlord's Work is Substantially Complete for the purpose of performing Tenant's Work shall not be deemed an acceptance by Tenant of possession of the Premises, but in such event Tenant shall defend with counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damage to Tenant's property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to, any person, caused by the act or omission of Tenant or any Tenant Party, except to the extent caused by the willful misconduct or gross negligence of Landlord.

 

 

Work Letter – Landlord Build

410 W. Harrison/PhaseRx - Page 7

 

7.            Miscellaneous .

 

(a)           Consents . Whenever consent or approval of either party is required under this Work Letter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth herein to the contrary.

 

(b)           Modification . No modification, waiver or amendment of this Work Letter or of any of its conditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.

 

 

410 W. Harrison/PhaseRx - Page  1

 

 

EXHIBIT D TO LEASE

 

ACKNOWLEDGMENT OF COMMENCEMENT DATE

 

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this _____ day of _____________, ____________________________, between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (“ Landlord ”), and PHASERX INC. , a Delaware corporation (“ Tenant ”), and is attached to and made a part of the Lease dated ____________, __________ (the “ Lease ”), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

 

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date of the Base Term of the Lease is ____________, _____________ , the Rent Commencement Date is ________________, __________ and the termination date of the Base Term of the Lease shall be midnight on ______________, __________. In case of a conflict between the terms of the Lease and the terms of this Acknowledgment of Commencement Date, this Acknowledgment of Commencement Date shall control for all purposes.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

 

  TENANT:
   
  PHASERX INC.,
  a Delaware corporation
   
  By:  
  Its:  
   
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company

 

  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By:  
      Its:  
         

  

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT E TO LEASE

 

Rules and Regulations

 

1.          The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises.

 

2.          Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project.

 

3.          Except for animals assisting the disabled and in connection with the Permitted Use, no animals shall be allowed in the Project.

 

4.          Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

 

5.          If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be introduced; and, without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant’s expense.

 

6.          Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved in the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Project. This paragraph shall not apply to those materials expressly permitted under the Lease.

 

7.          Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no “For Sale” or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

 

8.          Except in connection with the Permitted Use, Tenant shall maintain the Premises free from rodents, insects and other pests.

 

9.          Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

 

10.         Tenant shall not cause any unnecessary labor by reason of Tenant’s carelessness or indifference in the preservation of good order and cleanliness.

 

11.         Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

 

12.         Except as may be expressly provided for in the Lease, Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

 

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  2

 

13.         All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

 

14.         No auction, public or private, will be permitted on the Premises or the Project.

 

15.         No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

 

16.         The Premises shall not be used for lodging, sleeping or cooking or for any pornographic or illegal purposes or for any purpose other than that specified in the Lease; provided, however that cooking shall be permitted in a kitchen or employee break room. No gaming devices shall be operated in the Premises.

 

17.         Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord’s consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

 

18.         Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

 

19.         Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant’s Permitted Use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

 

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT F TO LEASE

 

TENANT’S PERSONAL PROPERTY

 

Any of the following items which have been installed in the Premises and paid for by Tenant are and shall remain Tenant’s Personal Property and considered Removable Installations notwithstanding anything the contrary contained in the Lease:

 

1. Autoclaves

 

2. Cage washers

 

3. Fume hoods

 

4. Laminar flow hoods

 

5. Bio-safety cabinets

 

6. Nuclear magnetic resonance equipment

 

7. Generators and back up power systems

 

8. Compressors

 

In no event shall any autoclaves, cage washers, fume hoods, laminar flow hoods or bio-safety cabinets purchased by Landlord or purchased using the TI Allowance or any additional tenant improvement allowance provided to Tenant by Landlord be included as Tenant’s Personal Property.

 

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT G TO LEASE

 

REMAINING IMPROVEMENTS

 

 

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT H TO LEASE

 

ASBESTOS DISCLOSURE

 

NOTIFICATION OF THE PRESENCE OF ASBESTOS CONTAINING MATERIALS

 

This notification provides certain information about asbestos within or about the Premises at 410 West Harrison Street, Seattle, WA (“Building”) and in accordance with Washington Administrative Code, Chapter 296-62-07721.

 

Historically, asbestos was commonly used in building products used in the construction of buildings across the country. Asbestos-containing building products were used because they are fire-resistant and provide good noise and temperature insulation. Because of their prevalence, asbestos-containing materials, or ACMs, are still sometimes found in buildings today.

 

An asbestos survey of the Building has determined that ACMs and/or materials that might contain ACMs, referred to as presumed asbestos-containing materials or PACMs, are present within or about the Premises. The surveys found ACMs and/or PACMs of the types, in the amounts and at the following location in or about the Premises:

 

Material Description   Material Location
     
Joint compound on drywall   Throughout building
     
Pipe joints   1st and 2nd floor laboratories, above ceiling tiles and behind wall cavities beneath sinks
     
Various flooring materials   2nd Floor, various rooms
     
Gray block insulation   1st Floor, room 153A
     
Plastic roof cement/mastic   Roof ducts
     
Roofing materials (assumed)   Throughout roof
     
Cove base and mastic   1st and 2nd Floor

 

Because ACMs and PACMs are present and may continue to be present within or about the Building, we have hired an independent environmental consulting firm to prepare an operations and maintenance program (“ O&M Program ”). The O&M Program is designed to minimize the potential of any harmful asbestos exposure to any person within or about the Building. The O&M Program includes a description of work methods to be taken in order to maintain any ACMs or PACMs within or about the Building in good condition and to prevent any significant disturbance of such ACMs or PACMs. Appropriate personnel receive regular periodic training on how to properly administer the O&M Program.

 

The O&M Program describes the risks associated with asbestos exposure and how to prevent such exposure through appropriate work practices. ACMs and PACMs generally are not thought to be a threat to human health unless asbestos fibers are released into the air and inhaled. This does not typically occur unless (1) the ACMs are in a deteriorating condition, or (2) the ACMs have been significantly disturbed (such as through abrasive cleaning, or maintenance or renovation activities). If inhaled, asbestos fibers can accumulate in the lungs and, as exposure increases, the risk of disease (such as asbestosis or cancer) increases. However, measures to minimize exposure, and consequently minimize the accumulation of asbestos fibers, reduce the risks of adverse health effects.

 

 

Rules and Regulations

410 W. Harrison/PhaseRx - Page  2

 

The O&M Program describes a number of activities that should be avoided in order to prevent a release of asbestos fibers. In particular, you should be aware that some of the activities which may present a health risk include moving, drilling, boring, or otherwise disturbing ACMs. Consequently, such activities should not be attempted by any person not qualified to handle ACMs.

 

The O&M Program is available for review during regular business hours at our office located at 1600 Fairview Avenue East, Suite 100, Seattle WA 98102.

 

 

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT I TO LEASE

 

EXPANSION SPACE

 

 

 

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT J TO LEASE

 

APPROVED ALTERATIONS

 

None.

 

 

410 W. Harrison/PhaseRx - Page  1

 

EXHIBIT K TO LEASE

 

SPACE PLANS

 

(Attached)

 

 

410 W. Harrison/PhaseRx - Page  2

 

 

 

 

Exhibit 10.8

 

FIRST AMENDMENT TO LEASE

 

THIS FIRST AMENDMENT TO LEASE (this " First Amendment ") is made as of July 1 , 2010, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010 (the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.          Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease as provided in this First Amendment.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Replacements . The 7 th full paragraph of Section 2 of the Lease is hereby deleted and replaced with the following:

 

“Except with respect to the boiler serving the Building (any replacement of which shall be undertaken by Landlord as part of Operating Expenses), for the period of 24 months after the Commencement Date, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any replacements that are required to be made to the mechanical, plumbing and electrical systems serving the Premises, except to the extent Tenant was responsible for the cause of such replacement, in which case Tenant shall pay the cost. Any repairs and maintenance of the mechanical, plumbing and electrical systems serving the Premises shall be undertaken by Landlord as part of Operating Expenses.”

 

2. Miscellaneous .

 

a.            This First Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This First Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this First Amendment, understands them, and is bound by them. Time is of the essence in this First Amendment.

 

d.            This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto.

 

1

 

 

e.            Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment.

 

IN WITNESS WHEREOF , the parties hereto have executed this First Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By:   /s/ Robert W. Overell
     
  Its: President & CEO
     
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Eric S. Johnson
      Its: Eric S. Johnson, Vice President Real Estate Legal Affairs

  

2

 

Exhibit 10.9

 

SECOND AMENDMENT TO LEASE

 

THIS SECOND AMENDMENT TO LEASE (this " Second Amendment ") is made as of April 4, 2011, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease dated as of July 1, 2010 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Original Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.         Tenant has elected to expand the Original Premises to include the Expansion Space (as defined in Section 39(a) ).

 

C.          Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, expand the size of the Original Premises by adding the Expansion Space consisting of approximately 6,236 rentable square feet.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Expansion Space . In addition to the Original Premises, commencing on the Expansion Space Commencement Date (as defined below), Landlord leases to Tenant, and Tenant leases from Landlord, that certain portion of the Building consisting of approximately 6,236 rentable square feet, as shown on Exhibit I attached to the Lease (the " Expansion Space ").

 

2. Delivery . Landlord shall use reasonable efforts to deliver the Expansion Space (“ Delivery ” or “ Deliver ”) to Tenant on or before September 1, 2011 (“ Target Expansion Space Commencement Date ”). If Landlord fails to timely Deliver the Expansion Space to Tenant, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Second Amendment shall not be void or voidable, other than by Tenant’s Termination Right. Notwithstanding the foregoing, Tenant shall receive a credit against Operating Expenses payable under the Lease with respect to the Expansion Space equal to 2 times the per diem amount of Operating Expenses payable by Tenant for the Expansion Space (2 x $226.37 = 452.74 per day) (“ Opex Credit ”) for each day after the Target Expansion Space Commencement Date (as the same may be extended for Force Majeure delays) that Landlord fails to Deliver the Expansion Space to Tenant. If Landlord is unable to Deliver the Expansion Space to Tenant on or before the Target Expansion Space Commencement Date, Landlord shall endeavor to provide temporary laboratory and office space (“ Temporary Premises ”) to Tenant in the Building or at a property owned by an affiliate of Landlord until the Expansion Space Commencement Date pursuant to a separate written agreement acceptable to Tenant and Landlord (or Landlord’s affiliate), each in their sole and absolute discretion. If Tenant occupies a Temporary Premises, (i) Tenant shall not pay Base Rent for the Temporary Premises but shall pay the Operating Expenses only on such Temporary Premises for the period which Tenant occupies the Temporary Premises, and (ii) Landlord shall reimburse Tenant, within a reasonable time after Tenant’s delivery of an invoice reasonably acceptable to Landlord reflecting the costs incurred, for the reasonable moving expenses actually incurred by Tenant to move into the Temporary Premises and to subsequently move from the Temporary Premises to the Expansion Space.

 

1

 

  

Landlord shall provide Tenant at least thirty (30) days advance notice of its proposed date of delivery of the Expansion Space (“ Proposed Delivery Date ”). Tenant may elect, at Tenant’s sole cost and expense, to perform an environmental inspection of the Expansion Space (“ Environmental Inspection” ) prior to the Proposed Delivery Date. Following Tenant’s written notice to Landlord of its election to conduct the Environmental Inspection (“ Inspection Notification ”), Landlord hereby agrees to permit Tenant access to the Expansion Space for such Environmental Inspection at least fifteen (15) days prior to the Proposed Delivery Date (“ Initial Access Date ”). Landlord shall not be required to provide access to the Expansion Space for the Environmental Inspection prior to August 15, 2011 so long as the Proposed Delivery Date is on or after September 1, 2011. Such Environmental Inspection shall be coordinated with Landlord and shall comply with the Lease and all other reasonable restrictions and conditions Landlord may impose. Tenant’s Inspection Notification shall include notification to Landlord of the date upon which Tenant desires to commence the Environment Inspection of the Expansion Premises (“ Desired Access Date ”); provided, however, that in no event shall the Desired Access Date be earlier than the Initial Access Date. All such access shall be during normal business hours or at such other times as are reasonably designated by Landlord.

 

The " Expansion Space Commencement Date " shall be the date Landlord actually delivers the Expansion Space to Tenant. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Expansion Space Commencement Date when the same is established in a form substantially similar to the form of the "Acknowledgement of Commencement Date" attached to the Lease as Exhibit D ; provided , however , Tenant’s failure to execute and deliver such acknowledgment shall not affect Landlord’s rights hereunder.

 

Except as set forth in this Second Amendment, if applicable: (i) Tenant shall accept the Expansion Space in their condition as of the Expansion Space Commencement Date; (ii) Landlord shall have no obligation for any defects in the Expansion Space; and (iii) Tenant’s taking possession of the Expansion Space shall be conclusive evidence that Tenant accepts the Expansion Space and that the Expansion Space were in good condition at the time possession was taken. As of the Expansion Space Commencement Date, the defined term “Premises” in the Lease shall include the Expansion Space and the terms of the Lease including, without limitation, Landlord’s warranty obligations under Sections 30(i) and 42, shall apply to the Expansion Space. Landlord shall, at Landlord’s sole cost and expense, be responsible for the compliance of the Premises (including the Expansion Space) with Legal Requirements as of the Commencement Date.

 

Except with respect to the boiler serving the Building (any replacement of which shall be undertaken by Landlord as part of Operating Expenses), commencing on the Expansion Space Commencement Date through December 31, 2012, Landlord shall, at its sole cost and expense (which shall not constitute an Operating Expense), be responsible for any replacements that are required to be made to the mechanical, plumbing and electrical systems serving the Expansion Space, except to the extent Tenant was responsible for the cause of such replacement, in which case Tenant shall pay the cost. Any repairs and maintenance of the mechanical, plumbing and electrical systems serving the Expansion Space shall be undertaken by Landlord as part of Operating Expenses.

 

Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Expansion Space, and/or the suitability of the Expansion Space for the conduct of Tenant’s business and Tenant waives any implied warranty that the Expansion Space are suitable for the Permitted Use.

 

2

 

 

3. Definition of Premises . Commencing on the Expansion Space Commencement Date, the defined term " Premises " on page 1 of the Lease is deleted in its entirety and replaced with the following:

 

" Premises: That portion of the Building containing approximately 17,527 rentable square feet, consisting of (i) the “ Original Premises ” consisting of approximately 11,291 rentable square feet, and (ii) the “ Expansion Space ” consisting of approximately 6,236 rentable square feet, all, as shown on Exhibit A . The Original Premises and the Expansion Space shall be collectively referred to herein as the “ Premises ”.

 

As of the Expansion Space Commencement Date, Exhibit A to the Lease shall be amended to include Exhibit I attached to the Lease.

 

4. Base Term . Commencing on the Expansion Space Commencement Date, the defined term “ Base Term ” on page 1 of the Lease is deleted in its entirety and replaced with the following:

 

Base Term: A term (i) beginning, with respect to the Original Premises, on the Commencement Date, and with respect the Expansion Space on the Expansion Space Commencement Date, and (ii) ending, with respect to the entire Premises, on September 30, 2015.”

 

5. Base Rent . Tenant shall continue to pay Base Rent for the Original Premises as provided for in the Lease. The “ Expansion Space Rent Commencement Date ” shall be the earlier of: (i) the date Tenant conducts any business in the Expansion Space or any part thereof, or (ii) January 1, 2012; provided that Landlord delivers the Expansion Space to Tenant on or before January 1, 2012. If delivery of the Expansion Space occurs after January 1, 2012, then the Expansion Space Rent Commencement Date shall be the actual delivery date. Commencing on the Expansion Space Rent Commencement Date, Tenant shall pay Base Rent for the Expansion Space in the amount of $34.48 per rentable square foot of the Expansion Space per annum which Base Rent shall be payable in equal monthly installments on or before the first day of each calendar month during the Term. In no event shall Tenant’s mere occupancy of the Expansion Space for storage purposes or for Tenant’s construction or installation of Expansion Space Tenant Improvements, Alterations, Tenant Property or Removable Installations prior to January 1, 2012, cause the Expansion Space Rent Commencement Date to occur prior to January 1, 2012. On May 1, 2012, Base Rent for the Expansion Space shall be increased to $35.51 per rentable square foot of the Expansion Space per annum. Commencing on May 1, 2013, and continuing thereafter on May 1 st of each year during the Base Tern (each, an “ Expansion Space Adjustment Date ”), Base Rent for the Expansion Space shall be increased by multiplying the Base Rent payable for the Expansion Space immediately before such Expansion Space Adjustment Date by the Rent Adjustment Percentage of 3% and adding the resulting amount to the Base Rent payable for the Expansion Space immediately before such Expansion Premises Adjustment Date.

 

6. Rentable Area of the Premises . Commencing on the Expansion Space Commencement Date, the defined term " Rentable Area of the Premises " on page 1 of the Lease is deleted in its entirety and replaced with the following:

 

" Rentable Area of the Premises: 17,527 sq. ft."

 

7. Tenant’s Share of Operating Expenses . Commencing on the Expansion Space Commencement Date, the defined term " Tenant’s Share of Operating Expenses " on page 1 of the Lease is deleted in its entirety and replaced with the following:

 

" Tenant’s Share of Operating Expenses of Building: 54.28%”

 

3

 

  

Tenant shall continue to pay Operating Expenses with respect to the Original Premises as provided for in the Lease. If the Expansion Space Commencement Date occurs on or before December 31, 2011, Tenant shall commence paying Operating Expenses with respect to the Expansion Space on the Expansion Space Commencement Date; provided, however, that commencing on such date through December 31, 2011, the Operating Expenses payable by Tenant with respect to the Expansion Space shall be capped at $13.25 per rentable square foot of the Expansion Space per annum. So long as the Expansion Space Commencement Date occurs on or before January 1, 2012, Tenant shall commence paying the full amount of Operating Expenses payable with respect the Expansion Space on January 1, 2012. If the Expansion Space Commencement Date occurs after January 1, 2012, Tenant shall commence paying the full amount of Operating Expenses payable with respect the Expansion Space on the Expansion Space Commencement Date. Tenant’s Share of Operating Expenses of Building with respect to the Expansion Space is 19.30%.

 

8. Security Deposit . If the Lease with respect to the Expansion Space has not been terminated pursuant to Section 10 below, or as otherwise set forth in the Lease, Tenant shall deliver an additional Security Deposit to Landlord in the amount of $27,500 on or before January 1, 2012, which additional Security Deposit shall be in the form of a Letter of Credit.

 

9. Expansion Space TI Allowance . Upon the earliest to occur of (i) the satisfaction of the Financing Contingency (as defined in Section 10 below), (ii) the date Tenant delivers written notice to Landlord waiving its Termination Right, or (iii) the date that Tenant is deemed to have waived its Termination Right pursuant to Section 10 below, Landlord shall make available to Tenant a tenant improvement allowance of up to $15.00 per rentable square foot of the Expansion Space (the " Expansion Space TI Allowance ") for the design and construction of fixed and permanent improvements in the Expansion Space desired by and performed by Tenant and which improvements shall be of a fixed and permanent nature (the " Expansion Space Tenant Improvements "). Except as otherwise provided in this Section 9 , the Expansion Space TI Allowance shall only be available for the design and construction of Expansion Space Tenant Improvements. Tenant acknowledges that upon the expiration of the Term of the Lease, the Expansion Space Tenant Improvements shall become the property of Landlord and may not be removed by Tenant. Notwithstanding anything to the contrary contained herein, the Expansion Space TI Allowance shall not be used to purchase any furniture, personal property or other non-Building system materials or equipment, including, but not limited to, Tenant's voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into the Expansion Space Tenant Improvements. A portion of the Expansion Space TI Allowance shall be paid to Landlord as an administration fee in an amount equal to 3% for monitoring and inspecting the construction of the Expansion Space Tenant Improvements (which amount shall be paid in lieu of and not in addition to any amounts payable to Landlord pursuant to the first paragraph of Section 12 in connection with Alterations). Except for the Expansion Space TI Allowance, Tenant shall be solely responsible for all of the costs of the Expansion Space Tenant Improvements and for any Tenant Property or Removable Installations that Tenant may install in the Expansion Space. Any and all installations paid for by Tenant which are identified by Tenant as Removable Installations (as that term is defined in the Lease, and as may be amended by Landlord and Tenant pursuant to the Lease) shall be Tenant’s Property. The Expansion Space Tenant Improvements shall be treated as Alterations and shall be undertaken pursuant to Section 12 of the Lease. The contractor for the Tenant Improvements shall be selected by Tenant, subject to Landlord's approval, which approval shall not be unreasonably withheld, conditioned or delayed. Prior to the commencement of the Expansion Space Tenant Improvements, Tenant shall deliver to Landlord a copy of any contract with Tenant’s contractors (including the architect), and certificates of insurance from any contractor performing any part of the Expansion Space Tenant Improvements evidencing industry standard commercial general liability, automotive liability, “builder’s risk”, and workers' compensation insurance. Tenant shall cause the general contractor to provide a certificate of insurance naming Landlord, Alexandria Real Estate Equities, Inc., and Landlord’s lender (if any) as additional insureds for the general contractor’s liability coverages required above.
4

 

  

During the course of design and construction of the Expansion Space Tenant Improvements, Landlord shall reimburse Tenant for the cost of the Expansion Space Tenant Improvements once a month against a draw request in Landlord's standard form, containing evidence of payment of the applicable costs and such certifications, lien waivers (including a conditional lien release for each progress payment and unconditional lien releases for the prior month's progress payments), inspection reports and other matters as Landlord customarily obtains, to the extent of Landlord's approval thereof for payment, no later than 30 days following receipt of such draw request. Upon completion of the Expansion Space Tenant Improvements (and prior to any final disbursement of the Expansion Space TI Allowance) Tenant shall deliver to Landlord the following items: (i) sworn statements setting forth the names of all contractors and subcontractors who did work on the Expansion Space Tenant Improvements and final lien waivers from all such contractors and subcontractors; and (ii) "as built" plans for the Expansion Space Tenant Improvements. The Expansion Space TI Allowance shall only be available for use by Tenant for the construction of the Expansion Space Tenant Improvements in the Expansion Space for a period of 12 months following the Expansion Space Rent Commencement Date and any portion of the Expansion Space TI Allowance for which verifiable costs have not been incurred by Tenant on or before the expiration of such 12 month period shall be forfeited and shall not be available for use by Tenant.

 

10. Early Termination . Notwithstanding anything to the contrary contained in this Second Amendment, if Tenant does not receive net proceeds from the closing of Tenant’s Series B financing of at least $30,000,000 on or before December 31, 2011 (“ Financing Contingency ”), Tenant shall have the right to elect to terminate the Lease with respect to the Expansion Space only (“ Termination Right ”) upon written notice to Landlord (“ Termination Notice ”), which Termination Notice must be delivered to Landlord on or before December 31, 2011. If Tenant timely and properly exercises the Termination Right, Tenant shall vacate the Expansion Space and deliver possession thereof to Landlord in the condition which the Expansion Space was delivered by Landlord to Tenant on the Expansion Space Commencement Date or, in the event Tenant has made any changes to the Expansion Space, in the condition required by the terms of this Lease on the date set forth in the Termination Notice to Landlord (“ Termination Date ”) and Tenant shall have no further obligations under the Lease with respect to the Expansion Space except for those accruing prior to the Termination Date and those which, pursuant to the terms of the Lease, survive the expiration or early termination of the Lease. Notwithstanding anything to the contrary contained in this Second Amendment, if (i) Tenant does not deliver to Landlord the Termination Notice within the time period provided for in this paragraph, or (ii) Landlord disburses any portion of the Expansion Space TI Allowance pursuant to Section 9 , Tenant shall be deemed to have waived its Termination Right.

 

11. Right to Expand . Section 39(a) of the Lease is hereby deleted in its entirety and of no further force or effect.

 

12. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Second Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

5

 

 

13. Miscellaneous .

 

a.            This Second Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Second Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Second Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Second Amendment, understands them, and is bound by them. Time is of the essence in this Second Amendment.

 

d.            This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto.

 

e.            Except as amended and/or modified by this Second Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Second Amendment. In the event of any conflict between the provisions of this Second Amendment and the provisions of the Lease, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment.

 

[Signatures are on the next page]

 

6

 

 

IN WITNESS WHEREOF , the parties hereto have executed this Second Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Its: President & CEO
     
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
     
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, VP Real Estate Legal Affairs

 

7

 

 

Exhibit 10.10

 

[410 W Harrison/Third Amendment]

 

THIRD AMENDMENT TO LEASE

 

THIS THIRD AMENDMENT TO LEASE (this " Third Amendment ") is made as of _______ October 1 ________, 2014 by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010 (“ Original Lease ”), as amended by that certain First Amendment to Lease dated as of July 1, 2010 (“ First Amendment ”) and that certain Second Amendment to Lease Agreement dated as of April 4, 2011 (“ Second Amendment ”). The Original Lease as amended by the First Amendment and the Second Amendment is hereinafter referred to as the " Lease ". Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.             Pursuant to a letter dated September 30, 2011 , Tenant exercised its Termination Right under Section 10 of the Second Amendment and terminated its right to lease the Expansion Space (defined in the Second Amendment) prior to Landlord’s delivery of the Expansion Space to Tenant.

 

C.             The Base Term of the Lease expires on September 30, 2015.

 

D.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 3 months to expire on December 31, 2015, (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right, and (iii) clarify that Tenant does not lease the Expansion Space.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on December 31, 2015.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on September 30, 2015. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right .

 

(a)          The first sentence of the first paragraph of Section 40(a) of the Lease is hereby deleted in its entirety and replaced with the following:

 

“Tenant shall have 1 right (an “Extension Right” ) to extend the term of this Lease for 5 years (an “ Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right on or before June 30, 2015.”

 

    1

 

 

[410 W Harrison/Third Amendment]

  

(b) The first sentence of the last paragraph of Section 40(a) of the Lease is hereby deleted in its entirety and replaced with the following:

 

lf, on or before the date which is 120 days prior to the expiration of the Base Term of this Lease, Tenant has not agreed with Landlord's determination of the Market Rate and the rent escalations during the Extension Term after negotiating in good faith, Tenant shall be deemed to have elected arbitration as described in Section 40(b).”

 

4. No Right to the Expansion Space . For avoidance of doubt, Sections 1-10 of the Second Amendment are hereby deleted the entirety and are of no further force of effect; provided, however that Section 11 of the Second Amendment shall remain in full force and effect.

 

5. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Third Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

6. Miscellaneous .

 

a.            This Third Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Third Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Third Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Third Amendment, understands them, and is bound by them. Time is of the essence in this Third Amendment.

 

d.            This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto.

 

e.            Except as amended and/or modified by this Third Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Third Amendment. In the event of any conflict between the provisions of this Third Amendment and the provisions of the Lease, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment.

 

[Signatures are on the next page]

 

    2

 

 

[410 W Harrison/Third Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Third Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Its: President & CEO

 

  LANDLORD:
     
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
     
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, VP Real Estate Legal Affairs

 

    3

 

 

Exhibit 10.11

 

[410 W Harrison/Fourth Amendment]

 

FOURTH AMENDMENT TO LEASE

 

THIS FOURTH AMENDMENT TO LEASE (this " Fourth Amendment ") is made as of May 21, 2015 by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.           Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease dated as of July 1, 2010, that certain Second Amendment to Lease Agreement dated as of April 4, 2011, that certain Third Amendment to Lease (“ Third Amendment ”) dated as of October 1, 2014 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.          The Base Term of the Lease expires on December 31, 2015.

 

C.           Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 2 months to expire on February 29, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on February 29, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on December 31, 2015. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 40(a) of the Lease (as amended by Section 3 of the Third Amendment) is hereby deleted in its entirety and replaced with the following:

 

“Tenant shall have 1 right (an “Extension Right” ) to extend the term of this Lease for 5 years (an “ Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right on or before August 31, 2015.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Fourth Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

  1

 

 

[410 W Harrison/Fourth Amendment]

 

5. Miscellaneous .

 

a.           This Fourth Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Fourth Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.           This Fourth Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.           Tenant acknowledges that it has read the provisions of this Fourth Amendment, understands them, and is bound by them. Time is of the essence in this Fourth Amendment.

 

d.           This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto.

 

e.           Except as amended and/or modified by this Fourth Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Lease, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment.

 

[Signatures are on the next page]

 

  2

 

 

 

[410 W Harrison/Fourth Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amendment as of the day and year first above written.

 

  TENANT:
     
  PHASERX INC. ,
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Its:   President & CEO
     
  LANDLORD:
     
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company

 

  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, Senior Vice President RE Legal Affairs

 

  3

 

Exhibit 10.12

 

[410 W Harrison/Fifth Amendment]

 

FIFTH AMENDMENT TO LEASE

 

THIS FIFTH AMENDMENT TO LEASE (this " Fifth Amendment ") is made as of ______ September 8 _______, 2015 by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease dated as of July 1, 2010, that certain Second Amendment to Lease Agreement dated as of April 4, 2011, that certain Third Amendment to Lease (“ Third Amendment ”) dated as of October 1, 2014, and that certain Fourth Amendment to Lease (“ Fourth Amendment ”) dated as of May 21, 2015 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.        The Base Term of the Lease expires on February 29, 2016.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 6 months to expire on August 31, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on August 31, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on February 29, 2016. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 40(a) of the Lease (as amended by Section 3 of the Third Amendment and Section 4 of the Fourth Amendment) is hereby deleted in its entirety and replaced with the following:

 

“Tenant shall have 1 right (an “Extension Right” ) to extend the term of this Lease for 5 years (an “ Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right on or before February 29, 2016.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Fifth Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

1

 

 

[410 W Harrison/Fifth Amendment]

 

5. Miscellaneous .

 

a.            This Fifth Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Fifth Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Fifth Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Fifth Amendment, understands them, and is bound by them. Time is of the essence in this Fifth Amendment.

 

d.            This Fifth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fifth Amendment attached thereto.

 

e.            Except as amended and/or modified by this Fifth Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Fifth Amendment. In the event of any conflict between the provisions of this Fifth Amendment and the provisions of the Lease, the provisions of this Fifth Amendment shall prevail. Whether or not specifically amended by this Fifth Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Fifth Amendment.

 

[Signatures are on the next page]

 

  2

 

 

[410 W Harrison/Fifth Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Fifth Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By: /s/ Robert W. Overell
  Its: CEO
         
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
       
      By: /s/ Jackie Clem
      Its: Jackie Clem, Senior Vice President RE Legal Affairs

 

  3

 

Exhibit 10.13

 

PHASERX, INC.

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (this “ Agreement ”) is entered into as of [ month, day], 2014, by and between PhaseRx, Inc., a Delaware corporation (the “ Corporation ”), and [_______](“ Indemnitee ”).

 

RECITALS

 

A.           The Corporation and Indemnitee recognize the continued significant risks to highly competent directors, officers, employees, agents and fiduciaries, and the reluctance of persons to serve private or publicly held Corporations in such capacities unless they are provided with adequate protection through insurance and indemnity against the inordinate risks of claims and actions against them arising from their service to the Corporation.

 

B.           The Corporation and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks.

 

C.           The Corporation desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Corporation and, in part, in order to induce Indemnitee to continue to provide services to the Corporation, wishes to provide for the indemnification and advancing of expenses to Indemnitee to the maximum extent permitted by Delaware law.

 

D.           In view of the considerations set forth above, the Corporation desires that Indemnitee be indemnified by the Corporation as set forth herein.

 

NOW, THEREFORE , the Corporation and Indemnitee hereby agree as follows:

 

1.           Indemnification .

 

(a)           Indemnification of Expenses . The Corporation shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a “ Claim ”) by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an “ Indemnifiable Event ”) against any and all expenses (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter “ Expenses ”), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Corporation as soon as practicable but in any event no later than 10 days after written demand by Indemnitee therefor is presented to the Corporation.

 

 

 

 

(b)           Reviewing Party . Notwithstanding the foregoing, (i) the obligations of the Corporation under Section 1(a) shall be subject to the condition that the Reviewing Party (as defined in Section 8(e) hereof) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under Delaware law, and (ii) the obligation of the Corporation to make an advance payment of Expenses to Indemnitee pursuant to Section 2(a) (an “ Expense Advance ”) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under Delaware law, the Corporation shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Corporation) for all such amounts theretofore paid; provided, however , that if Indemnitee has commenced or thereafter commences legal proceedings in the Court of Chancery of the State of Delaware to secure a determination that Indemnitee should be indemnified under Delaware law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under Delaware law shall not be binding and Indemnitee shall not be required to reimburse the Corporation for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to reimburse the Corporation for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control (as defined in Section 8(c) hereof), the Reviewing Party shall be selected by the Board of Directors, unless the Indemnitee elects to have the Reviewing Party be Independent Legal Counsel (as defined in Section 8(d) hereof) selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld). If there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Corporation’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 1(c) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under Delaware law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Corporation hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Corporation and Indemnitee.

 

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(c)           Change in Control . The Corporation agrees that if there is a Change in Control of the Corporation (other than a Change in Control which has been approved by a majority of the Corporation’s Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitee to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Corporation’s Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel shall be selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Corporation and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under Delaware law and the Corporation agrees to abide by such opinion. The Corporation agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(d)           Mandatory Payment of Expenses . Notwithstanding any other provision of this Agreement other than Section 7 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit, proceeding, inquiry or investigation referred to in Section (1)(a) hereof or in the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

 

2.           Expenses; Indemnification Procedure .

 

(a)           Advancement of Expenses . The Corporation shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Corporation to Indemnitee as soon as practicable but in any event no later than ten (10) days after written demand by Indemnitee therefor to the Corporation.

 

(b)           Notice/Cooperation by Indemnitee . Indemnitee shall, as a condition precedent to Indemnitees’ right to be indemnified under this Agreement, give the Corporation notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement; provided, however, that any failure to or delay in giving such notice shall not affect Indemnitee’s rights to, or the Corporation’s obligation to provide, indemnification hereunder except to the extent that the Corporation is actually prejudiced thereby. Notice to the Corporation shall be directed to the Chief Executive Officer of the Corporation at the address shown on the signature page of this Agreement (or such other address as the Corporation shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitees’ power.

 

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(c)           No Presumptions; Burden of Proof . For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of guilty or nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by Delaware law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under Delaware law, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Corporation to establish that Indemnitee is not so entitled.

 

(d)           Notice to Insurers . If, at the time of the receipt by the Corporation of a notice of a Claim pursuant to Section 2(b) hereof, the Corporation has liability insurance in effect which may cover such Claim, the Corporation shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies.

 

(e)           Selection of Counsel . In the event the Corporation shall be obligated hereunder to pay the Expenses of any Claim, the Corporation shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that , (i) Indemnitee shall have the right to employ Indemnitee’s counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Corporation, (B) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Corporation and Indemnitee in the conduct of any such defense, or (C) the Corporation shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee counsel shall be at the expense of the Corporation. The Corporation shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim against Indemnitee without the consent of the Indemnitee so long as any such settlement includes a complete release of Indemnitee and does not impose any obligation on Indemnitee other than the payment of money for which the Corporation will be obligated.

 

3.           Additional Indemnification Rights; Nonexclusivity .

 

(a)           Scope . The Corporation hereby agrees to indemnify Indemnitee to the fullest extent permitted by Delaware law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Corporation’s Certificate of Incorporation, the Corporation’s Bylaws or by statute. In the event of any change after the date of this Agreement in any Delaware law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any Delaware law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 7(a) hereof.

 

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(b)           Nonexclusivity . The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Corporation’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

 

(c)           Primacy of Indemnification . The Corporation hereby acknowledges that one (1) or more of the directors nominated to serve on the Corporation’s Board of Directors by certain holders of the Company’s Preferred Stock (each a “ Fund Director ”) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of such holders of the Company’s Preferred Stock and certain of their affiliates (collectively, the “ Fund Indemnitors ”). The Corporation hereby agrees that if it is obligated to indemnify any Fund Director under this or any other agreement, any such indemnification obligations are primary to, and shall take precedence over, any similar obligation of the Fund Indemnitors. For the avoidance of doubt, the Corporation agrees not to assert claims against the Fund Indemnitors for contribution or subrogation where the Corporation is itself obligated to indemnify any Fund Director. The Corporation further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such Fund Director with respect to any claim for which such Fund Director has sought indemnification from the Corporation shall affect the foregoing and, in any case in which the Fund Directors are entitled to indemnification from the Corporation, the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Fund Director against the Corporation.

 

4.           No Duplication of Payments . Except as provided in Section 3(c) hereof, the Corporation shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Certificate of Incorporation, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.

 

5.           Partial Indemnification and Contribution .

 

(a)           Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him or her in the investigation, defense, settlement or appeal of a proceeding, but is not entitled, however, to indemnification for all of the total amount thereof, then the Corporation shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification. Without limiting the foregoing, if the Indemnitee is not wholly successful in such proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such proceeding, the Corporation shall indemnify Indemnitee against all expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 5 and without limitation, the termination of any claim, issue or matter in such a proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

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(b)           Contribution . If the Indemnitee is not entitled to the indemnification provided in Section 1 for any reason other than the statutory limitations set forth in the Delaware law, then in respect of any threatened, pending or completed proceeding in which the Corporation is jointly liable with the Indemnitee (or would be if joined in such proceeding), the Corporation shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Corporation on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Corporation on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Corporation on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 5(b) were determined by pro rata allocation or any other method of allocation that does not take account of the foregoing equitable considerations.

 

6.           Liability Insurance . To the extent the Corporation maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Corporation’s directors, if Indemnitee is a director; or of the Corporation’s officers, if Indemnitee is not a director of the Corporation but is an officer; or of the Corporation’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.

 

7.           Exceptions . Any other provision herein to the contrary notwithstanding, the Corporation shall not be obligated pursuant to the terms of this Agreement:

 

(a)           Excluded Action or Omissions . To indemnify Indemnitee for Indemnitee’s acts, omissions or transactions from which Indemnitee may not be relieved of liability under Delaware law;

 

(b)           Claims Initiated by Indemnitee . To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Corporation’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be;

 

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(c)           Lack of Good Faith . To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a Delaware court determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or

 

(d)           Claims Under Section 16(b) . To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

 

8.           Construction of Certain Phrases .

 

(a)          For purposes of this Agreement, references to the “ Corporation ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

 

(b)          For purposes of this Agreement, references to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “ serving at the request of the Corporation ” shall include any service as a director, officer, employee, agent or fiduciary of the Corporation which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries.

 

(c)          For purposes of this Agreement a “ Change in Control ” shall be deemed to have occurred if (i) any “ person ” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 10% or more of the combined voting power of the Corporation’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “ beneficial owner ” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing more than 20% of the total voting power represented by the Corporation’s then outstanding Voting Securities, (ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of transactions) all or substantially all of the Corporation’s assets.

 

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(d)          For purposes of this Agreement, “ Independent Legal Counsel ” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 1(b) or Section 1(c) hereof, who shall not have otherwise performed services for the Corporation or Indemnitee within the last three (3) years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

 

(e)          For purposes of this Agreement, a “ Reviewing Party ” shall mean any appropriate person or body consisting of a member or members of the Corporation’s Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.

 

(f)          For purposes of this Agreement, “ Voting Securities ” shall mean any securities of the Corporation that vote generally in the election of directors.

 

9.           Counterparts . This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

 

10.          Binding Effect; Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Corporation, spouses, heirs, and personal and legal representatives. The Corporation shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Corporation, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. This Agreement shall continue in effect with respect to Claims relating to Indemnifiable Events regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Corporation or of any other enterprise at the Corporation’s request.

 

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11.          Attorneys’ Fees . In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Corporation to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a Delaware court having jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Corporation under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee material defenses to such action was made in bad faith or was frivolous.

 

12.          Notice . All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) three (3) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one (1) business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one (2) day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission, with copy by first class mail, postage prepaid, and shall be addressed if to Indemnitee, at the Indemnitee address as set forth beneath Indemnitee signatures to this Agreement and if to the Corporation at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

 

13.          Consent to Jurisdiction . The Corporation and 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 commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

 

14.          Severability . The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a Delaware court to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by Delaware law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

15.          Choice of Law . This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents, entered into and to be performed entirely within the State of Delaware, without regard to the conflict of laws principles thereof.

 

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16.          Subrogation . Except as provided in Section 3(c) hereof, in the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.

 

17.          Amendment and Termination . No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

18.          Integration and Entire Agreement . This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

 

19.          No Construction as Employment Agreement . Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Corporation or any of its subsidiaries.

  

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

     
  PHASERX, INC.
     
  By:  
    Robert W. Overell
    President and Chief Executive Officer

 

AGREED TO AND ACCEPTED BY:

   
   
[__________]  
     
Address:    
   
   

 

[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

 

 

 

Exhibit 10.14

 

PhaseRx, Inc.

 

2006 STOCK PLAN

 

(as amended and restated on June 13, 2014)

 

1.            Purposes of the Plan . The purposes of this Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

 

2.            Definitions . As used herein, the following definitions shall apply:

 

(a)          “ Administrator ” means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.

 

(b)          “ Applicable Laws ” means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.

 

(c)          “ Board ” means the Board of Directors of the Company.

 

(d)          “ Change in Control ” means the occurrence of any of the following events:

 

(i)          Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities, except that any change in the beneficial ownership of the securities of the Company as a result of a private financing of the Company that is approved by the Board, shall not be deemed to be a Change in Control; or

 

(ii)         The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

 

(iii)        The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

 

(e)          “ Code ” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

 

(f)          “ Committee ” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

 

(g)          “ Common Stock ” means the Common Stock of the Company.

 

 

 

 

(h)          “ Company ” means PhaseRx, Inc., a Delaware corporation.

 

(i)          “ Consultant ” means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.

 

(j)          “ Director ” means a member of the Board.

 

(k)          “ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code.

 

(l)          “ Employee ” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

 

(m)          “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

(n)          “ Exchange Program ” means a program under which (a) outstanding Options are surrendered or cancelled in exchange for Options of the same type (which may have lower exercise prices and different terms), Options of a different type, and/or cash, and/or (b) the exercise price of an outstanding Option is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator in its sole discretion.

 

(o)          “ Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:

 

(i)          If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(ii)         If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

 

(iii)        In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

 

(p)          “ Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

 

(q)          “ Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

 

(r)          “ Option ” means a stock option granted pursuant to the Plan.

 

  - 2 -  

 

 

(s)          “ Option Agreement ” means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

 

(t)          “ Optioned Stock ” means the Common Stock subject to an Option or a Stock Purchase Right.

 

(u)          “ Optionee ” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

 

(v)          “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(w)          “ Plan ” means this 2006 Stock Plan.

 

(x)           “ Restricted Stock ” means Shares issued pursuant to a Stock Purchase Right or Shares of restricted stock issued pursuant to an Option.

 

(y)          “ Restricted Stock Purchase Agreement ” means a written or electronic agreement between the Company and the Optionee evidencing the terms and restrictions applying to Shares purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the notice of grant.

 

(z)            “ Securities Act ” means the Securities Act of 1933, as amended.

 

(aa)          “ Service Provider ” means an Employee, Director or Consultant.

 

(bb)         “ Share ” means a share of the Common Stock, as adjusted in accordance with Section 13 below.

 

(cc)         “ Stock Purchase Right ” means a right to purchase Common Stock pursuant to Section 11 below.

 

(dd)         “ Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3.              Stock Subject to the Plan . Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to Options or Stock Purchase Rights and sold under the Plan is 5,087,373 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

 

If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

 

  - 3 -  

 

 

4.            Administration of the Plan.

 

(a)            Administrator . The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.

 

(b)            Powers of the Administrator . Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:

 

(i)          to determine the Fair Market Value;

 

(ii)         to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;

 

(iii)        to determine the number of Shares to be covered by each such award granted hereunder;

 

(iv)         to approve forms of agreement for use under the Plan;

 

(v)          to determine the terms and conditions of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

 

(vi)         to institute an Exchange Program;

 

(vii)        to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

 

(viii)      to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and

 

(ix)         to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.

 

(c)           Effect of Administrator’s Decision . All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.

 

5.             Eligibility . Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

 

  - 4 -  

 

 

6.            Limitations.

 

(a)             Incentive Stock Option Limit . Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

 

(b)            At-Will Employment . Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company’s right to terminate such relationship at any time, with or without cause, and with or without notice.

 

7.             Term of Plan . Subject to stockholder approval in accordance with Section 19, the Plan shall become effective upon its adoption by the Board. Unless sooner terminated under Section 15, it shall continue in effect for a term of ten (10) years from the later of (i) the effective date of the Plan, or (ii) the earlier of the most recent Board or stockholder approval of an increase in the number of Shares reserved for issuance under the Plan.

 

8.             Term of Option . The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

 

9.            Option Exercise Price and Consideration.

 

(a)           Exercise Price . The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:

 

(i)          In the case of an Incentive Stock Option

 

(1)         granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

 

(2)         granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

 

(ii)          In the case of a Nonstatutory Stock Option

 

(1)         granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

 

  - 5 -  

 

  

(2)         granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.

 

(iii)          Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above in accordance with and pursuant to a transaction described in Section 424 of the Code.

 

(b)           Forms of Consideration . The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other Shares, provided Shares acquired directly from the Company (x) have been owned by the Optionee, and not subject to a substantial risk of forfeiture, for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

 

10.          Exercise of Option.

 

(a)             Procedure for Exercise; Rights as a Stockholder . Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. Except in the case of Options granted to officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted.

 

An Option shall be deemed exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

 

Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

 

  - 6 -  

 

 

(b)          Termination of Relationship as a Service Provider . If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within thirty (30) days of termination, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). Unless the Administrator provides otherwise, if on the date of termination the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

(c)          Disability of Optionee . If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). Unless the Administrator provides otherwise, if on the date of termination the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

(d)          Death of Optionee . If an Optionee dies while a Service Provider, the Option may be exercised within six (6) months following Optionee’s death, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee’s designated beneficiary, provided such beneficiary has been designated prior to Optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

(e)         Leaves of Absence.

 

(i)          Unless the Administrator provides otherwise, vesting of Options granted hereunder to officers and Directors shall be suspended during any unpaid leave of absence.

 

(ii)         A Service Provider shall not cease to be an Employee in the case of (A) any leave of absence approved by the Company or (B) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.

 

(iii)        For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91 st day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.

 

  - 7 -  

 

 

11.          Stock Purchase Rights.

 

(a)           Rights to Purchase . Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

 

(b)           Repurchase Option . Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or disability). Unless the Administrator provides otherwise, the purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase.

 

(c)           Other Provisions . The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

 

(d)           Rights as a Stockholder . Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.

 

12.           Limited Transferability of Options and Stock Purchase Rights . Unless determined otherwise by the Administrator, Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Optionee, only by the Optionee. If the Administrator in its sole discretion makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right may only be transferred (i) by will, (ii) by the laws of descent and distribution, or (iii) to family members (within the meaning of Rule 701 of the Securities Act) through gifts or domestic relations orders, as permitted by Rule 701 of the Securities Act.

 

13.          Adjustments; Dissolution or Liquidation; Merger or Change in Control.

 

(a)             Adjustments . In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Option or Stock Purchase Right; provided, however, that the Administrator shall make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.

 

  - 8 -  

 

 

(b)             Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

 

(c)             Merger or Change in Control . In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation in a merger or Change in Control refuses to assume or substitute for the Option or Stock Purchase Right, then the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or Change in Control, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of time as determined by the Administrator, and the Option or Stock Purchase Right shall terminate upon expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of common stock in the merger or Change in Control.

 

14.           Time of Granting Options and Stock Purchase Rights . The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such later date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.

 

15.          Amendment and Termination of the Plan.

 

(a)             Amendment and Termination . The Board may at any time amend, alter, suspend or terminate the Plan.

 

(b)             Stockholder Approval . The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

 

  - 9 -  

 

 

(c)             Effect of Amendment or Termination . No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

 

16.          Conditions Upon Issuance of Shares.

 

(a)             Legal Compliance . Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b)             Investment Representations . As a condition to the exercise of an Option or Stock Purchase Right, the Administrator may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

17.           Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

 

18.           Reservation of Shares . The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

19.           Stockholder Approval . The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.

 

20.           Information to Optionees . The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

 

  - 10 -  

 

 

Exhibit 10.15

 

FIRST AMENDMENT TO

PHASERX, INC. 2006 STOCK PLAN,

AS AMENDED AND RESTATED ON JUNE 13, 2014

 

This FIRST AMENDMENT TO PHASERX, INC. 2006 STOCK PLAN, AS AMENDED AND RESTATED ON JUNE 13, 2014 (this “ Amendment ”), dated as of February 8, 2016, is made and entered into by PhaseRx, Inc., a Delaware corporation (the “ Company ”). Terms used in this Amendment with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such terms in the PhaseRx, Inc. 2006 Stock Plan, as Amended and Restated on June 13, 2014 (the “ Plan ”).

 

RECITALS

 

WHEREAS , Section 15 of the Plan permits the Board of Directors of the Company (the “ Board ”) to amend the Plan at any time, provided that the Board shall obtain stockholder approval of any Plan amendment to the extent necessary or desirable to comply with applicable laws; and

 

WHEREAS , the Board desires to amend the Plan to increase the number of Shares that may be subject to Options or Stock Purchase Rights under the Plan by an additional two million five hundred three thousand eight hundred and thirty two (2,503,832) Shares, for an aggregate maximum total of seven million five hundred ninety one thousand two hundred and five (7,591,205) Shares available for issuance under the Plan.

 

NOW, THEREFORE , in accordance with Section 15 of the Plan, the Company hereby amends the Plan, effective as of the date hereof, as follows:

 

1.          The first paragraph of Section 3 is amended by deleting said paragraph in its entirety and replacing it with the following new paragraph:

 

Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to Options or Stock Purchase Rights and sold under the Plan is five hundred ninety one thousand two hundred and five (7,591,205) Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

 

2.           Except as expressly amended by this Amendment, the Plan shall continue in full force and effect in accordance with the provisions thereof.

 

[ Remainder of Page Intentionally Left Blank;

Signature Page Follows .]

 

 

 

  

IN WITNESS WHEREOF , the Company has caused this Amendment to be duly executed as of the date first written above.

 

 

PHASERX, INC.

     
  By: /s/ Robert W. Overell, Ph.D.
  Name: /s/ Robert W. Overell, Ph.D.
  Title: Chief Executive Officer and President

 

Signature Page to

First Amendment

 

 

 

 

 

Exhibit 10.16

 

PhaseRx, Inc.

 

2006 STOCK PLAN

 

STOCK OPTION AGREEMENT

 

Unless otherwise defined herein, the terms defined in the 2006 Stock Plan shall have the same defined meanings in this Stock Option Agreement.

 

I.           NOTICE OF STOCK OPTION GRANT

 

  Name:    
       
  Address:    
       
       

 

The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

 

Date of Grant:    
       
  Vesting Commencement Date:    
       
  Exercise Price per Share: $  
       
  Total Number of Shares Granted:    
       
  Total Exercise Price: $  
       
  Type of Option: Incentive Stock Option / Nonstatutory Stock Option  
       
  Term/Expiration Date:    

 

Vesting Schedule :

 

This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

[Vesting Schedule]

 

 

 

 

Termination Period:

 

This Option shall be exercisable for three (3) months after Optionee ceases to be a Service Provider. Upon Optionee’s death or Disability, this Option may be exercised for one (1) year after Optionee ceases to be a Service Provider. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above.

 

II.          AGREEMENT

 

A.            Grant of Option . The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the “ Optionee ”), an option (the “ Option ”) to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “ Exercise Price ”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail.

 

If designated in the Notice of Grant as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“ NSO ”).

 

B.            Exercise of Option .

 

1.           Right to Exercise . This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement.

 

2.           Method of Exercise . This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the “ Exercise Notice ”) which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.

 

No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

 

C.            Optionee’s Representations . In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B .

 

  - 2 -  

 

 

D.            Lock-Up Period . Optionee hereby agrees that Optionee shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities) of the Company held by Optionee (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).

 

Optionee agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Optionee shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described in this section D shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day (or other) period. Optionee agrees that any transferee of the Option or shares acquired pursuant to the Option shall be bound by this section D.

 

E.            Method of Payment . Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

 

1.          cash or check;

 

2.          consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or

 

3.          surrender of other Shares which, (i) in the case of Shares acquired from the Company, either directly or indirectly, have been owned by the Optionee, and not subject to a substantial risk of forfeiture, for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

 

F.            Restrictions on Exercise . This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law.

 

  - 3 -  

 

 

G.            Non-Transferability of Option . This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

 

H.            Term of Option . This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

 

I.              Tax Obligations .

 

1.           Withholding Taxes . Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

 

2.           Notice of Disqualifying Disposition of ISO Shares . If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee.

 

J.             Entire Agreement; Governing Law . The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of Washington.

 

K.            No Guarantee of Continued Service . OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 

  - 4 -  

 

 

Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

 

Optionee:   PhaseRx, Inc.
     
    By:  
      Robert Overell
      President and Chief Executive Officer
Residence Address:    
     
     
     
     

 

  - 5 -  

 

 

EXHIBIT A

 

2006 STOCK PLAN

 

EXERCISE NOTICE

 

PhaseRx, Inc.

410 W. Harrison Street, Suite 300

Seattle, WA 98119

Attention: President

 

1.           Exercise of Option . Effective as of today, _____________, _____, the undersigned (“ Optionee ”) hereby elects to exercise Optionee’s option to purchase ____________________ shares of the Common Stock (the “ Shares ”) of PhaseRx, Inc. (the “ Company ”) under and pursuant to the 2006 Stock Plan (the “ Plan ”) and the Stock Option Agreement dated _________________ (the “ Option Agreement ”).

 

2.           Delivery of Payment . Optionee herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.

 

3.           Representations of Optionee . Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

 

4.           Rights as Stockholder . Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised in accordance with the Option Agreement. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 13 of the Plan.

 

5.           Company’s Right of First Refusal . Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the “ Holder ”) may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 5 (the “ Right of First Refusal ”).

 

(a)           Notice of Proposed Transfer . The Holder of the Shares shall deliver to the Company a written notice (the “ Notice ”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee (“ Proposed Transferee ”); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the “ Offered Price ”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).

 

 

 

 

(b)           Exercise of Right of First Refusal . At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.

 

(c)           Purchase Price . The purchase price (“ Purchase Price ”) for the Shares purchased by the Company or its assignee(s) under this Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.

 

(d)           Payment . Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice.

 

(e)           Holder’s Right to Transfer . If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 5, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price; provided that such sale or other transfer is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.

 

(f)           Exception for Certain Family Transfers . Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or all of the Shares during the Optionee’s lifetime or on the Optionee’s death by will or intestacy to the Optionee’s immediate family or a trust for the benefit of the Optionee’s immediate family shall be exempt from the provisions of this Section 5. “ Immediate Family ” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.

 

(g)           Termination of Right of First Refusal . The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity securities that are publicly traded.

 

  - 2 -  

 

 

6.           Tax Consultation . Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

 

7.           Restrictive Legends and Stop-Transfer Orders .

 

(a)           Legends . Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD NOT TO EXCEED 180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF THE COMPANY’S SECURITIES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.

 

(b)           Stop-Transfer Notices . Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “ stop transfer ” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

 

(c)           Refusal to Transfer . The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

 

  - 3 -  

 

 

8.           Successors and Assigns . The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.

 

9.           Interpretation . Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties.

 

10.          Governing Law; Severability . This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of Washington. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice will continue in full force and effect.

 

11.          Entire Agreement . The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.

 

Submitted by:   Accepted by:
   
OPTIONEE:   PhaseRx, Inc.
     
    By:  
       
    Name:  
       
Residence Address:   Title:  
       
    Address:
     
    410 W. Harrison Street, Suite 300
    Seattle, WA  98119
     
     
    Date Received

 

  - 4 -  

 

 

EXHIBIT B

 

INVESTMENT REPRESENTATION STATEMENT

 

OPTIONEE:    
     
COMPANY: PhaseRx, Inc.  
     
SECURITY: COMMON STOCK  
     
AMOUNT:    
     
DATE:    

 

In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:

 

(a)          Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee’s own account only and not with a view to, or for resale in connection with, any “ distribution ” thereof within the meaning of the Securities Act of 1933, as amended (the “ Securities Act ”).

 

(b)          Optionee acknowledges and understands that the Securities constitute “ restricted securities ” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee’s investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with any legend required under applicable state securities laws.

 

 

 

(c)          Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of “ restricted securities ” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited “ broker’s transaction ” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.

 

In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.

 

(d)          Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.

 

  OPTIONEE:
   
   
   
   
  Date

 

  - 2 -  

 

Exhibit 10.17

 

PHASERX, INC.

 

2016 LONG-TERM INCENTIVE PLAN

 

The PhaseRx, Inc. 2016 Long-Term Incentive Plan (the “ Plan ”) was adopted by the Board of Directors of PhaseRx, Inc., a Delaware corporation (the “ Company ”), effective as of _______________________, 2016, subject to approval by the Company’s stockholders.

 

Article 1

PURPOSE

 

The purpose of the Plan is to attract and retain the services of key Employees, key Contractors, and Outside Directors of the Company and its Subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, Dividend Equivalent Rights, and Other Awards, whether granted singly, or in combination, or in tandem, that will:

 

(a)          increase the interest of such persons in the Company’s welfare;

 

(b)          furnish an incentive to such persons to continue their services for the Company or its Subsidiaries; and

 

(c)          provide a means through which the Company may attract able persons as Employees, Contractors, and Outside Directors.

 

With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 promulgated under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, such provision or action shall be deemed null and void ab initio , to the extent permitted by law and deemed advisable by the Committee.

 

Article 2

DEFINITIONS

 

For the purpose of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:

 

2.1           “ Applicable Law ” means all legal requirements relating to the administration of equity incentive plans and the issuance and distribution of shares of Common Stock, if any, under applicable corporate laws, applicable securities laws, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted, and any other applicable law, rule or restriction.

 

2.2           “ Authorized Officer ” is defined in Section 3.2(b) hereof.

 

2.3           “ Award ” means the grant of any Incentive Stock Option, Nonqualified Stock Option, Restricted Stock, SAR, Restricted Stock Unit, Performance Award, Dividend Equivalent Right or Other Award, whether granted singly or in combination or in tandem (each individually referred to herein as an “ Incentive ”).

 

 

 

  

2.4          “ Award Agreement ” means a written agreement between a Participant and the Company which sets out the terms of the grant of an Award.

 

2.5          “ Award Period ” means the period set forth in the Award Agreement during which one or more Incentives granted under an Award may be exercised.

 

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

 

2.7          “ Change in Control ” means the occurrence of the event set forth in any one of the following paragraphs, except as otherwise provided herein:

 

(a)          any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below;

 

(b)          the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the effective date of this Plan, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3 rds ) of the directors then still in office who either were directors on the effective date of this Plan or whose appointment, election or nomination for election was previously so approved or recommended;

 

(c)          there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or

 

(d)          the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

 

2

 

  

For purposes hereof:

 

Affiliate ” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.

 

Beneficial Owner ” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

 

Person ” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

Notwithstanding the foregoing provisions of this Section 2.7 , if an Award issued under the Plan is subject to Section 409A of the Code, then an event shall not constitute a Change in Control for purposes of such Award under the Plan unless such event also constitutes a change in the Company’s ownership, its effective control or the ownership of a substantial portion of its assets within the meaning of Section 409A of the Code.

 

2.8           “ Claims ” means any claim, liability or obligation of any nature, arising out of or relating to this Plan or an alleged breach of this Plan, or an Award Agreement.

 

2.9            “ Code ” means the United States Internal Revenue Code of 1986, as amended.

 

2.10         “ Committee ” means the committee appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan.

 

2.11         “ Common Stock ” means the common stock, par value $.0001 per share, which the Company is currently authorized to issue or may in the future be authorized to issue, or any securities into which or for which the common stock of the Company may be converted or exchanged, as the case may be, pursuant to the terms of this Plan.

 

2.12         “ Company ” means PhaseRx, Inc., a Delaware corporation, and any successor entity.

 

2.13         “ Contractor ” means any natural person, who is not an Employee, rendering bona fide services to the Company or a Subsidiary, with compensation, pursuant to a written independent contractor agreement between such person and the Company or a Subsidiary, provided that such services are not rendered in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

 

2.14         “ Corporation ” means any entity that (i) is defined as a corporation under Section 7701 of the Code and (ii) is the Company or is in an unbroken chain of corporations (other than the Company) beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain. For purposes of clause (ii) hereof, an entity shall be treated as a “corporation” if it satisfies the definition of a corporation under Section 7701 of the Code.

 

3

 

  

2.15         “ Date of Grant ” means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement; provided, however, that solely for purposes of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder, the Date of Grant of an Award shall be the date of stockholder approval of the Plan if such date is later than the effective date of such Award as set forth in the Award Agreement.

 

2.16         “ Dividend Equivalent Right ” means the right of the holder thereof to receive credits based on the cash dividends that would have been paid on the shares of Common Stock specified in the Award if such shares were held by the Participant to whom the Award is made.

 

2.17         “ Employee ” means a common law employee (as defined in accordance with the Regulations and Revenue Rulings then applicable under Section 3401(c) of the Code) of the Company or any Subsidiary of the Company.

 

2.18         “ Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

 

2.19         “ Exercise Date ” is defined in Section 8.3(b) hereof.

 

2.20         “ Exercise Notice ” is defined in Section 8.3(b) hereof.

 

2.21         “ Executive Officer ” means an officer of the Company or a Subsidiary subject to Section 16 of the Exchange Act or a “covered employee” as defined in Section 162(m)(3) of the Code.

 

2.22         “ Fair Market Value ” means, as of a particular date, (a) if the shares of Common Stock are listed on any established national securities exchange, the volume weighted average selling price per share of Common Stock, on the consolidated transaction reporting system for the principal securities exchange for the Common Stock during the ten (10) trading day period immediately prior to that date; (b) if the shares of Common Stock are not so listed, but are quoted on an automated quotation system, the volume weighted average selling price per share of Common Stock reported on the automated quotation system for the ten (10) trading day period immediately prior to that date,; (c) if the Common Stock is not so listed or quoted for a particular date during the ten (10) day trading period prior to that date, the mean between the closing bid and asked price on such date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by the OTC Bulletin Board operated by the Financial Industry Regulation Authority, Inc. or the OTC Markets Group Inc., formerly known as Pink OTC Markets Inc.; or (d) if none of the above is applicable, such amount as may be determined by the Committee (acting on the advice of an Independent Third Party, should Committee elect in its sole discretion to utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per share of Common Stock. The determination of Fair Market Value shall, where applicable, be in compliance with Section 409A of the Code.

 

2.23         “ Immediate Family Members ” is defined in Section 15.8 hereof.

 

2.24         “ Incentive ” is defined in Section 2.3 hereof.

 

2.25         “ Incentive Stock Option ” means an incentive stock option within the meaning of Section 422 of the Code, granted pursuant to this Plan.

 

2.26         “ Independent Third Party ” means an individual or entity independent of the Company having experience in providing investment banking or similar appraisal or valuation services and with expertise generally in the valuation of securities or other property for purposes of this Plan. The Committee may utilize one or more Independent Third Parties.

 

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2.27         “ Nonqualified Stock Option ” means a nonqualified stock option, granted pursuant to this Plan, which is not an Incentive Stock Option.

 

2.28         “ Option Price ” means the price which must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock.

 

2.29         “ Other Award ” means an Award issued pursuant to Section 6.9 hereof.

 

2.30         “ Outside Director ” means a director of the Company who is not an Employee or a Contractor.

 

2.31         “ Participant ” means an Employee or Contractor of the Company or a Subsidiary or an Outside Director to whom an Award is granted under this Plan.

 

2.32         “ Performance Award ” means an Award hereunder of cash, shares of Common Stock, units or rights based upon, payable in, or otherwise related to, Common Stock pursuant to Section 6.7 hereof.

 

2.33         “ Performance Criteria ” is defined in Section 6.10 hereof.

 

2.34         “ Performance Goal ” means any of the goals set forth in Section 6.10 hereof.

 

2.35         “ Person ” is defined in Section 2.7 hereof.

 

2.36         “ Plan ” means this PhaseRx, Inc. 2016 Long-Term Incentive Plan, as amended from time to time.

 

2.37         “ Reporting Participant ” means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act.

 

2.38         “ Restricted Stock ” means shares of Common Stock issued or transferred to a Participant pursuant to Section 6.4 of this Plan which are subject to restrictions or limitations set forth in this Plan and in the related Award Agreement.

 

2.39         “ Restricted Stock Units ” means units awarded to Participants pursuant to Section 6.6 hereof, which are convertible into Common Stock at such time as such units are no longer subject to restrictions as established by the Committee.

 

2.40         “ Restriction Period ” is defined in Section 6.4(b)(i) hereof.

 

2.41         “ Retirement ” means any Termination of Service solely due to retirement upon or after attainment of age sixty-five (65), or permitted early retirement as determined by the Committee.

 

2.42         “ SAR ” or “ S tock Appreciation Right ” means the right to receive an amount, in cash and/or Common Stock, equal to the excess of the Fair Market Value of a specified number of shares of Common Stock as of the date the SAR is exercised (or, as provided in the Award Agreement, converted) over the SAR Price for such shares.

 

2.43         “ SAR Price ” means the exercise price or conversion price of each share of Common Stock covered by a SAR, determined on the Date of Grant of the SAR.

 

2.44         “ Spread ” is defined in Section 12.4(b) hereof.

 

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2.45         “ Stock Option ” means a Nonqualified Stock Option or an Incentive Stock Option.

 

2.46         “ Subsidiary ” means (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership or limited liability company, if the partners or members thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. “ Subsidiaries ” means more than one of any such corporations, limited partnerships, partnerships or limited liability companies.

 

2.47         “ Termination of Service ” occurs when a Participant who is (i) an Employee of the Company or any Subsidiary ceases to serve as an Employee of the Company and its Subsidiaries, for any reason; (ii) an Outside Director of the Company or a Subsidiary ceases to serve as a director of the Company and its Subsidiaries for any reason; or (iii) a Contractor of the Company or a Subsidiary ceases to serve as a Contractor of the Company and its Subsidiaries for any reason. Except as may be necessary or desirable to comply with applicable federal or state law, a “Termination of Service” shall not be deemed to have occurred when a Participant who is an Employee becomes an Outside Director or Contractor or vice versa. If, however, a Participant who is an Employee and who has an Incentive Stock Option ceases to be an Employee but does not suffer a Termination of Service, and if that Participant does not exercise the Incentive Stock Option within the time required under Section 422 of the Code upon ceasing to be an Employee, the Incentive Stock Option shall thereafter become a Nonqualified Stock Option. Notwithstanding the foregoing provisions of this Section 2.47 , in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Termination of Service” for purposes of such Award shall be the definition of “separation from service” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

 

2.48         “ Total and Permanent Disability ” means a Participant is qualified for long-term disability benefits under the Company’s or Subsidiary’s disability plan or insurance policy; or, if no such plan or policy is then in existence or if the Participant is not eligible to participate in such plan or policy, that the Participant, because of a physical or mental condition resulting from bodily injury, disease, or mental disorder, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee, based upon medical reports or other evidence satisfactory to the Committee; provided that , with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. Notwithstanding the foregoing provisions of this Section 2.48 , in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Total and Permanent Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

 

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Article 3

ADMINISTRATION

 

3.1            General Administration; Establishment of Committee. Subject to the terms of this Article 3 , the Plan shall be administered by the Board or such committee of the Board as is designated by the Board to administer the Plan (the “ Committee ”). The Committee shall consist of not fewer than two persons. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. At any time there is no Committee to administer the Plan, any references in this Plan to the Committee shall be deemed to refer to the Board.

 

Membership on the Committee shall be limited to those members of the Board who are “outside directors” under Section 162(m) of the Code and “non-employee directors” as defined in Rule 16b-3 promulgated under the Exchange Act. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee.

 

3.2           Designation of Participants and Awards.

 

(a)          The Committee or the Board shall determine and designate from time to time the eligible persons to whom Awards will be granted and shall set forth in each related Award Agreement, where applicable, the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee, but not inconsistent with the Plan. The Committee shall determine whether an Award shall include one type of Incentive or two or more Incentives granted in combination or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive). Although the members of the Committee shall be eligible to receive Awards, all decisions with respect to any Award, and the terms and conditions thereof, to be granted under the Plan to any member of the Committee shall be made solely and exclusively by the other members of the Committee, or if such member is the only member of the Committee, by the Board.

 

(b)          Notwithstanding Section 3.2(a) , to the extent permitted by Applicable Law, the Board may, in its discretion and by a resolution adopted by the Board, authorize one or more officers of the Company (an “ Authorized Officer ”) to (i) designate one or more Employees as eligible persons to whom Nonqualified Stock Options, Incentive Stock Options or SARs will be granted under the Plan, and (ii) determine the number of shares of Common Stock that will be subject to such Nonqualified Stock Options, Incentive Stock Options or SARs; provided , however , that the resolution of the Board granting such authority shall (x) specify the total number of shares of Common Stock that may be made subject to the Nonqualified Stock Options, Incentive Stock Options or SARs, (y) set forth the price or prices (or a formula by which such price or prices may be determined) to be paid for the purchase of the Common Stock subject to such Nonqualified Stock Options, Incentive Stock Options or SARs, and (z) not authorize an officer to designate himself as a recipient of any Award.

 

3.3            Authority of the Committee. The Committee, in its discretion, shall (i) interpret the Plan and Award Agreements, (ii) prescribe, amend, and rescind any rules and regulations, as necessary or appropriate for the administration of the Plan, (iii) establish performance goals for an Award and certify the extent of their achievement, and (iv) make such other determinations or certifications and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. The Committee’s discretion set forth herein shall not be limited by any provision of the Plan, including any provision which by its terms is applicable notwithstanding any other provision of the Plan to the contrary.

 

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The Committee may delegate to officers of the Company, pursuant to a written delegation, the authority to perform specified functions under the Plan. Any actions taken by any officers of the Company pursuant to such written delegation of authority shall be deemed to have been taken by the Committee.

 

With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3 promulgated under the Exchange Act, Section 422 of the Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer quotation system upon which the Company’s securities are listed or quoted, or any other Applicable Law, to the extent that any such restrictions are no longer required by Applicable Law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards.

 

Article 4

ELIGIBILITY

 

Any Employee (including an Employee who is also a director or an officer), Contractor or Outside Director of the Company whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees of a Corporation shall be eligible to receive Incentive Stock Options. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Contractor or Outside Director. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine. Except as required by this Plan, Awards need not contain similar provisions. The Committee’s determinations under the Plan (including without limitation determinations of which Employees, Contractors or Outside Directors, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Participants who receive, or are eligible to receive, Awards under the Plan.

 

Article 5

SHARES SUBJECT TO PLAN

 

5.1            Number Available for Awards. Subject to adjustment as provided in Articles 11 and 12 , the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under the Plan is one million four hundred thousand (1,400,000) shares, provided that, such aggregate number of shares reserved for Awards will automatically increase on January 1 of each year, commencing on January 1 of the year following the year in which the Effective Date occurs and ending on (and including) January 1, 2026, in an amount equal to five percent (5%) of the total number of shares of Common Stock outstanding on December 31 of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January 1 of a given year to provide that there will be no January 1 increase for such year or that the increase for such year will be a lesser number of shares than provided herein. Subject to adjustment as provided in Articles 11 and 12 , the maximum number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options under the Plan is one million four hundred thousand (1,400,000) shares and the maximum number of shares of Common Stock with respect to which Stock Options or SARs may be granted to an Executive Officer during any calendar year is six hundred thousand (600,000) shares of Common Stock. Shares to be issued may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of this Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan.

 

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5.2            Reuse of Shares. To the extent that any Award under this Plan shall be forfeited, shall expire or be canceled, in whole or in part, then the number of shares of Common Stock covered by the Award or stock option so forfeited, expired or canceled may again be awarded pursuant to the provisions of this Plan. In the event that previously acquired shares of Common Stock are delivered to the Company in full or partial payment of the exercise price for the exercise of a Stock Option granted under this Plan, the number of shares of Common Stock available for future Awards under this Plan shall be reduced only by the net number of shares of Common Stock issued upon the exercise of the Stock Option. Awards that may be satisfied either by the issuance of shares of Common Stock or by cash or other consideration shall be counted against the maximum number of shares of Common Stock that may be issued under this Plan only during the period that the Award is outstanding or to the extent the Award is ultimately satisfied by the issuance of shares of Common Stock. Awards will not reduce the number of shares of Common Stock that may be issued pursuant to this Plan if the settlement of the Award will not require the issuance of shares of Common Stock, as, for example, a SAR that can be satisfied only by the payment of cash. Notwithstanding any provisions of the Plan to the contrary, only shares forfeited back to the Company or shares canceled on account of termination, expiration or lapse of an Award shall again be available for grant of Incentive Stock Options under the Plan, but shall not increase the maximum number of shares described in Section 5.1 above as the maximum number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options.

 

Article 6

GRANT OF AWARDS

 

6.1           In General.

 

(a)          The grant of an Award shall be authorized by the Committee and shall be evidenced by an Award Agreement setting forth the Incentive or Incentives being granted, the total number of shares of Common Stock subject to the Incentive(s), the Option Price (if applicable), the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance objectives, as are approved by the Committee, but (i) not inconsistent with the Plan, (ii) to the extent an Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder, and (iii) to the extent the Committee determines that an Award shall comply with the requirements of Section 162(m) of the Code, in compliance with the applicable requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder. The Company shall execute an Award Agreement with a Participant after the Committee approves the issuance of an Award. Any Award granted pursuant to this Plan must be granted within ten (10) years of the date of adoption of this Plan by the Board. The Plan shall be submitted to the Company’s stockholders for approval; however, the Committee may grant Awards under the Plan prior to the time of stockholder approval. Any such Award granted prior to such stockholder approval shall be made subject to such stockholder approval. The grant of an Award to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, receipt of any other Award under the Plan.

 

(b)          If the Committee establishes a purchase price for an Award, the Participant must accept such Award within a period of thirty (30) days (or such shorter period as the Committee may specify) after the Date of Grant by executing the applicable Award Agreement and paying such purchase price.

 

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(c)          Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

 

6.2            Option Price. The Option Price for any share of Common Stock which may be purchased under a Nonqualified Stock Option for any share of Common Stock must be equal to or greater than the Fair Market Value of the share on the Date of Grant. The Option Price for any share of Common Stock which may be purchased under an Incentive Stock Option must be at least equal to the Fair Market Value of the share on the Date of Grant; if an Incentive Stock Option is granted to an Employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary), the Option Price shall be at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the Date of Grant.

 

6.3            Maximum ISO Grants. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent any Stock Option granted under this Plan which is designated as an Incentive Stock Option exceeds this limit or otherwise fails to qualify as an Incentive Stock Option, such Stock Option (or any such portion thereof) shall be a Nonqualified Stock Option. In such case, the Committee shall designate which stock will be treated as Incentive Stock Option stock by causing the issuance of a separate stock certificate and identifying such stock as Incentive Stock Option stock on the Company’s stock transfer records.

 

6.4            Restricted Stock. If Restricted Stock is granted to or received by a Participant under an Award (including a Stock Option), the Committee shall set forth in the related Award Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if any, to be paid by the Participant for such Restricted Stock and the method of payment of the price, (iii) the time or times within which such Award may be subject to forfeiture, (iv) specified Performance Goals of the Company, a Subsidiary, any division thereof or any group of Employees of the Company, or other criteria, which the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (v) all other terms, limitations, restrictions, and conditions of the Restricted Stock, which shall be consistent with this Plan, to the extent applicable and in the event the Committee determines that an Award shall comply with the requirements of Section 162(m) of the Code, in compliance with the requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder and, to the extent Restricted Stock granted under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. The provisions of Restricted Stock need not be the same with respect to each Participant.

 

(a)           Legend on Shares. The Company shall electronically register the Restricted Stock awarded to a Participant in the name of such Participant, which shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially as provided in Section 15.10 of the Plan. No stock certificate or certificates shall be issued with respect to such shares of Common Stock, unless, following the expiration of the Restriction Period (as defined in Section 6.4(b)(i) ) without forfeiture in respect of such shares of Common Stock, the Participant requests delivery of the certificate or certificates by submitting a written request to the Committee (or such party designated by the Company) requesting delivery of the certificates. The Company shall deliver the certificates requested by the Participant to the Participant as soon as administratively practicable following the Company’s receipt of such request.

 

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(b)           Restrictions and Conditions. Shares of Restricted Stock shall be subject to the following restrictions and conditions:

 

(i)          Subject to the other provisions of this Plan and the terms of the particular Award Agreements, during such period as may be determined by the Committee commencing on the Date of Grant or the date of exercise of an Award (the “ Restriction Period ”), the Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock. Except for these limitations, the Committee may in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in Applicable Laws or other changes in circumstances arising after the date of the Award, such action is appropriate.

 

(ii)         Except as provided in sub-paragraph (i) above or in the applicable Award Agreement, the Participant shall have, with respect to his or her Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon, provided that any dividends shall at all times be subject to the same restrictions as the underlying Restricted Stock and shall not be paid to the Participant unless and until such Restricted Stock becomes vested. Certificates for shares of Common Stock free of restriction under this Plan shall be delivered to the Participant promptly after, and only after, the Restriction Period shall expire without forfeiture in respect of such shares of Common Stock or after any other restrictions imposed on such shares of Common Stock by the applicable Award Agreement or other agreement have expired. Certificates for the shares of Common Stock forfeited under the provisions of the Plan and the applicable Award Agreement shall be promptly returned to the Company by the forfeiting Participant. Each Award Agreement shall require that each Participant, in connection with the issuance of a certificate for Restricted Stock, shall endorse such certificate in blank or execute a stock power in form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company.

 

(iii)        The Restriction Period of Restricted Stock shall commence on the Date of Grant or the date of exercise of an Award, as specified in the Award Agreement, and, subject to Article 12 of the Plan, unless otherwise established by the Committee in the Award Agreement setting forth the terms of the Restricted Stock, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on such Performance Goals, as may be determined by the Committee in its sole discretion.

 

(iv)        Except as otherwise provided in the particular Award Agreement, upon Termination of Service for any reason during the Restriction Period, the nonvested shares of Restricted Stock shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for such forfeited Restricted Stock, the Committee shall specify in the Award Agreement that either (i) the Company shall be obligated to, or (ii) the Company may, in its sole discretion, elect to, pay to the Participant, as soon as practicable after the event causing forfeiture, in cash, an amount equal to the lesser of the total consideration paid by the Participant for such forfeited shares or the Fair Market Value of such forfeited shares as of the date of Termination of Service, as the Committee, in its sole discretion shall select. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of the Restricted Stock shall cease and terminate, without any further obligation on the part of the Company.

 

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6.5            SARs. The Committee may grant SARs to any Participant, either as a separate Award or in connection with a Stock Option. SARs shall be subject to such terms and conditions as the Committee shall impose, provided that such terms and conditions are (i) not inconsistent with the Plan, (ii) to the extent a SAR issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder, and (iii) to the extent the Committee determines that a SAR shall comply with the requirements of Section 162(m) of the Code, in compliance with the applicable requirements of Section 162(m) and the regulations and other guidance issued thereunder. The grant of the SAR may provide that the holder may be paid for the value of the SAR either in cash or in shares of Common Stock, or a combination thereof. In the event of the exercise of a SAR payable in shares of Common Stock, the holder of the SAR shall receive that number of whole shares of Common Stock having an aggregate Fair Market Value on the date of exercise equal to the value obtained by multiplying (i) the difference between the Fair Market Value of a share of Common Stock on the date of exercise over the SAR Price as set forth in such SAR (or other value specified in the agreement granting the SAR), by (ii) the number of shares of Common Stock as to which the SAR is exercised, with a cash settlement to be made for any fractional shares of Common Stock. The SAR Price for any share of Common Stock subject to a SAR may be equal to or greater than the Fair Market Value of the share on the Date of Grant. The Committee, in its sole discretion, may place a ceiling on the amount payable upon exercise of a SAR, but any such limitation shall be specified at the time that the SAR is granted.

 

6.6            Restricted Stock Units. Restricted Stock Units may be awarded or sold to any Participant under such terms and conditions as shall be established by the Committee, provided, however, that such terms and conditions are (i) not inconsistent with the Plan, (ii) to the extent a Restricted Stock Unit issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder, and (iii) to the extent the Committee determines that a Restricted Stock Unit award shall comply with the requirements of Section 162(m) of the Code, in compliance with the applicable requirements of Section 162(m) and the regulations and other guidance issued thereunder. The grant of a Restricted Stock Unit may provide that the holder may be paid for the value of the Restricted Stock Unit either in cash or in shares of Common Stock, or a combination thereof. Restricted Stock Units shall be subject to such restrictions as the Committee determines, including, without limitation, (a) a prohibition against sale, assignment, transfer, pledge, hypothecation or other encumbrance for a specified period; or (b) a requirement that the holder forfeit (or in the case of shares of Common Stock or units sold to the Participant, resell to the Company at cost) such shares or units in the event of Termination of Service during the period of restriction.

 

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6.7            Performance Awards.         

 

(a)          The Committee may grant Performance Awards to one or more Participants. The terms and conditions of Performance Awards shall be specified at the time of the grant and may include provisions establishing the performance period, the Performance Goals to be achieved during a performance period, and the maximum or minimum settlement values, provided that such terms and conditions are (i) not inconsistent with the Plan and (ii) to the extent a Performance Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued thereunder. If the Performance Award is to be in shares of Common Stock, the Performance Awards may provide for the issuance of the shares of Common Stock at the time of the grant of the Performance Award or at the time of the certification by the Committee that the Performance Goals for the performance period have been met; provided , however , if shares of Common Stock are issued at the time of the grant of the Performance Award and if, at the end of the performance period, the Performance Goals are not certified by the Committee to have been fully satisfied, then, notwithstanding any other provisions of this Plan to the contrary, the Common Stock shall be forfeited in accordance with the terms of the grant to the extent the Committee determines that the Performance Goals were not met. The forfeiture of shares of Common Stock issued at the time of the grant of the Performance Award due to failure to achieve the established Performance Goals shall be separate from and in addition to any other restrictions provided for in this Plan that may be applicable to such shares of Common Stock. Each Performance Award granted to one or more Participants shall have its own terms and conditions.

 

To the extent the Committee determines that a Performance Award shall comply with the requirements of Section 162(m) of the Code and the regulations and other guidance issued thereunder, and if it is determined to be necessary in order to satisfy Section 162(m) of the Code, at the time of the grant of a Performance Award (other than a Stock Option) and to the extent permitted under Section 162(m) of the Code and the regulations issued thereunder, the Committee shall provide for the manner in which the Performance Goals shall be reduced to take into account the negative effect on the achievement of specified levels of the Performance Goals which may result from enumerated corporate transactions, events that are of an unusual nature or indicate infrequency of occurrence, extraordinary events, accounting changes and other similar occurrences which were unanticipated at the time the Performance Goal was initially established. In no event, however, may the Committee increase the amount earned under such a Performance Award, unless the reduction in the Performance Goals would reduce or eliminate the amount to be earned under the Performance Award and the Committee determines not to make such reduction or elimination.

 

With respect to a Performance Award that is not intended to satisfy the requirements of Code Section 162(m), if the Committee determines, in its sole discretion, that the established performance measures or objectives are no longer suitable because of a change in the Company’s business, operations, corporate structure, or for other reasons that the Committee deemed satisfactory, the Committee may modify the performance measures or objectives and/or the performance period.

 

(b)          Performance Awards may be valued by reference to the Fair Market Value of a share of Common Stock or according to any formula or method deemed appropriate by the Committee, in its sole discretion, including, but not limited to, achievement of Performance Goals or other specific financial, production, sales or cost performance objectives that the Committee believes to be relevant to the Company’s business and/or remaining in the employ of the Company or a Subsidiary for a specified period of time. Performance Awards may be paid in cash, shares of Common Stock, or other consideration, or any combination thereof. If payable in shares of Common Stock, the consideration for the issuance of such shares may be the achievement of the performance objective established at the time of the grant of the Performance Award. Performance Awards may be payable in a single payment or in installments and may be payable at a specified date or dates or upon attaining the performance objective. The extent to which any applicable performance objective has been achieved shall be conclusively determined by the Committee.

 

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(c)          Notwithstanding the foregoing, in order to comply with the requirements of Section 162(m) of the Code, if applicable, no Participant may receive in any calendar year Performance Awards intended to comply with the requirements of Section 162(m) of the Code which have an aggregate value of more than $3,600,000 , and if such Performance Awards involve the issuance of shares of Common Stock, said aggregate value shall be based on the Fair Market Value of such shares on the time of the grant of the Performance Award. In no event, however, shall any Performance Awards not intended to comply with the requirements of Section 162(m) of the Code be issued contingent upon the failure to attain the Performance Goals applicable to any Performance Awards granted hereunder that the Committee intends to comply with the requirements of Section 162(m) of the Code.

 

6.8            Dividend Equivalent Rights. The Committee may grant a Dividend Equivalent Right to any Participant, either as a component of another Award or as a separate Award. The terms and conditions of the Dividend Equivalent Right shall be specified by the grant. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Common Stock (which may thereafter accrue additional dividend equivalents). Any such reinvestment shall be at the Fair Market Value at the time thereof. Dividend Equivalent Rights may be settled in cash or shares of Common Stock, or a combination thereof, in a single payment or in installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other Award.

 

6.9            Other Awards. The Committee may grant to any Participant other forms of Awards, based upon, payable in, or otherwise related to, in whole or in part, shares of Common Stock, if the Committee determines that such other form of Award is consistent with the purpose and restrictions of this Plan. The terms and conditions of such other form of Award shall be specified by the grant. Such Other Awards may be granted for no cash consideration, for such minimum consideration as may be required by Applicable Law, or for such other consideration as may be specified by the grant.

 

6.10          Performance Goals. Awards of Restricted Stock, Restricted Stock Units, Performance Award and Other Awards (whether relating to cash or shares of Common Stock) under the Plan may be made subject to the attainment of Performance Goals relating to one or more business criteria which, where applicable, shall be within the meaning of Section 162(m) of the Code and consist of one or more or any combination of the following criteria: operational objectives, consisting of one or more objectives based on achieving progress in research and development programs or achieving regulatory milestones related to development and or approval of products (including, FDA approvals of filings or commencement of clinical trials); clinical or developmental milestones (including, completion of enrollment for clinical trials and obtaining final data); production or production growth; resource replacement or resource growth; cash cost per ounce of production; cost containment or reduction; signing term sheets or definitive agreements for partnerships, joint ventures, R&D collaboration agreements, option agreements, license agreements and other similar agreements; strengthening the balance sheet; obtaining equity or debt investments; hiring key executive team members; cash flow; cost; revenues; sales; ratio of debt to debt plus equity; net borrowing, credit quality or debt ratings; profit before tax; economic profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational or other basis); operating earnings; capital expenditures; expenses or expense levels; economic value added; ratio of operating earnings to capital spending or any other operating ratios; free cash flow; net profit; net sales; net asset value per share; the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions; sales growth; price of the Company’s Common Stock; return on assets, equity or stockholders’ equity; market share; inventory levels, inventory turn or shrinkage; or total return to stockholders (“ Performance Criteria ”). Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude (i) events that are of an unusual nature of indicate infrequency of occurrence, (ii) gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or laws, (iv) the effect of a merger or acquisition, as identified in the Company’s quarterly and annual earnings releases, or (v) other similar occurrences. In all other respects, Performance Criteria shall be calculated in accordance with the Company’s financial statements, under generally accepted accounting principles, or under a methodology established by the Committee prior to the issuance of an Award which is consistently applied and identified in the audited financial statements, including footnotes, or the Compensation Discussion and Analysis section of the Company’s annual report. However, to the extent Section 162(m) of the Code is applicable, the Committee may not in any event increase the amount of compensation payable to an individual upon the attainment of a Performance Goal.

 

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6.11          Tandem Awards. The Committee may grant two or more Incentives in one Award in the form of a “tandem Award,” so that the right of the Participant to exercise one Incentive shall be canceled if, and to the extent, the other Incentive is exercised. For example, if a Stock Option and a SAR are issued in a tandem Award, and the Participant exercises the SAR with respect to one hundred (100) shares of Common Stock, the right of the Participant to exercise the related Stock Option shall be canceled to the extent of one hundred (100) shares of Common Stock.

 

6.12          Recoupment for Restatements. Notwithstanding any other language in this Plan to the contrary, the Company may recoup all or any portion of any shares or cash paid to a Participant in connection with an Award, in the event of a restatement of the Company’s financial statements as set forth in the Company’s clawback policy, if any, approved by the Company’s Board from time to time.

 

Article 7

AWARD PERIOD; VESTING

 

7.1            Award Period. Subject to the other provisions of this Plan, the Committee may, in its discretion, provide that an Incentive may not be exercised in whole or in part for any period or periods of time or beyond any date specified in the Award Agreement. Except as provided in the Award Agreement, an Incentive may be exercised in whole or in part at any time during its term. The Award Period for an Incentive shall be reduced or terminated upon Termination of Service. No Incentive granted under the Plan may be exercised at any time after the end of its Award Period. No portion of any Incentive may be exercised after the expiration of ten (10) years from its Date of Grant. However, if an Employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option is granted to such Employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant.

 

7.2            Vesting. The Committee, in its sole discretion, may determine that an Incentive will be immediately vested in whole or in part, or that all or any portion may not be vested until a date, or dates, subsequent to its Date of Grant, or until the occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions upon vesting, then, subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Incentive may be vested.

 

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Article 8

EXERCISE OR CONVERSION OF INCENTIVE

 

8.1            In General. A vested Incentive may be exercised or converted, during its Award Period, subject to limitations and restrictions set forth in the Award Agreement.

 

8.2            Securities Law and Exchange Restrictions. In no event may an Incentive be exercised or shares of Common Stock issued pursuant to an Award if a necessary listing or quotation of the shares of Common Stock on a stock exchange or inter-dealer quotation system or any registration under state or federal securities laws required under the circumstances has not been accomplished.

 

8.3            Exercise of Stock Option.

 

(a)           In General. If a Stock Option is exercisable prior to the time it is vested, the Common Stock obtained on the exercise of the Stock Option shall be Restricted Stock which is subject to the applicable provisions of the Plan and the Award Agreement. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Stock Option may be exercised. No Stock Option may be exercised for a fractional share of Common Stock. The granting of a Stock Option shall impose no obligation upon the Participant to exercise that Stock Option.

 

(b)           Notice and Payment. Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option may be exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised (the “ Exercise Notice ”) and the date of exercise thereof (the “ Exercise Date ”) with respect to which any Stock Option shall be the date that the Participant has delivered both the Exercise Notice and consideration with a value equal to the total Option Price of the shares to be purchased (plus any employment tax withholding or other tax payment due with respect to such Award), payable as provided in the Award Agreement, which may provide for payment in any one or more of the following ways: (a) cash or check, bank draft, or money order payable to the order of the Company, (b) Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) by delivery (including by FAX or electronic transmission) to the Company or its designated agent of an executed irrevocable option exercise form (or, to the extent permitted by the Company, exercise instructions, which may be communication in writing, telephonically or electronically) together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so tendered. If the Participant fails to deliver the consideration described in this Section 8.3(b) within three (3) business days of the date of the Exercise Notice, then the Exercise Notice shall be null and void and the Company will have no obligation to deliver any shares of Common Stock to the Participant in connection with such Exercise Notice.

 

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(c)           Issuance of Certificate. Except as otherwise provided in Section 6.4 hereof (with respect to shares of Restricted Stock) or in the applicable Award Agreement, upon payment of all amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s name (or the person exercising the Participant’s Stock Option in the event of his or her death), but shall not issue certificates for the Common Stock unless the Participant or such other person requests delivery of the certificates for the Common Stock, in writing in accordance with the procedures established by the Committee. The Company shall deliver certificates to the Participant (or the person exercising the Participant’s Stock Option in the event of his or her death) as soon as administratively practicable following the Company’s receipt of a written request from the Participant or such other person for delivery of the certificates. Notwithstanding the forgoing, if the Participant has exercised an Incentive Stock Option, the Company may at its option retain physical possession of the certificate evidencing the shares acquired upon exercise until the expiration of the holding periods described in Section 422(a)(1) of the Code. Any obligation of the Company to deliver shares of Common Stock shall, however, be subject to the condition that, if at any time the Committee shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Committee.

 

(d)           Failure to Pay. Except as may otherwise be provided in an Award Agreement, if the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, that portion of the Participant’s Stock Option and right to purchase such Common Stock may be forfeited by the Participant.

 

8.4            SARs. Subject to the conditions of this Section 8.4 and such administrative regulations as the Committee may from time to time adopt, a SAR may be exercised by the delivery (including by FAX) of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the Exercise Date, which with respect to any SAR shall be the date that the Participant has delivered both the written notice and consideration to the Company with a value equal to any employment tax withholding or other tax payments due with respect to such Award. Subject to the terms of the Award Agreement and only if permissible under Section 409A of the Code and the regulations or other guidance issued thereunder (or, if not so permissible, at such time as permitted by Section 409A of the Code and the regulations or other guidance issued thereunder), the Participant shall receive from the Company in exchange therefor in the discretion of the Committee, and subject to the terms of the Award Agreement:

 

(a)          cash in an amount equal to the excess (if any) of the Fair Market Value (as of the Exercise Date, or if provided in the Award Agreement, conversion, of the SAR) per share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered;

 

(b)          that number of shares of Common Stock having an aggregate Fair Market Value (as of the Exercise Date, or if provided in the Award Agreement, conversion, of the SAR) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests; or

 

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(c)          the Company may settle such obligation in part with shares of Common Stock and in part with cash.

 

The distribution of any cash or Common Stock pursuant to the foregoing sentence shall be made at such time as set forth in the Award Agreement.

 

8.5            Disqualifying Disposition of Incentive Stock Option. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code.

 

Article 9

AMENDMENT OR DISCONTINUANCE

 

Subject to the limitations set forth in this Article 9 , the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, however, that no amendment for which stockholder approval is required either (i) by any securities exchange or inter-dealer quotation system on which the Common Stock is listed or traded or (ii) in order for the Plan and Incentives awarded under the Plan to continue to comply with Sections 162(m), 421, and 422 of the Code, including any successors to such Sections, or other Applicable Law, shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Incentives theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Award Agreement. In the event of any such amendment to the Plan, the holder of any Incentive outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Award Agreement relating thereto. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by this Article 9 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Incentive theretofore granted under the Plan without the consent of the affected Participant.

 

Article 10

TERM

 

The Plan shall be effective from the date that this Plan is adopted by the Board. Unless sooner terminated by action of the Board, the Plan will terminate on the tenth anniversary of the Effective Date but Incentives granted before that date will continue to be effective in accordance with their terms and conditions.

 

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Article 11

CAPITAL ADJUSTMENTS

 

In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization, merger, consolidation, split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the fair value of an Award, then the Committee shall adjust any or all of the following so that the fair value of the Award immediately after the transaction or event is equal to the fair value of the Award immediately prior to the transaction or event (i) the number of shares and type of Common Stock (or the securities or property) which thereafter may be made the subject of Awards, (ii) the number of shares and type of Common Stock (or other securities or property) subject to outstanding Awards, (iii) the number of shares and type of Common Stock (or other securities or property) specified as the annual per-participant limitation under Section 5.1 of the Plan, (iv) the Option Price of each outstanding Award, (v) the amount, if any, the Company pays for forfeited shares of Common Stock in accordance with Section 6.4 , and (vi) the number of or SAR Price of shares of Common Stock then subject to outstanding SARs previously granted and unexercised under the Plan, to the end that the same proportion of the Company’s issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; provided however, that the number of shares of Common Stock (or other securities or property) subject to any Award shall always be a whole number. Notwithstanding the foregoing, no such adjustment shall be made or authorized to the extent that such adjustment would cause the Plan or any Stock Option to violate Section 422 of the Code or Section 409A of the Code. Such adjustments shall be made in accordance with the rules of any securities exchange, stock market, or stock quotation system to which the Company is subject.

 

Upon the occurrence of any such adjustment, the Company shall provide notice to each affected Participant of its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant.

 

Article 12

RECAPITALIZATION, MERGER AND CONSOLIDATION

 

12.1          No Effect on Company’s Authority. The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure and its business, or any Change in Control, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

12.2          Conversion of Incentives Where Company Survives. Subject to any required action by the stockholders and except as otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, if the Company shall be the surviving or resulting corporation in any merger, consolidation or share exchange, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled.

 

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12.3          Exchange or Cancellation of Incentives Where Company Does Not Survive. Except as otherwise provided by Section 12.4 hereof or as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, in the event the acquirer or the surviving or resulting corporation does not agree to assume the Incentives or in the event of any merger, consolidation or share exchange pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving, resulting or consolidated company which were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to be thereafter exercisable for such stock, securities, cash, or property in accordance with their terms.

 

12.4          Cancellation of Incentives. Notwithstanding the provisions of Sections 12.2 and 12.3 hereof, and except as may be required to comply with Section 409A of the Code and the regulations or other guidance issued thereunder, in the event the acquiror or the surviving or resulting corporation does not agree to assume the Incentives, all Incentives granted hereunder may be canceled by the Company, in its sole discretion, as of the effective date of any Change in Control, merger, consolidation or share exchange, or any issuance of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or of any proposed sale of all or substantially all of the assets of the Company, or of any dissolution or liquidation of the Company, by either:

 

(a)          giving notice to each holder thereof or his personal representative of its intention to cancel those Incentives for which the issuance of shares of Common Stock involved payment by the Participant for such shares, and permitting the purchase during the thirty (30) day period next preceding such effective date of any or all of the shares of Common Stock subject to such outstanding Incentives, including in the Board’s discretion some or all of the shares as to which such Incentives would not otherwise be vested and exercisable; or

 

(b)          in the case of Incentives that are either (i) settled only in shares of Common Stock, or (ii) at the election of the Participant, settled in shares of Common Stock, paying the holder thereof an amount equal to a reasonable estimate of the difference between the net amount per share payable in such transaction or as a result of such transaction, and the price per share of such Incentive to be paid by the Participant (hereinafter the “ Spread ”), multiplied by the number of shares subject to the Incentive. In cases where the shares constitute, or would after exercise, constitute Restricted Stock, the Company, in its discretion, may include some or all of those shares in the calculation of the amount payable hereunder. In estimating the Spread, appropriate adjustments to give effect to the existence of the Incentives shall be made, such as deeming the Incentives to have been exercised, with the Company receiving the exercise price payable thereunder, and treating the shares receivable upon exercise of the Incentives as being outstanding in determining the net amount per share. In cases where the proposed transaction consists of the acquisition of assets of the Company, the net amount per share shall be calculated on the basis of the net amount receivable with respect to shares of Common Stock upon a distribution and liquidation by the Company after giving effect to expenses and charges, including but not limited to taxes, payable by the Company before such liquidation could be completed.

 

(c)          An Award that by its terms would be fully vested or exercisable upon a Change in Control will be considered vested or exercisable for purposes of Section 12.4(a) hereof.

 

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Article 13

LIQUIDATION OR DISSOLUTION

 

Subject to Section 12.4 hereof, in case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant shall be entitled to receive, in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive under the Incentive, the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) and an adjustment is determined by the Committee to be appropriate to prevent the dilution of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, make such adjustment in accordance with the provisions of Article 11 hereof.

 

Article 14

INCENTIVES IN SUBSTITUTION FOR

INCENTIVES GRANTED BY OTHER ENTITIES

 

Incentives may be granted under the Plan from time to time in substitution for similar instruments held by employees, independent contractors or directors of a corporation, partnership, or limited liability company who become or are about to become Employees, Contractors or Outside Directors of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company, the acquisition by the Company of equity of the employing entity, or any other similar transaction pursuant to which the Company becomes the successor employer. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the incentives in substitution for which they are granted.

 

Article 15

MISCELLANEOUS PROVISIONS

 

15.1          Investment Intent. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.

 

15.2          No Right to Continued Employment. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary.

 

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15.3          Indemnification of Board and Committee. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee, each officer of the Company, and each Employee of the Company acting on behalf of the Board or the Committee shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation to the fullest extent provided by law. Except to the extent required by any unwaiveable requirement under applicable law, no member of the Board or the Committee (and no Subsidiary of the Company) shall have any duties or liabilities, including without limitation any fiduciary duties, to any Participant (or any Person claiming by and through any Participant) as a result of this Plan, any Award Agreement or any Claim arising hereunder and, to the fullest extent permitted under applicable law, each Participant (as consideration for receiving and accepting an Award Agreement) irrevocably waives and releases any right or opportunity such Participant might have to assert (or participate or cooperate in) any Claim against any member of the Board or the Committee and any Subsidiary of the Company arising out of this Plan.

 

15.4          Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein.

 

15.5          Compliance with Other Laws and Regulations. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Common Stock under any Incentive if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter-dealer quotation system or other forum in which shares of Common Stock are quoted or traded (including without limitation Section 16 of the Exchange Act and Section 162(m) of the Code); and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required.

 

15.6          Foreign Participation. To assure the viability of Awards granted to Participants employed in foreign countries, the Committee may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Committee approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country.

 

15.7          Tax Requirements. The Company or, if applicable, any Subsidiary (for purposes of this Section 15.7 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with an Award granted under this Plan. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to the Award. Such payments shall be required to be made when requested by the Company and may be required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant. The Committee may in the Award Agreement impose any additional tax requirements or provisions that the Committee deems necessary or desirable.

 

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15.8          Assignability. Incentive Stock Options may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant’s legally authorized representative, and each Award Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in the preceding sentences of this Section 15.8 that is not required for compliance with Section 422 of the Code.

 

Except as otherwise provided herein, Awards may not be transferred, assigned, pledged, hypothecated or otherwise conveyed or encumbered other than by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, authorize all or a portion of a Nonqualified Stock Option or SAR to be granted to a Participant on terms which permit transfer by such Participant to (i) the spouse (or former spouse), children or grandchildren of the Participant (“ Immediate Family Members ”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership in which the only partners are (1) such Immediate Family Members and/or (2) entities which are controlled by the Participant and/or Immediate Family Members, (iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v) a split interest trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be no consideration for any such transfer, (y) the Award Agreement pursuant to which such Nonqualified Stock Option or SAR is granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Nonqualified Stock Options or SARs shall be prohibited except those by will or the laws of descent and distribution.

 

Following any transfer, any such Nonqualified Stock Option and SAR shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that for purposes of Articles 8, 9, 11, 13 and 15 hereof the term “ Participant ” shall be deemed to include the transferee. The events of Termination of Service shall continue to be applied with respect to the original Participant, following which the Nonqualified Stock Options and SARs shall be exercisable or convertible by the transferee only to the extent and for the periods specified in the Award Agreement. The Committee and the Company shall have no obligation to inform any transferee of a Nonqualified Stock Option or SAR of any expiration, termination, lapse or acceleration of such Stock Option or SAR. The Company shall have no obligation to register with any federal or state securities commission or agency any Common Stock issuable or issued under a Nonqualified Stock Option or SAR that has been transferred by a Participant under this Section 15.8 .

 

15.9          Use of Proceeds.  Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company.

 

15.10          Legend. Each certificate representing shares of Restricted Stock issued to a Participant shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed):

 

23

 

  

On the face of the certificate:

 

“Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.”

 

On the reverse:

 

“The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain PhaseRx, Inc. 2016 Long-Term Incentive Plan, a copy of which is on file at the principal office of the Company in Seattle, Washington. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan.”

 

The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:

 

“Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”

 

15.11          Governing Law. The Plan shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws, rule or principle of Delaware law that might refer the governance, construction, or interpretation of this Agreement to the laws of another state). A Participant’s sole remedy for any Claim shall be against the Company, and no Participant shall have any claim or right of any nature against any Subsidiary of the Company or any shareholder or existing or former director, officer or Employee of the Company or any Subsidiary of the Company. Each Award Agreement shall require the Participant to release and covenant not to sue any Person other than the Company over any Claims. The individuals and entities described above in this Section 15.11 (other than the Company) shall be third-party beneficiaries of this Plan for purposes of enforcing the terms of this Section 15.11 .

 

A copy of this Plan shall be kept on file in the principal office of the Company in Seattle, Washington.

 

***************

 

24

 

 

IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of _________________________, 2016, by its Chief Executive Officer and Secretary pursuant to prior action taken by the Board.

 

  PHASERX, INC.
     
  By: /s/ Robert Overell
  Name:  
  Title: Chief Executive Officer

 

Attest:  
     
By:    
Name:    
Title: Secretary  

 

25

 

Exhibit 10.18

 

NONQUALIFIED STOCK OPTION AGREEMENT

 

PHASERX, INC.

2016 LONG-TERM INCENTIVE PLAN

 

1.           Grant of Option . Pursuant to the PhaseRx, Inc. 2016 Long-Term Incentive Plan (the “ Plan ”) for key Employees, key Contractors, and Outside Directors of PhaseRx, Inc., a Delaware corporation (the “ Company ”), the Company grants to

 

_________________________

(the “ Participant ”),

 

an option (the “ Option ” or “ Stock Option ”) to purchase a total of ___________________ (__________) full shares of Common Stock of the Company (the “ Optioned Shares ”) at an “ Option Price ” equal to $________ per share (being the Fair Market Value per share of the Common Stock on the Date of Grant).

 

The “ Date of Grant ” of this Stock Option is _________________, 20__. The “ Option Period ” shall commence on the Date of Grant and shall expire on the date immediately preceding the tenth (10 th ) anniversary of the Date of Grant, unless terminated earlier in accordance with Section 4 below. The Stock Option is a Nonqualified Stock Option. This Stock Option is intended to comply with the provisions governing nonqualified stock options under the final Treasury Regulations issued on April 17, 2007, in order to exempt this Stock Option from application of Section 409A of the Code.

 

2.           Subject to Plan . The Stock Option and its exercise are subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Nonqualified Stock Option Agreement (the “ Agreement ”). The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. The Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing. In addition, if the Plan previously has not been approved by the Company’s stockholders, the Stock Option is granted subject to such stockholder approval.

 

3.           Vesting; Time of Exercise . Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Optioned Shares shall be vested and the Stock Option shall be exercisable as follows:

 

a. One forty-eighth (1/48) of the total Optioned Shares shall vest on the one-month anniversary of the Date of Grant, provided the Participant is employed by (or, if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date.

 

b. An additional one forty-eighth (1/48) of the total Optioned Shares shall vest on each monthly anniversary of the Date of Grant thereafter, provided the Participant is employed by (or, if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date.

 

In the event that (i) a Change in Control occurs, and (ii) this Agreement is not assumed by the surviving corporation or its parent, or the surviving corporation or its parent does not substitute its own option for this Stock Option, then immediately prior to the effective date of such Change in Control, the total Optioned Shares not previously vested shall thereupon immediately become vested and this Stock Option shall become fully exercisable, if not previously so exercisable.

 

     

 

 

4.           Term; Forfeiture .

 

a.           Except as otherwise provided in this Agreement, to the extent the unexercised portion of the Stock Option relates to Optioned Shares which are not vested on the date of the Participant’s Termination of Service, the Stock Option will be terminated on that date. The unexercised portion of the Stock Option that relates to Optioned Shares which are vested will terminate at the first of the following to occur:

 

i.            5 p.m. on the date the Option Period terminates;

 

ii.         5 p.m. on the date which is twelve (12) months following the date of the Participant’s Termination of Service due to death, Retirement or Total and Permanent Disability;

 

iii.         immediately upon the Participant’s Termination of Service by the Company for Cause (as defined herein);

 

iv.         5 p.m. on the date which is three (3) months following the date of the Participant’s Termination of Service for any reason not otherwise specified in this Section 4.a. ; and

 

v.           5 p.m. on the date the Company causes any portion of the Stock Option to be forfeited pursuant to Section 7 hereof.

 

b.           For purposes of this Agreement, “ Cause ” means the Participant’s Termination of Service by the Company because of: (i) the Participant’s conviction of, or plea of nolo contendere to, a felony or crime involving moral turpitude; (ii) the Participant’s personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses) or breach of fiduciary duty which involves personal profit; (iii) the Participant’s commission of material mismanagement in the conduct of the Participant’s duties as assigned to him or her by the Board or the Participant’s supervising officer or officers of the Company or any Subsidiary; (iv) the Participant’s willful failure to execute or comply with the policy of the Company or any of its Subsidiaries or the Participant’s stated duties as established by the Board or the Participant’s supervising officer or officers of the Company or any Subsidiary or the Participant’s intentional failure to perform the Participant’s stated duties; or (v) substance abuse or addiction on the part of the Participant. Notwithstanding the foregoing, in the case of any Participant who has entered into an employment agreement with the Company or any Subsidiary that contains the definition of “cause” (or any similar definition), then during the term of such employment agreement the definition contained in such employment agreement shall be the applicable definition of “cause” under the Agreement as to such Participant if such employment agreement expressly so provides.

 

5.           Who May Exercise . Subject to the terms and conditions set forth in Sections 3 and 4 above, during the lifetime of the Participant, the Stock Option may be exercised only by the Participant, or by the Participant’s guardian or personal or legal representative. If the Participant’s Termination of Service is due to his death prior to the dates specified in Section 4.a. hereof, and the Participant has not exercised the Stock Option as to the maximum number of vested Optioned Shares as set forth in Section 3 hereof as of the date of death, the following persons may exercise the exercisable portion of the Stock Option on behalf of the Participant at any time prior to the earliest of the dates specified in Section 4.a. hereof: the personal representative of his estate, or the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the death of the Participant; provided that the Stock Option shall remain subject to the other terms of this Agreement, the Plan, and Applicable Laws, rules, and regulations.

 

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6.           No Fractional Shares . The Stock Option may be exercised only with respect to full shares, and no fractional share of stock shall be issued.

 

7.           Manner of Exercise . Subject to such administrative regulations as the Committee may from time to time adopt, the Stock Option may be exercised by the delivery of written notice to the Committee (the “ Exercise Notice ”) setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised, the date of exercise thereof (the “ Exercise Date ”). On the Exercise Date, the Participant shall deliver to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as follows: (a) cash, check, bank draft, or money order payable to the order of the Company, (b) if the Company, in its sole discretion, so consents in writing, Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) if the Company, in its sole discretion, so consents in writing, by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so tendered.

 

Upon payment of all amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s name (or the person exercising the Participant’s Stock Option in the event of his death), but shall not issue certificates for such Common Stock unless the Participant or such other person requests delivery of certificates for such Common Stock in accordance with Section 8.3(c) of the Plan. The obligation of the Company to register shares of Common Stock shall, however, be subject to the condition that, if at any time the Company shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, then the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Committee.

 

If the Participant fails to pay for any of the Optioned Shares specified in such notice within three (3) business days of the date in the Exercise Notice or fails to accept delivery thereof, then the Exercise Notice shall be null and void and the Company will have no obligation to deliver any shares of Common Stock to the Participant in connection with such Exercise Notice.

 

8.           Nonassignability . The Stock Option is not assignable or transferable by the Participant except by will or by the laws of descent and distribution.

 

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9.           Rights as Stockholder . The Participant will have no rights as a stockholder with respect to any of the Optioned Shares until the registration of such shares in the Participant’s name. The Optioned Shares shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. The Participant, by his or her execution of this Agreement, agrees to execute any documents requested by the Company in connection with the issuance of the shares of Common Stock.

 

10.          Adjustment of Number of Optioned Shares and Related Matters . The number of shares of Common Stock covered by the Stock Option, and the Option Prices thereof, shall be subject to adjustment in accordance with Articles 11 - 13 of the Plan.

 

11.          Nonqualified Stock Option . The Stock Option shall not be treated as an Incentive Stock Option.

 

12.          Voting . The Participant, as record holder of some or all of the Optioned Shares following exercise of this Stock Option, has the exclusive right to vote, or consent with respect to, such Optioned Shares until such time as the Optioned Shares are transferred in accordance with this Agreement; provided , however , that this Section shall not create any voting right where the holders of such Optioned Shares otherwise have no such right.

 

13.          Specific Performance . The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.

 

14.          Participant’s Representations . Notwithstanding any of the provisions hereof, the Participant hereby agrees that he will not exercise the Stock Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company shall be final, binding, and conclusive. The obligations of the Company and the rights of the Participant are subject to all Applicable Laws, rules, and regulations. The Participant agrees and covenants not to sue any Person other than the Company over any Claims.

 

15.          Investment Representation . Unless the shares of Common Stock are issued to the Participant in a transaction registered under applicable federal and state securities laws, by his execution hereof, the Participant represents and warrants to the Company that all Common Stock which may be purchased hereunder will be acquired by the Participant for investment purposes for his own account and not with any intent for resale or distribution in violation of federal or state securities laws. Unless the Common Stock is issued to him in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently registered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and substance satisfactory to the Company and its counsel, that such registration is not required.

 

16.          Participant’s Acknowledgments . The Participant acknowledges that a copy of the Plan has been made available for his or her review by the Company, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Stock Option subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

 

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17.          Law Governing . This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation of this Agreement to the laws of another state).

 

18.          No Right to Continue Service or Employment . Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Contractor or as an Outside Director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Contractor or Outside Director at any time.

 

19.          Legal Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.

 

20.          Covenants and Agreements as Independent Agreements . Each of the covenants and agreements that is set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

 

21.          Entire Agreement . This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

 

22.          Parties Bound . The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.

 

23.          Modification . No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties; provided, however, that the Company may change or modify this Agreement without the Participant’s consent or signature if the Company determines, in its sole discretion, that such change or modification is necessary for purposes of compliance with or exemption from the requirements of Section 409A of the Code or any regulations or other guidance issued thereunder. Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

 

24.          Headings . The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.

 

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25.          Gender and Number . Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

 

26.          Notice . Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company or by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:

 

a.           Notice to the Company shall be addressed and delivered as follows:

 

PhaseRx, Inc.

410 W. Harrison Street, Suite 300

Seattle, WA 98119

Attn:__________________________

Facsimile:______________________

 

b.           Notice to the Participant shall be addressed and delivered as set forth on the signature page.

 

27.          Tax Requirements . The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 27 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any federal, state, local, or other taxes required by law to be withheld in connection with this Award. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award. Such payments shall be required to be made when requested by the Company and may be required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made by (i) the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.

 

28.          Clawback . The Participant acknowledges and agrees that any compensation paid to the Participant by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with the Company’s clawback policy applicable to employees of the Company, if any, as amended from time to time.

 

* * * * * * * *

 

[ Remainder of Page Intentionally Left Blank

Signature Page Follows. ]

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

 

  PHASERX:
   
   
     
  By:  
  Name:  
  Title:  
     
  PARTICIPANT:
   
   
  Signature
   
  Name:  
  Address:  
     

 

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Exhibit 10.19

 

INCENTIVE STOCK OPTION AGREEMENT

 

PHASERX, INC.

2016 LONG-TERM INCENTIVE PLAN

 

1.           Grant of Option . Pursuant to the PhaseRx, Inc. 2016 Long-Term Incentive Plan (the “ Plan ”), as adopted by PhaseRx, Inc., a Delaware corporation (the “ Company ”), the Company grants to

 

_________________________

(the “ Participant ”)

 

who is an Employee of the Company, an option (the “ Option ” or “ Stock Option ”) to purchase a total of _________________ (____________) full shares of Common Stock of the Company (the “ Optioned Shares ”) at an “ Option Price ” equal to $_________ per share (being the Fair Market Value per share of the Common Stock on the Date of Grant or 110% of such Fair Market Value, in the case of a ten percent (10%) or more stockholder as provided in Section 422 of the Code), in the amounts, during the periods and upon the terms and conditions set forth in this Incentive Stock Option Agreement (the “ Agreement ”).

 

The “ Date of Grant ” of this Stock Option is ______________ 20____. The “ Option Period ” shall commence on the Date of Grant and shall expire on the date immediately preceding the tenth (10 th ) anniversary of the Date of Grant (or the date immediately preceding the fifth (5 th ) anniversary of the Date of Grant, in the case of a ten percent (10%) or more stockholder as provided in Section 422 of the Code) unless terminated earlier in accordance with Section 4 below. The Stock Option is intended to be an Incentive Stock Option.

 

2.           Subject to Plan . The Stock Option and its exercise are subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement. The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. The Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing. In addition, if the Plan previously has not been approved by the Company’s stockholders, the Stock Option is granted subject to such stockholder approval.

 

3.           Vesting; Time of Exercise . Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Optioned Shares shall be vested and the Stock Option shall be exercisable as follows:

 

a.           One forty-eighth (1/48) of the total Optioned Shares shall vest on the one-month anniversary of the Date of Grant, provided the Participant is employed by the Company or a Subsidiary on that date.

 

b.           An additional one forty-eighth (1/48) of the total Optioned Shares shall vest on each monthly anniversary of the Date of Grant thereafter, provided the Participant is employed by the Company or a Subsidiary on that date.

 

In the event that (i) a Change in Control occurs, and (ii) this Agreement is not assumed by the surviving corporation or its parent, or the surviving corporation or its parent does not substitute its own option for this Stock Option, then immediately prior to the effective date of such Change in Control, the total Optioned Shares not previously vested shall thereupon immediately become vested and this Stock Option shall become fully exercisable, if not previously so exercisable.

 

     

 

  

4.           Term; Forfeiture .

 

a.           Except as otherwise provided in this Agreement, to the extent the unexercised portion of the Stock Option relates to Optioned Shares which are not vested on the date of the Participant’s Termination of Service, the Stock Option will be terminated on that date. The unexercised portion of the Stock Option that relates to Optioned Shares which are vested will terminate at the first of the following to occur:

 

i.            5 p.m. on the date the Option Period terminates;

 

ii.         5 p.m. on the date which is twelve (12) months following the date of the Participant’s Termination of Service due to death or Total and Permanent Disability;

 

iii.         immediately upon the Participant’s Termination of Service by the Company for Cause (as defined herein);

 

iv.         5 p.m. on the date which is three (3) months following the date of the Participant’s Termination of Service for any reason not otherwise specified in this Section 4.a. ; and

 

v.           5 p.m. on the date the Company causes any portion of the Stock Option to be forfeited pursuant to Section 7 hereof.

 

b.           For purposes of this Agreement, “ Cause ” means the Participant’s Termination of Service by the Company because of: (i) the Participant’s conviction of, or plea of nolo contendere to, a felony or crime involving moral turpitude; (ii) the Participant’s personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses) or breach of fiduciary duty which involves personal profit; (iii) the Participant’s commission of material mismanagement in the conduct of the Participant’s duties as assigned to him or her by the Board or the Participant’s supervising officer or officers of the Company or any Subsidiary; (iv) the Participant’s willful failure to execute or comply with the policy of the Company or any of its Subsidiaries or the Participant’s stated duties as established by the Board or the Participant’s supervising officer or officers of the Company or any Subsidiary or the Participant’s intentional failure to perform the Participant’s stated duties; or (v) substance abuse or addiction on the part of the Participant. Notwithstanding the foregoing, in the case of any Participant who has entered into an employment agreement with the Company or any Subsidiary that contains the definition of “cause” (or any similar definition), then during the term of such employment agreement the definition contained in such employment agreement shall be the applicable definition of “cause” under the Agreement as to such Participant if such employment agreement expressly so provides.

 

5.           Who May Exercise . Subject to the terms and conditions set forth in Sections 3 and 4 above, during the lifetime of the Participant, the Stock Option may be exercised only by the Participant, or by the Participant’s guardian or personal or legal representative. If the Participant’s Termination of Service is due to his death prior to the dates specified in Section 4.a. hereof, and the Participant has not exercised the Stock Option as to the maximum number of vested Optioned Shares as set forth in Section 3 hereof as of the date of death, the following persons may exercise the exercisable portion of the Stock Option on behalf of the Participant at any time prior to the earliest of the dates specified in Section 4.a. hereof: the personal representative of his estate, or the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the death of the Participant; provided that the Stock Option shall remain subject to the other terms of this Agreement, the Plan, and Applicable Laws, rules, and regulations.

 

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6.           No Fractional Shares . The Stock Option may be exercised only with respect to full shares, and no fractional share of stock shall be issued.

 

7.           Manner of Exercise . Subject to such administrative regulations as the Committee may from time to time adopt, the Stock Option may be exercised by the delivery of written notice to the Committee (the “ Exercise Notice ”) setting forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised, the date of exercise thereof (the “ Exercise Date ”), and whether the Optioned Shares to be exercised will be considered as deemed granted under an Incentive Stock Option as provided in Section 11 . On the Exercise Date, the Participant shall deliver to the Company consideration with a value equal to the total Option Price of the shares to be purchased, payable as follows: (a) cash, check, bank draft, or money order payable to the order of the Company, (b) if the Company, in its sole discretion, so consents in writing, Common Stock (including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair Market Value on the Exercise Date, (c) if the Company, in its sole discretion, so consents in writing, by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option equal to the number of shares of Restricted Stock used as consideration therefor shall be subject to the same restrictions and provisions as the Restricted Stock so tendered.

 

Upon payment of all amounts due from the Participant, the Company shall cause the Common Stock then being purchased to be registered in the Participant’s name (or the person exercising the Participant’s Stock Option in the event of his death), but shall not issue certificates for such Common Stock unless the Participant or such other person requests delivery of certificates for such Common Stock in accordance with Section 8.3(c) of the Plan. The obligation of the Company to register shares of Common Stock shall, however, be subject to the condition that, if at any time the Company shall determine in its discretion that the listing, registration, or qualification of the Stock Option or the Common Stock upon any securities exchange or inter-dealer quotation system or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, then the Stock Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the Committee.

 

If the Participant fails to pay for any of the Optioned Shares specified in such notice within three (3) business days of the date in the Exercise Notice or fails to accept delivery thereof, then the Exercise Notice shall be null and void and the Company will have no obligation to deliver any shares of Common Stock to the Participant in connection with such Exercise Notice.

 

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8.            Nonassignability . The Stock Option is not assignable or transferable by the Participant except by will or by the laws of descent and distribution.

 

9.            Rights as Stockholder . The Participant will have no rights as a stockholder with respect to any of the Optioned Shares until the registration of such shares in the Participant’s name. The Optioned Shares shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. The Participant, by his or her execution of this Agreement, agrees to execute any documents requested by the Company in connection with the issuance of the shares of Common Stock.

 

10.          Adjustment of Number of Optioned Shares and Related Matters . The number of shares of Common Stock covered by the Stock Option, and the Option Prices thereof, shall be subject to adjustment in accordance with Articles 11 – 13 of the Plan.

 

11.          Incentive Stock Option . Subject to the provisions of the Plan, the Stock Option is intended to be an Incentive Stock Option. To the extent the number of Optioned Shares exceeds the limit set forth in Section 6.3 of the Plan, such Optioned Shares shall be deemed granted pursuant to a Nonqualified Stock Option. Unless otherwise indicated by the Participant in the notice of exercise pursuant to Section 7 , upon any exercise of this Stock Option, the number of exercised Optioned Shares that shall be deemed to be exercised pursuant to an Incentive Stock Option shall equal the total number of Optioned Shares so exercised multiplied by a fraction, (i) the numerator of which is the number of unexercised Optioned Shares that could then be exercised pursuant to an Incentive Stock Option, and (ii) the denominator of which is the then total number of unexercised Optioned Shares.

 

12.          Disqualifying Disposition . In the event that Common Stock acquired upon exercise of this Stock Option is disposed of by the Participant in a “Disqualifying Disposition,” such Participant shall notify the Company in writing within thirty (30) days after such disposition of the date and terms of such disposition. For purposes hereof, “ Disqualifying Disposition ” shall mean a disposition of Common Stock that is acquired upon the exercise of this Stock Option (and that is not deemed granted pursuant to a Nonqualified Stock Option under Section 11 ) prior to the expiration of either two (2) years from the Date of Grant of this Stock Option or one (1) year from the transfer of shares to the Participant pursuant to the exercise of the Stock Option.

 

13.          Voting . The Participant, as record holder of some or all of the Optioned Shares following exercise of this Stock Option, has the exclusive right to vote, or consent with respect to, such Optioned Shares until such time as the Optioned Shares are transferred in accordance with this Agreement; provided , however , that this Section shall not create any voting right where the holders of such Optioned Shares otherwise have no such right.

 

14.          Specific Performance . The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.

 

15.          Participant’s Representations . Notwithstanding any of the provisions hereof, the Participant hereby agrees that he will not exercise the Stock Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company shall be final, binding, and conclusive. The obligations of the Company and the rights of the Participant are subject to all Applicable Laws, rules, and regulations. The Participant agrees and covenants not to sue any Person other than the Company over any Claims.

 

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16.          Investment Representation . Unless the shares of Common Stock are issued to the Participant in a transaction registered under applicable federal and state securities laws, by his execution hereof, the Participant represents and warrants to the Company that all Common Stock which may be purchased hereunder will be acquired by the Participant for investment purposes for his own account and not with any intent for resale or distribution in violation of federal or state securities laws. Unless the Common Stock is issued to him in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently registered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and substance satisfactory to the Company and its counsel, that such registration is not required.

 

17.          Participant’s Acknowledgments . The Participant acknowledges that a copy of the Plan has been made available for his or her review by the Company, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Stock Option subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

 

18.          Law Governing . This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation of this Agreement to the laws of another state).

 

19.          No Right to Continue Employment . Nothing herein shall be construed to confer upon the Participant the right to continue in the employment of the Company or interfere with or restrict in any way the right of the Company to discharge the Participant at any time (subject to any contract rights of the Participant).

 

20.          Legal Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.

 

21.          Covenants and Agreements as Independent Agreements . Each of the covenants and agreements that is set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

 

22.          Entire Agreement . This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

 

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23.          Parties Bound . The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.

 

24.          Modification . No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

 

25.          Headings . The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.

 

26.          Gender and Number . Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

 

27.          Notice . Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company or by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:

 

a. Notice to the Company shall be addressed and delivered as follows:

 

PhaseRx, Inc.

410 W. Harrison Street, Suite 300

Seattle, WA 98119

Attn:__________________________

Facsimile:______________________

 

b. Notice to the Participant shall be addressed and delivered as set forth on the signature page.

 

28.          Tax Requirements . The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 28 , the term “ Company ” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any federal, state, local, or other taxes required by law to be withheld in connection with this Award. The Company may, in its sole discretion, also require the Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award. Such payments shall be required to be made when requested by the Company and may be required to be made prior to the delivery of any certificate representing shares of Common Stock. Such payment may be made by (i) the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the exercising Participant to the Company of shares of Common Stock, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the exercise of the Stock Option, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.

 

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29.          Clawback . The Participant acknowledges and agrees that any compensation paid to the Participant by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with the Company’s clawback policy applicable to employees of the Company, if any, as amended from time to time.

 

* * * * * * * *

 

[ Remainder of Page Intentionally Left Blank

Signature Page Follows .]

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

 

  PHASERX:  
     
     
     
  By:  
  Name:  
  Title:  
   
  PARTICIPANT:
   
   
  Signature
     
  Name:  
  Address:  
     

 

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Exhibit 10.20

 

August 17, 2009

 

PhaseRx, Inc.

454 N 34 th St

Seattle WA 98103

 

 

Robert W. Overell, Ph.D.

1854 NW 195th St #302

Shoreline, WA 98177

Dear Bob:

 

We are delighted to extend to you an offer to amend the existing terms of your employment with PhaseRx, Inc. (the “ Company ”). If accepted, the following terms shall constitute your amended and restated employment offer letter agreement with the Company (the “Agreement ”) and shall amend and restate the terms of your employment offer letter agreement dated as of February 21, 2008.

 

1. EMPLOYMENT.

 

1.1 Term. The term of this Agreement shall begin on August 17, 2009 (the “ Effective Date ”) and shall continue until terminated in accordance with Section 4 hereof.

 

1.2 Title. In addition to your current title of President of the Company, you shall have the title of Chief Executive Officer (“ CEO ”). In your capacities as President and CEO, you shall report to the Board of Directors of the Company (the “ Board ”). You will also continue to serve on the Board. Subject to acceptance by the Board of such resignation, you also hereby agree to resign from the Board at such time as your service as President and CEO of the Company terminates, at which time you shall be granted Board observer status.

 

1.3 Duties. You shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Company and that are normally associated with the positions of President and CEO, consistent with the bylaws of the Company.

 

1.4 Location. Unless otherwise agreed in writing, you shall perform services pursuant to this Agreement at the Company’s offices located in Seattle, Washington; provided, however, that the Company may from time to time require you to travel temporarily to other locations in connection with the Company’s business.

 

2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.

 

2.1 Loyalty. During your employment by the Company you shall devote your full business energies, interest, abilities and productive time to the proper and efficient performance of your duties under this Agreement, it being recognized that should you reduce your time allocation to the company to 80% or less time, the balance of your business time may be allocated to other activities, providing they do not conflict with other terms of this Agreement

 

 

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 1 of 11

 

 

 

2.2 Covenant not to Compete. Except with the prior written consent of the Board, you shall not, while employed by the Company, engage in competition with the Company and/or any of its affiliates, subsidiaries or joint ventures currently existing or which may be established during your employment by the Company (collectively, “ Affiliates ”) either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services that are in the same field of use or that otherwise compete with the products or services or proposed products or services of the Company and/or any of its Affiliates.

 

2.3 Agreement not to Compete. During your employment by the Company, you agree not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by you to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates; provided, however, that (i) investments by you, directly or indirectly, in Frazier Healthcare III, IV and V, L.P. shall in no event be deemed to have breached Section 2.2 of this Agreement, this Section 2.3 or any provision of the At-Will Employment Agreement (as hereinafter defined); provided, further, that the activities of Foundation BioVentures LLC shall not be deemed to have breached Section 2.2 of this Agreement, this Section 2.3 or any provision of the At-Will Employment Agreement unless such activities directly relate to the delivery of siRNA or the intracellular delivery of other molecules. Ownership by you, as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on a quotation system similar to the Nasdaq National Market prior to its becoming a national securities exchange or in the over-the-counter market, will not constitute a breach of this paragraph.

 

In addition, for one (1) year after termination of this agreement, you will not (i) serve as an advisor, agent, consultant, director, employee, officer, partner, proprietor or otherwise of, (ii) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended) or (iii) participate in the organization, financing, operation, management or control of, any business that is in competition with the Company’s business of using membrane disruptive non-natural polymers to facilitate the intracellular delivery of (i) siRNA, (ii) therapeutics, (iii) reagents or (iv) diagnostics. This provision shall terminate 12 months after a Change of Control (as defined below).

 

3. COMPENSATION.

 

3.1 Base Salary. You will earn a base salary (“ Base Salary ”) of $275,000 per year, less payroll deductions and all required withholdings, which Base Salary will accrue beginning on the Effective Date and be paid semi-monthly in accordance with the Company's normal payroll procedures. If your time allocation to the Company is less than 100%, your compensation shall be reduced on a pro-rata basis.

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 2 of 11

 

 

 

3.4 Employment Taxes. All of your compensation will be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company.

 

3.5 Vacation; Benefits. You will accrue twenty (20) days of vacation per year, in accordance with the Company’s vacation policy, at the rate of one and two-thirds (1 2/3 rds ) days per month beginning on the one-month anniversary of the Effective Date. Up to thirty (30) days of accrued but unused vacation may be carried over from one year to the next. In addition, you will, in accordance with Company policy and the terms of the applicable plan documents, be eligible to participate in Company employee benefit plans or arrangements which may be in effect from time to time, and made available to the Company’s executive management including medical, healthcare, dental and vision benefit plans. The Company will also provide parking in the vicinity of the Company’s offices. You should note that the Company may modify benefits from time to time as it deems necessary.

 

3.6 Bonus and Equity Compensation. You shall be entitled to receive the compensation set forth on Exhibit A hereto as additional consideration for the expanded responsibilities that you are undertaking pursuant to this Agreement.

 

4. TERMINATION.

 

4.1 Termination by the Company. Notwithstanding any other provision of this Agreement, you shall be an at-will employee. This means that the Company may terminate your employment under this Agreement at any time, for any reason or for no reason, with or without cause, upon thirty (30) days advance written notice to you. Upon termination of your employment by the Company with Cause (as defined below), the Company shall pay the amount of any earned but unpaid Base Salary and accrued but unused vacation benefits, in each case through the date of termination at the applicable rate in effect at the time of termination, less standard deductions and withholdings, and the Company shall thereafter have no further obligations to you under this Agreement. For purposes of this Agreement, “ Cause ” shall mean: (i) an act of dishonesty made by you in connection with your responsibilities as an employee that results in material harm to the Company, (ii) your conviction of, or plea of nolo contendere to, a felony, (iii) your gross misconduct that results in material harm to the Company or (iv) your continued substantial violations of your employment duties after you have received a written demand for performance from the Company that specifically sets forth the factual basis for the Company's belief that you have not substantially performed your duties. Upon termination of your employment by the Company, or any successor entity, without Cause (other than as a result of your death or disability), you will receive, subject to you executing and not revoking a reasonable and customary separation agreement in a form agreeable to the Company, six (6) months’ of your then applicable Base Salary and healthcare benefits, which amount shall be paid in a lump sum payment within thirty (30) days of such termination without Cause.

 

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 3 of 11

 

 

 

4.2 Termination by You. You may resign your employment at any time upon thirty (30) days advance written notice to the Company, delivered to the Board. Upon any resignation by you that is without Good Reason (as defined below), the Company shall only be required to pay you the amount of your Base Salary (if any) and accrued but unused vacation through the date which is the later of: (a) thirty (30) days after such notice is delivered to the Board or (b) the date which the Company, in its sole discretion, determines as the final day of employment, and you shall not be entitled to any other benefit or compensation and the Company will have no further obligations to you under this Agreement. You will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a cure period of thirty (30) days following the date of such notice. Upon a resignation for Good Reason, you will receive, subject to you executing and not revoking a reasonable and customary separation agreement in a form agreeable to the Company, six (6) months’ of your then applicable Base Salary and healthcare benefits, which amount shall be paid in a lump sum payment within thirty (30) days of such resignation for Good Reason (as defined below).

 

For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following events effected without your prior written consent: (i) the assignment to you of any duties or the reduction of your duties, either of which results in a material diminution in your position or responsibilities with the Company; provided that, it being understood that the continuance of your duties and responsibilities at the same level of responsibility as in effect immediately prior to a Change of Control at the subsidiary or divisional level following a Change of Control, rather than at the parent, combined or surviving company level following such Change of Control shall not be deemed Good Reason within the meaning of this clause (i); (ii) a material reduction by the Company in your Base Salary; (iii) a material change in the geographic location at which you must perform services (for purposes of this Agreement, your relocation to a facility or a location less than 30 miles from your then-present location shall not be considered a material change in geographic location); or (iv) any material breach by the Company of any material provision of this Agreement.

 

For purposes of this Agreement, a “ Change of Control ” means either (1) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Company), unless the Company’s stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or (2) a sale of all or substantially all of the assets of the Company.

 

4.3 Termination by Mutual Agreement of the Parties. Your employment pursuant to this Agreement may be terminated at any time upon mutual agreement, in writing. Any such termination of employment will have the consequences specified in such writing.

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 4 of 11

 

 

 

4.5 Section 409A. Notwithstanding anything to the contrary in this Agreement, if you are a “specified employee” within the meaning of Section 409A of the Code and any final regulations and guidance promulgated thereunder (“Section 409A”) at the time of your “separation from service” (as defined under Section 409A), then only that portion of the severance and benefits payable to you pursuant to this Agreement (other than due to death), if any, and any other severance payments or separation benefits which may be considered deferred compensation under Section 409A (together, the “Deferred Compensation Separation Benefits”), which (when considered together) do not exceed the Section 409A Limit (as defined below) may be made within the first six (6) months following your separation from service in accordance with the payment schedule applicable to each payment or benefit. Any portion of the Deferred Compensation Separation Benefits in excess of the Section 409A Limit otherwise due to you on or within the six (6) month period following your separation from service will accrue during such six (6) month period and will become payable in a lump sum payment on the date six (6) months and one (1) day following the date of your separation from service or the date of your death if earlier. All subsequent Deferred Compensation Separation Benefits, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit. The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. You and the Company agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to you under Section 409A.

 

For purposes of this Agreement, “ Section 409A Limit ” will mean the lesser of two (2) times: (i) your annualized compensation based upon the annual rate of pay paid to you during the Company’s taxable year preceding the Company’s taxable year of your separation from service, as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which your employment is terminated.

 

5. CONFIDENTIAL AND PROPRIETARY INFORMATION; NONSOLICITATION.

 

5.1 As a condition of your continued employment you agree to abide by the At-Will Employment Agreement that you executed at the commencement of your tenure as President of the Company (the “ At-Will Employment Agreement ”).

 

5.2 While employed by the Company and for one (1) year thereafter, you agree that in order to protect the Company’s trade secrets and confidential and proprietary information from unauthorized use, you shall not, either directly or through others, solicit or attempt to solicit or hire or attempt to hire any employee of the Company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or business entity.

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 5 of 11

 

 

 

6. Confidentiality of Terms . You agree to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement to any person, including other employees of the Company; provided, however, you may discuss such terms with members of your immediate family and any legal, tax or accounting specialists who provide you with individual legal, tax or accounting advice.

 

7. ASSIGNMENT AND BINDING EFFECT.

 

This Agreement shall be binding upon and inure to the benefit of you and your heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of your duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by you. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.

 

8. CHOICE OF LAW.

 

This Agreement shall be construed and interpreted in accordance with the internal laws of the State of Washington.

 

9. ENTIRE AGREEMENT.

 

This Agreement, the Restricted Stock Purchase Agreement between Foundation BioVentures LLC and the Company, as amended (the “ RSPA ”), and any surviving terms of your prior consulting agreement with the Company, as amended, set forth the entire agreement and understanding between you and the Company relating to the terms and conditions of your employment and the termination of your employment, and supersede all prior and contemporaneous oral and written employment agreements or arrangements between the parties hereto. To the extent this Agreement conflicts with the At-Will Employment Agreement, this Agreement controls.

 

10. AMENDMENT.

 

This Agreement cannot be amended or modified except by a written agreement signed by you and the Chairman of the Company.

 

11. WAIVER.

 

No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.

 

12. SEVERABILITY.

 

The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term or provision.

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 6 of 11

 

 

 

13. INTERPRETATION; CONSTRUCTION.

 

The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but you have been encouraged to consult with, and have consulted with, your own independent counsel and tax advisors with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

 

14. REPRESENTATIONS AND WARRANTIES.

 

You represent and warrant that you are not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that your execution and performance of this Agreement will not violate or breach any other agreements between you and any other person or entity.

 

15. COUNTERPARTS.

 

This Agreement may be executed in two counterparts, each of which shall be deemed an original and all of which together shall contribute one and the same instrument.

 

16. DISPUTE RESOLUTION.

 

In the event of any dispute or controversy relating to or arising out of your employment relationship with the Company, you and the Company agree that any and all disputes between you and the Company shall be fully and finally resolved by binding arbitration to be held in King County, Washington, in accordance with the employment dispute rules then in effect of the American Arbitration Association. Each of you and the Company agree to pay one-half of the costs and expenses of such arbitration, and that each of you and the Company will separately pay your respective counsel fees and expenses.

 

17. ELIGIBILITY.

 

As required by law, this offer and Agreement is subject to satisfactory proof of your right to work in the United States.

 

18. S urvival of Certain Provisions

 

The second paragraph of Section 2.3 and Sections 5, 8, 10, 11, 12 and 16 shall survive the termination of this Agreement.

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 7 of 11

 

 

 

If you accept employment on the terms described above, please sign and date this letter in the space provided below and return it to me no later than 5:00 p.m. PT on August 20, 2009. After such date this offer shall lapse.

 

I look forward to your favorable reply and to the continuation of a productive and enjoyable working relationship.

 

 

 

[ Signature Page Follows ]

 

 

 

 

 

 

 

Overell Final Offer Letter   PhaseRx, Inc Confidential   Page 8 of 11

 

 

 

 

Sincerely,

 

PhaseRx, Inc.

 

 

  /s/ Steven Gillis _____________________________

Steven Gillis, Ph.D.

Chairman

 

 

Agreed and Accepted:

 

 

  /s/ Robert W. Overell ________________________

Robert W. Overell, Ph.D.

 

Dated: ___ Aug 19, 2009 _______________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[ Signature Page to Amended and Restated Offer Letter Agreement ]

 

 

  PhaseRx, Inc .   Page 9 of 11

 

 

 

Exhibit A

 

I. Bonus Eligibility

 

If (i) the Company meets certain annual corporate objectives, to be defined by the Board of Directors in its sole discretion (the “ Corporate Objectives ”), and (ii) the Board, in its sole discretion, determines that the Corporate Objectives have been met during an applicable period, then you will be entitled to receive a cash bonus payment equal in value to up to 25% of your annual salary; provided, however, that the Board of Directors, in its sole discretion, may grant you options to purchase shares of the Company’s Common Stock in lieu of up to one-half of any such cash bonus payment otherwise payable to you, which options shall vest in each case on terms substantially similar to those set forth below under the heading “Initial Grant;” provided, further, that the vesting commencement date of any such option grant shall be the date on which the applicable Corporate Objectives were met, as determined by the Board in its sole discretion.

 

II. Equity Compensation

 

A. Initial Grant

 

At the first meeting of the Board of Directors following the Effective Date, the Company will recommend that the Board grant you an option to purchase 687,501 shares of the Company’s Common Stock (the “ Option ”). The Option will be subject to the terms of the Company’s 2006 Stock Plan, as it may amended from time to time (the “ Plan ”), and a stock option agreement to be entered into between you and the Company. One forty-eighth (1/48 th ) of the shares subject to the Option shall vest on the one-month anniversary of the date of this Agreement and each month thereafter on the same day of the month (and if there is no such day in a given month, on the last day of that month), subject in each instance to your continuous status as a Service Provider (as defined in the Plan) through each such date, until 100% of the shares subject to the Option are fully vested and exercisable on the fourth anniversary of the date of this Agreement; provided that 50% of any then unvested shares subject to the Option shall immediately vest and become exercisable immediately prior to a Change of Control; provided further that 100% of any then unvested shares subject to the Option shall immediately vest and become exercisable in the event that your employment is terminated either (a) by the Company without Cause at any time less than three (3) months prior to or within eighteen (18) months after a Change of Control or (b) by you for Good Reason at any time less than three (3) months prior to or within eighteen (18) months after a Change of Control. The acceleration terms of the Option are referred to below as the “ Acceleration Terms .”

 

B. Amendment to RSPA Vesting

 

The Company will use its best efforts to amend the terms of the RSPA to provide for acceleration upon the termination of the Purchaser’s status as a Service Provider (as “Purchaser” and “Service Provider” are defined in the RSPA) on substantially the same terms as the Acceleration Terms.

 

 

  PhaseRx, Inc .   Page 10 of 11

 

 

 

C. Bonus Eligibility upon Acquisition

 

If the Company is sold in an acquisition generating at least $150 million in gross proceeds to the Company prior to the consummation of an Equity Financing (as defined below) (an “ Acquisition ”), the Company will use its best efforts to provide you with consideration equivalent to the consideration, if any, payable in connection with such Acquisition to a holder of shares of the Company’s Common Stock equal to one percent (1%) of the Company’s fully diluted share capital immediately prior to the closing of such Acquisition (which, for the avoidance of doubt, shall include all then outstanding shares of capital stock of the Company and rights to acquire capital stock of the Company), subject to the terms of any definitive agreements entered into in connection with such Acquisition, including without limitation escrow and holdback provisions, if any. An “ Equity Financing ” shall mean a transaction or series of related transactions occurring on or after September 1, 2009 pursuant to which the Company issues and sells shares of its Preferred Stock for the principal purpose of raising capital.

 

Any equity grant issued by the Board of Directors at the Company’s recommendation pursuant to this Agreement shall have an exercise price equal to the fair market value of the Company’s Common Stock, as determined in good faith by the Board on the date of such equity grant.

 

 

  PhaseRx, Inc .   Page 11 of 11

 

 

Exhibit 10.21

 

 

 

December 17, 2013

 

Michael Houston, Ph.D.

22626 NE Inglewood Hill Road

Sammamish, WA 98074

 

Dear Mike,

 

PhaseRx Inc. is pleased to extend the following offer to you for the position of Vice President, Therapeutics Development at PhaseRx, Inc., (the “Company”) reporting directly to me. Your start date will be January 1, 2013.

 

Your starting salary will be $100,000 annually, paid semi monthly ($4,166.66), less all legally required withholdings. This position is classified as exempt. You will be eligible to receive a performance evaluation for the review cycle ending December 31, 2014, at which time your compensation will be reviewed.

 

Subject to approval by the Company’s Board of Directors, you will be granted an option to purchase 300,000 shares of the Company’s Common Stock at an exercise price equal to the fair market value per share of the Common Stock on the date the Board of Directors approves the option grant. The shares will vest over a four year period with vesting commencing the first anniversary of your employment.

 

Your compensation includes participation in all benefits offered generally to PhaseRx employees. Benefits currently offered include medical, dental, vision insurance, an employee assistance and resource & referral services program (EAP) for you and eligible family members; company paid life and accidental death & dismemberment insurance, company paid short and long term disability insurance, a transportation benefit which provides a bus pass or subsidized parking with a bus pass for occasional use, and participation in a 401k retirement savings plan. Effective on your date of hire, you will begin accruing vacation and sick leave each pay period up to a maximum of 15 days vacation and 10 days sick leave, per year. In addition, employees receive 12 paid holidays annually, including a paid holiday break from December 26 - December 31.

 

Our policies and practices, including the compensation and benefits we provide, are subject to changes and exceptions without prior notice, at the Company’s discretion.

 

This offer is contingent upon your ability to provide to the Company documentary evidence of your identity and eligibility for employment in the United States in accordance with immigration regulations relating to employment eligibility. Such documentation must be provided within 3

business days of the effective date of your employment, or your employment relationship with the Company may be terminated.

 

 

 

 

 

 

 

The company reserves the right to conduct background investigations and/or reference checks on all its potential employees. Your job offer is therefore contingent upon a clearance of such a background investigation and/or reference check.

 

Please note that acceptance of this offer does not create a contract of continuing employment with PhaseRx. Employment with the company is on an at-will basis, meaning that the employee or the company may terminate the employment relationship at any time and for any reason not expressly prohibited by law.

 

As a condition of this offer of employment, you will be required to complete, sign and return the

Company’s standard form of At-Will Employee Agreement (the “Employee Agreement”), which is attached hereto. Please sign and return this agreement on your first day of employment.

 

This offer letter and the Employee Agreement, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements whether written or oral. In the event of a conflict between the terms and provisions of this offer letter and the Employee Agreement, the terms and provisions of the Employee Agreement will control. Any amendment of this offer letter or any waiver of a right under this offer letter must be in writing, signed by you and an officer of the Company. Washington law will govern this offer letter.

 

If you are in agreement with these terms please sign two copies of this letter and return one to me by December 19, 2013 to acknowledge your acceptance.

 

I am very excited about the prospect of welcoming you to the PhaseRx team and I am confident that you will be able to significantly contribute to the success of our company.

 

Sincerely,

 

/s/ Robert W. Overell

 

Robert W. Overell, Ph.D.

President and CEO

 

 

/s/ Michael Houston   12/17/13  
Michael Houston, Ph.D   Date  

 

 

 

 

 

 

Exhibit 10.22

 

 

 

August 15, 2014

 


Michael Houston, Ph.D.
22626 NE Inglewood Hill Road
Sammamish, WA 98074

 

RE: Amendment to Employment Offer Letter Agreement

 

Dear Mike:

 

Reference is made in this letter (this “ Letter ”) to the employment offer letter agreement entered into by you and PhaseRx Inc., a Delaware corporation (the “ Company ”), dated as of December 17, 2013 (the “ Agreement ”).

 

By signing below, you and the Company each acknowledge and agree that the Agreement shall be amended by adding the following provisions. All capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement.

 

1. If the Company terminates your employment without Cause or if you terminate your employment for Good Reason, the Company will pay you all earned but unpaid Base Salary (defined below), accrued but unused vacation benefits, and any annual bonus earned in the prior calendar year that remains unpaid at the time of termination, plus severance pay equal to six months of your Base Salary at the time of termination (“ Base Salary ”), less standard deductions and withholdings. The parties acknowledge that your base salary as of the date of this Letter is $200,000.00 per year, payable semi-monthly in installments of $8,333.33, less payroll deductions and required withholdings. The severance pay described in this paragraph is expressly contingent upon your signing (and not revoking) a full release in a form acceptable to the Company within 30 days of your termination (the “ Release Deadline ”) and is further contingent upon your full and continued compliance with the terms of your At-Will Agreement (as defined below). Severance payments shall begin once your release is effective and shall be paid to you in equal semi-monthly installments during the 6-month period immediately following the date on which your employment was terminated without Cause or with Good Reason; provided, however that to the extent your severance payments are determined to be subject to Code Section 409A (as defined in Section 2 below), any such severance payments shall commence on the Release Deadline, subject to Section 2; provided further that, to the extent your severance payments are determined to not be subject to Code Section 409A, the Company shall retain the discretion to pay such severance payments to you in one or more payments on a payment schedule accelerated from the payment schedule set forth above. Each such installment payment shall be treated as a separate payment for purposes of Code Section 409A.

 

 

 

 

 

2. With respect to any payments or benefits hereunder that are subject to Code Section 409A and any official guidance and regulations issued thereunder (together “ Code Section 409A ”) and that are payable on account of your termination of employment, such payments shall only be made if such termination of employment constitutes a “separation from service” within the meaning of Code Section 409A. Notwithstanding anything to the contrary contained in this Agreement, all reimbursements for costs and expenses under this Agreement will be paid in no event later than the end of the calendar year following the calendar year in which you incur such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (a) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (b) the amount of expenses eligible for reimbursements or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year.

 

The Company makes no representations or warranties to you with respect to any tax, economic or legal consequences of this Agreement or any payments or other benefits provided hereunder, including without limitation under Code Section 409A, and no provision of the Agreement shall be interpreted or construed to transfer any liability for failure to comply with Code Section 409A from you or any other individual to the Company or any of its affiliates. By executing this Letter, you shall be deemed to have waived any claim against the Company and its affiliates with respect to any such tax, economic or legal consequences. However, the parties intend that this Agreement and the payments and other benefits provided hereunder be exempt from the requirements of Code Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4), the involuntary separation pay plan exception described in Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise. To the extent Code Section 409A is applicable to this Agreement (and such payments and benefits), the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Code Section 409A and any ambiguous terms and any ambiguities herein will be interpreted to so comply or be exempt from Code Section 409A. In addition, if you are a “specified employee,” within the meaning of Code Section 409A, then to the extent necessary to avoid subjecting you to the imposition of any additional tax under Code Section 409A, amounts that would otherwise be payable under this Agreement during the six (6) month period immediately following your “separation from service” for reasons other than your death shall not be paid to Executive during such period, but shall instead be accumulated and paid to you in a lump sum on the first business day after the earlier of the date that is six (6) months following your separation from service.

 

3. For purposes of the Agreement, “ Cause ” shall mean: (a) an act of dishonesty, or willful misconduct made by you in connection with your responsibilities under the Agreement that results in material harm to the Company, (b) your conviction of, or plea of nolo contendere to, a felony, (c) any material violation of your material obligations under the Agreement or your At-Will Employee Agreement with the Company (the “ At-Will Agreement ”); or (d) your continued failure to satisfactorily perform your employment duties after you have received a written demand for performance improvement from the Company that specifically sets forth the factual basis for the Company’s belief that you have failed to satisfactorily perform your duties.

 

 

  - 2 -  

 

 

4. For purposes of the Agreement, a “ Change of Control ” means either (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation or stock transfer, but excluding any such transaction effected primarily for the purpose of changing the domicile of the Company), unless the Company’s stockholders of record immediately prior to such transaction or series of related transactions hold, immediately after such transaction or series of related transactions, at least 50% of the voting power of the surviving or acquiring entity (provided that the sale by the Company of its securities for the purposes of raising additional funds shall not constitute a Change of Control hereunder); or (b) a sale of all or substantially all of the assets of the Company.

 

5. For purposes of the Agreement, “ Good Reason ” shall mean the occurrence of one or more of the following events effected without your prior written consent: (a) the assignment to you of any duties or the reduction of your duties, either of which results in a material diminution in your position with the Company; provided that, it being understood that the continuance of your duties at the same level of responsibility as in effect immediately prior to a Change of Control at the subsidiary or divisional level following a Change of Control, rather than at the parent, combined or surviving company level following such Change of Control shall not be deemed Good Reason within the meaning of this clause (a); (b) a material reduction by the Company in your Base Salary; (c) a material change in the geographic location at which you must perform services (for purposes of the Agreement, your relocation to a facility or a location less than 30 miles from your then-present location shall not be considered a material change in geographic location); or (d) any material breach by the Company of any material provision of the Agreement.

 

6. Nothing in this Letter shall alter or amend your “at will” employment at the Company, and either you or the Company is free to terminate your employment relationship at any time with or without advance notice.

 

7. Once signed by you, the Agreement, as amended by this Letter, any equity agreements between you and the Company, the Indemnification Agreement between you and the Company dated February 11, 2014, the At-Will Agreement, and documents related to your participation in the Company’s Management Retention Plan will constitute the complete agreement between you and the Company regarding your employment, and will supersede all prior written or oral agreements or understandings related to your employment. In the event of a conflict between the terms and provisions of the Agreement, as amended by this Letter, and the At-Will Agreement, the terms and provisions of the At-Will Agreement will control.

 

[ Signature page follows. ]

 

 

  - 3 -  

 

 

This letter is effective as of the later date signed below.

 

 

 

  PHASERX INC.
   
   
  By: /s/ Robert Overell
     
  Name: Robert Overell
     
  Title: President & Chief Executive Office
     
  Date: August 15, 2014
     
     
     
  MICHAEL HOUSTON
   
   
  /s/ Michael Houston
   
  Date: August 15, 2014

 

 

 

[ Signature Page to Amendment to Employment Offer Letter Agreement ]

 

 

 

  - 4 -  

 

 

 

Exhibit 10.23

 

 

 

December 21, 2015

 

Helen Tsui

3230 – 37th Ave. S.E.

Mercer Island, WA 98040

 

Dear Helen,

 

PhaseRx Inc. is pleased to extend the following offer to you for the position of Vice President, Finance at PhaseRx, Inc., (the “Company”) reporting directly to me. Your start date will be December 29, 2015.

 

Your starting salary will be $220,000 annually, paid semi monthly ($9,166.67), less all legally required withholdings. This position is classified as exempt. You will be eligible to receive a performance evaluation for the review cycle ending December 31, 2016, at which time your compensation will be reviewed.

 

Subject to approval by the Company’s Board of Directors, you will be granted an option to purchase 600,000 shares of the Company’s Common Stock at an exercise price equal to the fair market value per share of the Common Stock on the date the Board of Directors approves the option grant. The shares will vest over a four year period with vesting commencing the first anniversary of your employment. Additionally, you will also have 25% participation in the current management retention plan and be eligible for 6 month's severance (the severance agreement will be sent under separate cover).

 

Your compensation includes participation in all benefits offered generally to PhaseRx employees. Benefits currently offered include medical, dental, vision insurance, an employee assistance and resource & referral services program (EAP) for you and eligible family members; company paid life and accidental death & dismemberment insurance, company paid short and long term disability insurance, a transportation benefit which provides Vice Presidents and above with free parking, and participation in a 401k retirement savings plan. Effective on your date of hire, you will begin accruing vacation and sick leave each pay period up to a maximum of 15 days vacation and 10 days sick leave, per year. In addition, employees receive 12 paid holidays annually, including a paid holiday break from December 26 - December 31.

 

Our policies and practices, including the compensation and benefits we provide, are subject to changes and exceptions without prior notice, at the Company’s discretion.

 

This offer is contingent upon your ability to provide to the Company documentary evidence of your identity and eligibility for employment in the United States in accordance with immigration regulations relating to employment eligibility. Such documentation must be provided within 3 business days of the effective date of your employment, or your employment relationship with the Company may be terminated.

 

 

 

 

 

 

Please note that acceptance of this offer does not create a contract of continuing employment with PhaseRx. Employment with the company is on an at-will basis, meaning that the employee or the company may terminate the employment relationship at any time and for any reason not expressly prohibited by law.

 

As a condition of this offer of employment, you will be required to complete, sign and return the Company’s standard form of At-Will Employee Agreement (the “Employee Agreement”), which is attached hereto. Please sign and return this agreement on your first day of employment.

 

This offer letter and the Employee Agreement, when signed by you, set forth the terms of your employment with the Company and supersede any and all prior representations and agreements whether written or oral. In the event of a conflict between the terms and provisions of this offer letter and the Employee Agreement, the terms and provisions of the Employee Agreement will control. Any amendment of this offer letter or any waiver of a right under this offer letter must be in writing, signed by you and an officer of the Company. Washington law will govern this offer letter.

 

If you are in agreement with these terms please sign two copies of this letter and return one to me by Thursday, December 24, 2015 to acknowledge your acceptance.

 

I am very excited about prospect of welcoming you to the PhaseRx team and I am confident that you will be able to significantly contribute to the success of our company.

 

Sincerely,

 

/s/ Robert W. Overell

 

Robert W. Overell, Ph.D.

President and CEO

 

/s/ Helen Tsui   12/22/2015  
Helen Tsui   Date  

 

 

 

Exhibit 10.24

 

PHASERX, INC.

CONSULTING AGREEMENT

 

This Consulting Agreement (“ Agreement ”) is entered into as of July 2, 2013 (the “ Effective Date ”) between PhaseRx, Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (“ Company ”) and Paul H. Johnson, Ph.D., having a place of business at 12020 211 th Place SE Snohomish, Washington 98296 (“ Consultant ”) . Company desires to retain Consultant to perform certain consulting activities as described below, and Consultant desires to serve as a consultant to Company and perform such activities under the terms of this Agreement.

 

RECITALS

 

A.           Consultant was employed as Company’s Chief Scientific Officer until July 2, 2013, on which date Consultant’s employment status with the Company was terminated.

 

B.           Company and Consultant desire that Consultant provide certain services to the Company on a part-time basis as set forth herein, such that Consultant’s status as a Service Provider (as defined in the Company’s 2006 Stock Plan) is uninterrupted by the termination of Consultant’s status as an employee of the Company.

 

NOW, THEREFORE, in consideration of the foregoing premises and other consideration as described herein, Consultant and Company agree as follows:

 

1.           SERVICES AND COMPENSATION

 

(a)                     Consultant agrees to act as a consultant to Company with respect to such matters and projects as are mutually agreed from time to time by and between Consultant and Company, and perform the services described on Exhibit A hereto (collectively, “ Services ”) . Consultant shall hold the title of Chief Scientific Officer. Unless otherwise approved by the Company, all Services shall be performed personally by Dr. Paul H. Johnson.

 

(b)                     Consultant and Company agree that this Agreement replaces and supersedes Consultant’s Amended and Restated Offer Letter with the Company dated October 6, 2009, which is terminated in its entirety; with the exception that section 2.3 of such offer letter shall survive such termination;

 

(c)                     Company agrees to pay Consultant the compensation set forth in Exhibit A hereto for the performance of the Services.

 

2.           CONFIDENTIALITY AND NONCOMPETITION

 

(a)                     “ Confidential Information ” means any proprietary information technical data, trade secrets or know-how, including, but not limited to, research and product plans, products, services, markets, developments, inventions, processes, formulas, technology, marketing, finances or other business information developed or disclosed to Consultant by Company in writing, orally or otherwise, during his tenure as an employee of the Company or as a Consultant. Confidential Information also includes all Inventions (as defined below) and any other information or materials generated in connection with the Services.

 

 

 

 

(b)                    Consultant shall not, during or subsequent to the term of this Agreement, use any Confidential Information for any purpose whatsoever other than the performance of the Services on behalf of Company, or, during the term of this agreement or for a three year period following the termination of this agreement disclose Confidential Information to any third party. Consultant agrees that Confidential Information shall remain the sole property of Company. Consultant further agrees to take all reasonable precautions to prevent any unauthorized disclosure or use of Confidential Information. In the event Consultant is required to disclose Confidential Information pursuant to the order or requirement of a court, administrative agency, or other governmental body, Consultant may disclose such Confidential Information, provided that to the extent possible Consultant shall provide Company with reasonable advance notice thereof to enable Company to seek a protective order to prevent or limit such disclosure.

 

(c)                     Notwithstanding the above, Consultant’s obligation under Section 2(b) relating to Confidential Information shall not apply to information which (i) is known to Consultant at the time of disclosure to Consultant by Company as evidenced by written records of Consultant, (ii) has become publicly known and made generally available through no wrongful act of Consultant, or (iii) has been rightfully received by Consultant from a third party authorized to make such disclosure. Specific Confidential Information shall not be deemed to be within any of the foregoing exclusions merely because it is within the scope of more general information within one or more of the exclusions. Further, any combination of Confidential Information with non-confidential information shall not be deemed to be within the exceptions merely because one or more individual items of Confidential Information are within the above exceptions.

 

(d)                     Consultant agrees that Consultant will not, during the term of this Agreement, improperly use or disclose to Company any proprietary information or trade secrets of any former or current employer or other person or entity to which Consultant has a duty to keep in confidence such information and that Consultant will not bring onto the premises of Company any unpublished document or proprietary information belonging to such employer, person or entity unless consented to in writing by the same.

 

(e)                     Consultant recognizes that Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that Consultant owes Company and such third parties, during the term of this Agreement and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for Company consistent with Company’s agreement with such third party.

 

(f)                     Upon the Company’s request, Consultant will deliver to Company all Confidential Information and Company’s property relating thereto and all tangible embodiments thereof, in Consultant’s possession or control.

 

(g)                     Until the first anniversary of the later of (x) the termination of this Agreement and (y) the date on which Dr. Johnson ceases to be a member of the board of directors, Dr. Johnson shall not directly or indirectly (i) serve as an advisor, agent, consultant, director, employee, officer, partner, proprietor or otherwise of, (ii) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended), or (iii) participate in the organization, financing, operation, management or control of, any business in competition with the Company’s business in the Field of Interest (as defined in Exhibit A hereto). Consultant shall not induce, or attempt to induce, any employee or independent contractor of the Company to cease employment or relationship with the Company.

 

  - 2 -  

 

 

(h)                     Consultant shall cease to be bound by the noncompetition provisions of Section 2(g) if (i) Consultant’s relationship with the Company in his capacity as a consultant is terminated by the Company without Cause (as defined below), or (ii) a period of twelve (12) months has elapsed from a Change of Control.

 

(i) For purposes of this Agreement, “Cause” means:

 

(A)          Consultant’s gross misconduct that results in material financial injury to the Company;

 

(B)          any act of material personal dishonesty or fraud by Consultant in connection with provision of the Services;

 

(C)          Consultant’s conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State; or

 

(D)          any material breach by Consultant of this Agreement, including but not limited to Consultant’s confidentiality obligations pursuant to Section 2.

 

(ii) For the purposes of this Agreement, “Change of Control” means the acquisition by any person, corporation or other entity of (A) beneficial ownership of capital stock of the Company by means of stock purchase, merger or other business combination if, after such acquisition, such person, corporation or other entity owns capital stock of the Company representing 50.0% or more of the combined voting power of the then outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors; provided that for the avoidance of doubt is agreed that any such transaction in connection with a bona fide financing transaction shall not constitute a Change of Control and (B)_all or substantially all of the assets of the Company.

 

3.           OWNERSHIP

 

(a)                     Consultant hereby irrevocably assigns to Company all right, title and interest in and to any information (including, without limitation, business plans and/or business information), technology, know-how, materials, notes, records, designs, ideas, inventions, improvements, devices, developments, discoveries, compositions, trade secrets, processes, methods and/or techniques, whether or not patentable or copyrightable, that relate directly to the business of the Company and are conceived, reduced to practice or made by Consultant alone or jointly with others in the course of performing the Services or through the use of Confidential Information (collectively, “ Inventions ”).

 

(b)                     Consultant agrees to sign, execute and acknowledge or cause to be signed, executed and acknowledged without cost, but at the expense of Company, any and all documents and to perform such acts as may be necessary, useful or convenient for the purposes of perfecting the foregoing assignments and obtaining, enforcing and defending intellectual property rights in any and all countries with respect to Inventions. It is understood and agreed that Company or Company’s designee shall have the sole right, but not the obligation, to prepare, file, prosecute and maintain patent applications and patents worldwide with respect to Inventions.

 

  - 3 -  

 

 

(c)                     Upon Company’s request, Consultant will deliver to Company all property relating to, and all tangible embodiments of, Inventions in Consultant’s possession or control.

 

(d)                     Consultant agrees that if, in the course of performing the Services, Consultant incorporates into any Invention developed hereunder any invention, improvement, development concept, discovery or other proprietary subject matter owned by Consultant or in which Consultant has an interest (“Item”), Consultant will inform Company in writing thereof, and Company is hereby granted and shall have a non-exclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, reproduce, display, use and sell such Item as part of or in connection with the exploitation of such Invention.

 

(e)                     Consultant agrees that if Company is unable because of Consultant’s unavailability, mental or physical incapacity, or for any other reason, to secure Consultant’s signature to apply for or to pursue any application or registration for any intellectual property rights covering any Invention, then Consultant hereby irrevocably designates and appoints Company and its duly authorized officers and agents as Consultant’s agent and attorney-in-fact, to act for and in Consultant’s behalf to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of such intellectual property rights thereon with the same legal force and effect as if executed by Consultant.

 

4.           REPORTS . Consultant agrees, from time to time during the term of this Agreement, to keep Company advised as to Consultant’s progress in performing the Services and, as reasonably requested by Company, prepare written reports with respect thereto. It is understood that the time required in the preparation of such written reports shall be considered time devoted to the performance of the Services by Consultant. AI] such reports prepared by Consultant shall be the sole property of Company.

 

5.           TERM AND TERMINATION

 

(a)                     This Agreement will commence on the Effective Date and will continue until termination as provided below.

 

(b)                     Either Consultant or Company may terminate this Agreement upon prior written notice thereof to the other party at 30 days notice.

 

(c)                     Upon termination of this Agreement, all rights and duties of the parties hereunder shall cease except:

 

(i) Company shall be obliged to pay, within thirty (30) days after receipt of Consultant’s final statement, all amounts owing to Consultant for unpaid Services completed by Consultant and related expenses, if any, in accordance with the provisions of Section 1 hereof, and
(ii) Sections 2, 3, 5(c), 6, 7, 9 and 10 shall survive termination of this Agreement.

 

6.           INDEPENDENT CONTRACTOR . Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative of Company, but Consultant shall perform the Services as an independent contractor. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement.

 

  - 4 -  

 

 

7.           NO DEBARMENT . Consultant represents that Consultant has not been debarred under Section (a) or (b) of 21 U.S.C. Section 335a and does not appear on the United States Food and Drug debarment list. Consultant represents and warrants that Consultant has not committed any crime or conduct that could result in such debarment or Consultant’s exclusion from any governmental healthcare program. Consultant represents that, to Consultant’s knowledge, no investigations, claims or proceedings with respect to any such crimes or conduct are pending or threatened against Consultant. Consultant agrees and undertakes to promptly notify the Company if Consultant becomes debarred or proceedings have been initiated against Consultant with respect to debarment, whether such debarment or initiation of proceedings occurs during or after the term of this Agreement.

 

8.           MANAGEMENT RETENTION PLAN . Pursuant to the PhaseRx, Inc. Management Retention Plan dated December 2, 2011, as amended on December 10, 2012 (the “ Retention Plan ”) and Consultant’s Participation Agreement dated January 26, 2012 (the “ Participation Agreement ”), Consultant shall continue to be a Participant (as defined in the Retention Plan) under the Retention Plan during the period he is providing consulting services pursuant to this Agreement. For the avoidance of doubt, nothing in this Agreement shall be deemed to modify the Retention Plan or Participation Agreement.

 

9.           ARBITRATION AND EOUITABLE RELIEF. Company and Consultant agree that any dispute or controversy arising out of, in relation to, or in connection with this Agreement, or the making, interpretation, construction, performance or breach hereof, shall be finally settled by binding arbitration in King County, Washington under the then current rules of the Judicial Arbitration and Mediation Service (JAMS) by one (1) arbitrator appointed in accordance with said rules. Any such arbitration shall be held in Seattle, Washington. The arbitrator may grant injunctive or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. The arbitrator shall determine what discovery will be permitted, consistent with the goal of limiting the cost and time which the parties must expend for discovery; provided the arbitrator shall permit such discovery as the arbitrator deems necessary to permit an equitable resolution of the dispute. Any written evidence originally in a language other than English shall be submitted in English translation accompanied by the original or a true copy thereof. The costs of the Arbitration, including administrative and arbitrators’ fees, shall be shared equally by the parties, and each party shall bear its own costs and attorneys’ and witness’ fees incurred in connection with the arbitration. Any award may be entered in a court of competent jurisdiction for a judicial recognition of the decision and applicable orders of enforcement.

 

10.          CONFLICTING OBLIGATIONS. Consultant hereby certifies that he has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude Consultant from complying with the provisions hereof, and further certifies that Consultant will not enter into any such conflicting agreement during the term of this Agreement or enter into any arrangement that would result in Consultant provides services of any kind to other companies in the Field of Interest. Consultant shall list on Exhibit B hereto any other companies for whom Consultant is providing services (“Outside Companies”). Neither this Section 10 nor Section 2(g) shall restrict Consultant from consulting for others outside the Field of Interest. Without limiting the foregoing, Consultant agrees to use his best efforts (A) to segregate Consultant’s Services performed under this Agreement from Consultant’s work done for other persons so as to minimize any questions of disclosure of, or rights under, any inventions, (B) to notify the President of the Company if at any time the Consultant believes that such questions may result from his performance under this Agreement and (C) to assist the Company in fairly resolving any questions in this regard which may arise. The Services performed hereunder will not be conducted on time that is required to be devoted to any other third party. The Consultant shall not use the funding, resources and facilities of any other third party, without the prior written consent of the Company, to perform Services hereunder and shall not perform the Services hereunder in any manner that would give any third party rights or access to the product of such Services.

 

  - 5 -  

 

 

11.          GENERAL . This Agreement (including the Exhibits hereto) taken together with the stock option agreement referred to herein is the sole agreement and understanding between Company and Consultant concerning the subject matter hereof, and it supersedes all prior agreements and understandings with respect to such matter. This Agreement (together with the Exhibits hereto) and any Amendments to it may be executed by Consultant and Company in counterparts which, when taken together, will constitute one Agreement. Signed copies exchanged between Consultant and Company by mail, facsimile, or electronically mailed PDF (or similar imaging software) will include visible signatures of all signatories. Copies of this Agreement will be equally binding as originals and faxed or scanned and emailed counterpart signatures will be sufficient to evidence execution, though Company may require Consultant to deliver original signed documents. Such execution and delivery shall be considered valid, binding and effective for all purposes, and no oral amendment shall be binding on the parties. Any required notice shall be given in writing by customary means with receipt confirmed at the address of each party set forth below, or to such other address as either party may substitute by written notice to the other. Consultant shall cause each of its affiliates, employees, managers and members to comply with the terms of this Agreement and shall be responsible for any breach thereof by any such person. Consultant shall not subcontract any portion of Consultant’s duties under this Agreement without the prior written consent of Company. None of this Agreement, any right hereunder or interest herein may be assigned or transferred by Consultant without the express written consent of Company. Company may assign this Agreement to any entity that succeeds to substantially all of the business or assets of Company. This Agreement shall be governed by the laws of the State of Washington, without reference to its conflicts of law principles. This Agreement may only be amended or modified by a writing signed by both parties. Waiver of any term or provision of this Agreement or forbearance to enforce any term or provision by either party shall not constitute a waiver as to any subsequent breach or failure of the same term or provision or a waiver of any other term or provision of this Agreement. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to either Company or Consultant.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

PHASERX, INC.   PAUL H. JOHNSON, PH.D.
         
By:  /s/ Robert W. Overell   By: /s/ Paul H. Johnson
         
Print Name:   Robert W. Overell   Print Name:   Paul H. Johnson, Ph.D.
         
Title: President & CEO      
         
Address: 410 W Harrison St., Suite 300   Address: 12020 211 th Place SE
         
  Seattle, Washington 98119     Snohomish, Washington 98296
         
Date: July 8, 2013   Date: 7-8-13
         
Phone: 206-805-6301   Phone: 425-205-3008
         
FAX:     FAX:  

 

  - 6 -  

 

 

EXHIBIT A

SERVICES AND COMPENSATION

 

1.           Services. Consultant will re n der to Company the following Services. The provisions related to Dr. Johnson’s Services as a member of the board of directors of the Company are being included herein as an administrative convenience. For the avoidance of doubt, nothing in the Agreement shall in any way limit of vitiate Dr. Johnson’s duties and obligations to the Company under applicable law and nothing herein shall be construed as giving to Dr. Johnson a contractual right to serve on the board of directors of the Company.

 

· Board Member: Serve as a member of the Company’s board of directors. Attend up to 6 meetings/year in person Seattle and approximately 6-8 board teleconferences as needed per year.

 

· Consultant: Provide expert consulting services to Company regarding research, development, clinical and business matters relating to: (I) pH sensitive, membrane disruptive polymers for intracellular delivery of molecules; (2) the intracellular delivery of siRNA, miRNA, mRNA, antibodies, proteins, peptides or other macromolecules and (3) the development of siRNA, miRNA, mRNA or intracellular antibodies/proteins for therapeutics, prophylactics, diagnostics, agricultural and reagent applications. (collectively, the “ Field of Interest ”). Consultant shall make himself available to consult with the Company for up to an average of four hours per week over the course of the year.

 

2.           Compensation .

 

Board Member :

 

· An option to purchase 80,000 shares of Common Stock of the Company with an exercise price equal to the fair market value of the Company’s Common Stock as of the date of grant (determined in accordance with the Company’s 2006 Stock Plan. The shares underlying such option will vest linearly and monthly over a four year period commencing on the Effective Date of this Agreement and continuing for as long as Dr. Johnson continues to be a member of the board of directors of the Company, except that (a) in the event of a Change of Control (as defined in 2(h)(ii) of this Agreement) that is consummated when Dr. Johnson a member of the board of directors of the Company, 50% of the then unvested shares underlying such option shall fully vest immediately prior to the consummation of such Change of Control; and (b) if at any time less than three (3) months prior to or within eighteen (18) months after a Change of Control Dr. Johnson is removed from the board of directors for a reason other than Cause (as defined in 2(h)(i) of this Agreement) all then unvested shares underlying such option shall vest immediately prior to the consummation of such Change of Control or upon such termination, as the case may be.

 

· $10,000 in cash per year, paid in equal quarterly installments in arrears

 

  - 7 -  

 

 

Consultant

 

· $40,000 in cash per year, paid in equal quarterly installments in arrears

 

· Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.

 

· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. With respect to travel expenses, Company shall only reimburse Consultant for economy class travel unless otherwise consented to by Company. Company shall also reimburse consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred and Services performed on a monthly basis.

 

  - 8 -  

 

 

EXHIBIT B

 

OUTSIDE COMPANIES

 

[ List; if none, so indicate ]

 

None

 

  - 9 -  

 

 

Exhibit 10.25

 

AMENDMENT TO

AMENDED AND RESTATED CONSULTING AGREEMENT

 

This Amendment to the Consulting Agreement (the “ First Amendment ”) is entered into between PhaseRx Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (“ Company ”) corporation (“ Company ”) and Paul H. Johnson, PhD, having a place of business at 12020 211 th Place SE, Snohomish, WA 98296 ( Consultant ”).

 

RECITALS

 

WHEREAS, the Consultant and Company entered into a Consulting Agreement effectively dated July 2, 2013 (the “ Agreement ”), a copy of which is attached hereto.

 

WHEREAS, Consultant and Company desire to amend the Agreement to reduce the Consultant fees paid annually.

 

NOW, THEREFORE, Consultant and Company agree as follows:

 

1.0 Definitions

 

Unless the context clearly requires otherwise, all capitalized terms as used herein shall have the same meanings as used in the Agreement.

 

2.0 Amendment Date

 

This Amendment shall be effective as of January 2, 2014.

 

3.0 Amendments to Agreement

 

The parties agree that the Agreement shall be amended as described in this Article 3.0.

 

3.1 Amend Section 2, Consultant Compensation, of Exhibit A to read as follows:

 

Consultant

 

· $20,000 in cash per year, paid in equal quarterly installments in arrears.

 

· Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.

 

 

 

 

· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. With respect to travel expenses, Company shall only reimburse Consultant for economy class travel unless otherwise consented to by Company. Company shall also reimburse Consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred and Services performed on a monthly basis.

 

4.0 No Other Waivers or Modifications; Applicability of Agreement

 

Except to the extent expressly modified by Article 3.0 of this Amendment, no other covenant, term, provision, condition or agreement of the parties set forth in the Agreement shall be deemed to be waived, modified or amended in any way by this Amendment. All of the recitals, covenants, terms, provisions, conditions and agreements of the parties set forth in the Agreement shall be deemed applicable to this Amendment.

 

5.0 Entire Agreement

 

The Agreements, as modified by this Amendment, constitute the entire agreement between the parties, and supersedes all prior oral or written agreements, commitments, or understandings concerning the matters provided for herein.

 

6.0 Counterparts

 

This Amendment may be executed in any number of counterparts or, if mutually agreeable to the undersigned authorized signatories for the parties, through the exchange by facsimile or other electronic means (including electronically mailed PDF or similar imaging software) of duly-signed duplicates hereof, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

PHASERX INC.   CONSULTANT
         
By: /s/ Andrew J. Leon   By: /s Paul H. Johnson
         
Print Name: Andrew J. Leon   Print Name: Paul H. Johnson, PhD
         
Title:   Vice President, Intellectual Property   Title:  
         
Address: 410 W. Harrison St., Ste 300   Address: 12020 211 TH   Place SE
         
  Seattle, WA     Snohomish, WA
         
  98119     98296
         
Date: 1/23/14   Date: 1/22/14

 

  - 2 -  

 

Exhibit 10.26

 

AMENDMENT NO. 2 TO CONSULTING AGREEMENT

 

This Amendment No. 2 to Consulting Agreement (this “ Amendment ”), dated February 10, 2016, is entered into between PhaseRx, Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (the “ Company ”) and Paul H. Johnson, Ph.D., having a place of business at 12020 211 th Place SE, Snohomish, Washington 98296 (the “ Consultant ”).

 

RECITALS

 

WHEREAS, the Consultant and the Company entered into a Consulting Agreement, effective as of July 2, 2013, as previously amended by that certain Amendment to the Consulting Agreement, effective as of January 2, 2014 (as so amended, the “ Agreement ”), a copy of which is attached hereto;

 

WHEREAS, the Company is considering conducting an initial public offering and sale of the Company’s stock (the “ Offering ”); and

 

WHEREAS, in connection with the Offering, the Company and the Consultant desire to amend the Agreement to modify the services and fees set forth on Exhibit A attached thereto.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1. Definitions

 

Unless the context clearly requires otherwise, all capitalized terms as used herein shall have the same meanings as used in the Agreement.

 

2. Amendment Date

 

This Amendment shall be effective immediately prior to the consummation of the Offering.

 

3. Amendments to Agreement

 

Exhibit A to the Agreement shall be replaced in its entirety with Exhibit A attached hereto.

 

4. No Other Waivers or Modifications; Applicability of this Agreement

 

Except to the extent expressly modified by Section 3 of this Amendment, no other covenant, term, provision, condition or agreement of the parties set forth in the Agreement shall be deemed to be waived, modified or amended in any way by this Amendment. All of the recitals, covenants, terms, provisions, conditions and agreements of the parties set forth in the Agreement shall be deemed applicable to this Amendment.

 

5. Entire Agreement

 

The Agreement, as modified by this Amendment, constitute the entire agreement between the parties, and supersedes all prior or written agreements, commitments or understandings concerning the matters provided for herein.

 

 

 

 

6. Counterparts

 

This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or by electronic mail (in portable document format (“PDF”)) shall be effective as delivery of a manually executed counterpart of this Amendment.

 

[Signature page follows]

 

  - 2 -  

 

 

IN WITNESS WHEREOF, the partie s have executed t his Amendment as of the date and year first written above.

 

COMPANY:   CONSULTANT
     
PHASERX, INC.   /s/ Paul Johnson
a Delaware corporation   Paul H. Johnson, Ph.D.
     
By: /s/ Robert Overell    
Name: Robert Overell    
Title: President & CEO    

 

 

 

 

EXHIBIT A

 

SERVICES AND COMPENSATION

 

1. Services . Consultant will render to Company the following Services

 

· Provide expert consulting services to Company regarding research, development, clinical and business matters relating to: (1) pH sensitive, membrane disruptive polymers for intracellular delivery of molecules; (2) the intracellular delivery of siRNA, miRNA, mRNA, antibodies, proteins, peptides or other macromolecules and (3) the development of siRNA, miRNA, mRNA or intracellular antibodies/proteins for therapeutics, prophylactics, diagnostics, agricultural and reagent applications (collectively, the “ Field of Interest ”). Consultant shall make himself available to consult with the Company for up to an average of four hours per week over the course of the year.

 

2. Compensation .

 

· $20,000 in cash per year, paid in equal quarterly installments in arrears.
 
· Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.
     
· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. With respect to travel expenses, Company shall only reimburse Consultant for economy class travel unless otherwise consented to by Company. Company shall also reimburse consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred and Services performed on a monthly basis.

 

 

 

Exhibit 10.27

 

PHASERX, INC.

CONSULTING AGREEMENT

 

This Consulting Agreement (“ Agreement ”) is entered into as of November 1, 2010 (the “ Effective Date ”) between PhaseRx, Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (“ Company ”) and John A. Schmidt, Jr., M.D. LLC having a place of business at 709 7th Ave, Belmar, NJ 07719 (“ Consultant ”). Company desires to retain Consultant to perform certain consulting activities as described below, and Consultant desires to serve as a consultant to Company and perform such activities under the terms of this Agreement.

 

NOW, THEREFORE, Consultant and Company agree as follows:

 

1.             SERVICES AND COMPENSATION

 

(a)          Consultant agrees to act as a consultant to Company with respect to such matters and projects as are mutually agreed from time to time by and between Consultant and Company, and perform the services described on Exhibit A hereto (collectively, “ Services ”). Unless otherwise approved by the Company, all Services shall be performed personally by Dr. John A. Schmidt.

 

(b)          Company agrees to pay Consultant the compensation set forth in Exhibit A hereto for the performance of the Services.

 

2.             CONFIDENTIALITY AND NONCOMPETITION

 

(a)         “ Confidential Information ” means any proprietary information technical data, trade secrets or know-how, including, but not limited to, research and product plans, products, services, markets, developments, inventions, processes, formulas, technology, marketing, finances or other business information disclosed to Consultant by Company in writing, orally or otherwise. Confidential Information also includes all Inventions (as defined below) and any other information or materials generated in connection with the Services.

 

(b)          Consultant shall not, during or subsequent to the term of this Agreement, use any Confidential Information for any purpose whatsoever other than the performance of the Services on behalf of Company, or, during the term of this agreement or for a three year period following the termination of this agreement disclose Confidential Information to any third party. Consultant agrees that Confidential Information shall remain the sole property of Company. Consultant further agrees to take all reasonable precautions to prevent any unauthorized disclosure or use of Confidential Information. In the event Consultant is required to disclose Confidential Information pursuant to the order or requirement of a court, administrative agency, or other governmental body, Consultant may disclose such Confidential Information, provided that to the extent possible Consultant shall provide Company with reasonable advance notice thereof to enable Company to seek a protective order to prevent or limit such disclosure.

 

(c)          Notwithstanding the above, Consultant’s obligation under Section 2(b) relating to Confidential Information shall not apply to information which (i) is known to Consultant at the time of disclosure to Consultant by Company as evidenced by written records of Consultant, (ii) has become publicly known and made generally available through no wrongful act of Consultant, or (iii) has been rightfully received by Consultant from a third party authorized to make such disclosure. Specific Confidential Information shall not be deemed to be within any of the foregoing exclusions merely because it is within the scope of more general information within one or more of the exclusions. Further, any combination of Confidential Information with non-confidential information shall not be deemed to be within the exceptions merely because one or more individual items of Confidential Information are within the above exceptions.

 

 

 

 

(d)          Consultant agrees that Consultant will not, during the term of this Agreement, improperly use or disclose to Company any proprietary information or trade secrets of any former or current employer or other person or entity to which Consultant has a duty to keep in confidence such information and that Consultant will not bring onto the premises of Company any unpublished document or proprietary information belonging to such employer, person or entity unless consented to in writing by the same.

 

(e)          Consultant recognizes that Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that Consultant owes Company and such third parties, during the term of this Agreement and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out the Services for Company consistent with Company’s agreement with such third party.

 

(f)          Upon the Company’s request, Consultant will deliver to Company all Confidential Information and Company’s property relating thereto and all tangible embodiments thereof, in Consultant’s possession or control.

 

(g)          Until the first anniversary of the later of (x) the termination of this Agreement and (y) the date on which Dr. Schmidt ceases to be a member of the board of directors , neither Consultant nor Dr. Schmidt shall directly or indirectly (i) serve as an advisor, agent, consultant, director, employee, officer, partner, proprietor or otherwise of, (ii) have any ownership interest in (except for passive ownership of one percent (1%) or less of any entity whose securities have been registered under the Securities Act of 1933, as amended, or Section 12 of the Securities Exchange Act of 1934, as amended), or (iii) participate in the organization, financing, operation, management or control of, any business in competition with the Company’s business in the Field of Interest (as defined in Exhibit A hereto). Consultant shall not induce, or attempt to induce, any employee or independent contractor of the Company to cease employment or relationship with the Company.

 

(h)           Consultant shall cease to be bound by the noncompetition provisions of Section 2(g) if (i) Consultant’s relationship with the Company in his capacity as a consultant is terminated by the Company without Cause (as defined below ), or (ii) a period of twelve (12) months has elapsed from a Change of Control.

 

(i) For purposes of this Agreement, “Cause” means:

 

(A) Consultant’s gross misconduct that results in material financial injury to the Company;

 

(B) any act of material personal dishonesty or fraud by Consultant in connection with provision of the Services;

 

(C) Consultant’s conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State; or

 

  - 2 -  

 

 

(D) any material breach by Consultant of this Agreement, including but not limited to Consultant’s confidentiality obligations pursuant to Section 2.

 

(ii) For the purposes of this Agreement, “Change of Control” means the acquisition by any person, corporation or other entity of (A) beneficial ownership of capital stock of the Company by means of stock purchase, merger or other business combination if, after such acquisition, such person, corporation or other entity owns capital stock of the Company representing 50.0% or more of the combined voting power of the then outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors; provided that for the avoidance of doubt is agreed that any such transaction in connection with a bona fide financing transaction shall not constitute a Change of Control and (B)_all or substantially all of the assets of the Company.

 

3.             OWNERSHIP

 

(a)          Consultant hereby irrevocably assigns to Company all right, title and interest in and to any information (including, without limitation, business plans and/or business information), technology, know-how, materials, notes, records, designs, ideas, inventions, improvements, devices, developments, discoveries, compositions, trade secrets, processes, methods and/or techniques, whether or not patentable or copyrightable, that relate directly to the business of the Company and are conceived, reduced to practice or made by Consultant alone or jointly with others in the course of performing the Services or through the use of Confidential Information (collectively, “ Inventions ”).

 

(b)          Consultant agrees to sign, execute and acknowledge or cause to be signed, executed and acknowledged without cost, but at the expense of Company, any and all documents and to perform such acts as may be necessary, useful or convenient for the purposes of perfecting the foregoing assignments and obtaining, enforcing and defending intellectual property rights in any and all countries with respect to Inventions. It is understood and agreed that Company or Company’s designee shall have the sole right, but not the obligation, to prepare, file, prosecute and maintain patent applications and patents worldwide with respect to Inventions.

 

(c)          Upon Company’s request, Consultant will deliver to Company all property relating to, and all tangible embodiments of, Inventions in Consultant’s possession or control.

 

(d)          Consultant agrees that if, in the course of performing the Services, Consultant incorporates into any Invention developed hereunder any invention, improvement, development concept, discovery or other proprietary subject matter owned by Consultant or in which Consultant has an interest (“ Item ”), Consultant will inform Company in writing thereof, and Company is hereby granted and shall have a non-exclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, reproduce, display, use and sell such Item as part of or in connection with the exploitation of such Invention.

 

(e)          Consultant agrees that if Company is unable because of Consultant’s unavailability, mental or physical incapacity, or for any other reason, to secure Consultant’s signature to apply for or to pursue any application or registration for any intellectual property rights covering any Invention, then Consultant hereby irrevocably designates and appoints Company and its duly authorized officers and agents as Consultant’s agent and attorney-in-fact, to act for and in Consultant’s behalf to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of such intellectual property rights thereon with the same legal force and effect as if executed by Consultant.

 

  - 3 -  

 

 

4.             REPORTS . Consultant agrees, from time to time during the term of this Agreement, to keep Company advised as to Consultant’s progress in performing the Services and, as reasonably requested by Company, prepare written reports with respect thereto. It is understood that the time required in the preparation of such written reports shall be considered time devoted to the performance of the Services by Consultant. All such reports prepared by Consultant shall be the sole property of Company.

 

5.            TERM AND TERMINATION

 

(a)          This Agreement will commence on the Effective Date and will continue until termination as provided below.

 

(b)          Either Consultant or Company may terminate this Agreement upon prior written notice thereof to the other party at 30 days notice.

 

(c)          Upon termination of this Agreement, all rights and duties of the parties hereunder shall cease except:

 

(i)          Company shall be obliged to pay, within thirty (30) days after receipt of Consultant’s final statement, all amounts owing to Consultant for unpaid Services completed by Consultant and related expenses, if any, in accordance with the provisions of Section 1 hereof, and

 

(ii)         Sections 2, 3, 5(c), 6, 7, 8 and 10 shall survive termination of this Agreement.

 

6.            INDEPENDENT CONTRACTOR . Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative of Company, but Consultant shall perform the Services as an independent contractor. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement.

 

7.            NO DEBARMENT. Consultant represents that Consultant has not been debarred under Section (a) or (b) of 21 U.S.C. Section 335a and does not appear on the United States Food and Drug debarment list. Consultant represents and warrants that Consultant has not committed any crime or conduct that could result in such debarment or Consultant’s exclusion from any governmental healthcare program. Consultant represents that, to Consultant’s knowledge, no investigations, claims or proceedings with respect to any such crimes or conduct are pending or threatened against Consultant. Consultant agrees and undertakes to promptly notify the Company if Consultant becomes debarred or proceedings have been initiated against Consultant with respect to debarment, whether such debarment or initiation of proceedings occurs during or after the term of this Agreement.

 

8.            ARBITRATION AND EQUITABLE RELIEF . Company and Consultant agree that any dispute or controversy arising out of, in relation to, or in connection with this Agreement, or the making, interpretation, construction, performance or breach hereof, shall be finally settled by binding arbitration in King County, Washington under the then current rules of the Judicial Arbitration and Mediation Service (JAMS) by one (1) arbitrator appointed in accordance with said rules. Any such arbitration shall be held in Seattle, Washington. The arbitrator may grant injunctive or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. The arbitrator shall determine what discovery will be permitted, consistent with the goal of limiting the cost and time which the parties must expend for discovery; provided the arbitrator shall permit such discovery as the arbitrator deems necessary to permit an equitable resolution of the dispute. Any written evidence originally in a language other than English shall be submitted in English translation accompanied by the original or a true copy thereof. The costs of the Arbitration, including administrative and arbitrators’ fees, shall be shared equally by the perties, and each party shall bear its own costs and attorneys’ and witness’ fees incurred in connection with the arbitration. Any award may be entered in a court of competent jurisdiction for a judicial recognition of the decision and applicable orders of enforcement.

 

  - 4 -  

 

 

9.            CONFLICTING OBLIGATIONS . Consultant hereby certifies that he has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude Consultant from complying with the provisions hereof, and further certifies that Consultant will not enter into any such conflicting agreement during the term of this Agreement. Consultant shall list on Exhibit B hereto any other companies for whom Consultant is providing services (“Outside Companies”). Neither this Section 9 nor Section 2(g) shall restrict Consultant from consulting for others outside the Field of Interest. Without limiting the foregoing, Consultant agrees to use his best efforts (A) to segregate Consultant’s Services performed under this Agreement from Consultant’s work done for other persons so as to minimize any questions of disclosure of, or rights under, any inventions, (B) to notify the President of the Company if at any time the Consultant believes that such questions may result from his performance under this Agreement and (C) to assist the Company in fairly resolving any questions in this regard which may arise. The Services performed hereunder will not be conducted on time that is required to be devoted to any other third party. The Consultant shall not use the funding, resources and facilities of any other third party, without the prior written consent of the Company, to perform Services hereunder and shall not perform the Services hereunder in any manner that would give any third party rights or access to the product of such Services.

 

10.           GENERAL . This Agreement (including the Exhibits hereto) taken together with the stock option agreement referred to herein is the sole agreement and understanding between Company and Consultant concerning the subject matter hereof, and it supersedes all prior agreements and understandings with respect to such matter. This Agreement (together with the Exhibits hereto) and any Amendments to it may be executed by Consultant and Company in counterparts which, when taken together, will constitute one Agreement. Signed copies exchanged between Consultant and Company by mail, facsimile, or electronically mailed PDF (or similar imaging software) will include visible signatures of all signatories. Copies of this Agreement will be equally binding as originals and faxed or scanned and emailed counterpart signatures will be sufficient to evidence execution, though Company may require Consultant to deliver original signed documents. Such execution and delivery shall be considered valid, binding and effective for all purposes, and no oral amendment shall be binding on the parties. Any required notice shall be given in writing by customary means with receipt confirmed at the address of each party set forth below, or to such other address as either party may substitute by written notice to the other. Consultant shall cause each of its affiliates, employees, managers and members to comply with the terms of this Agreement and shall be responsible for any breach thereof by any such person. Consultant shall not subcontract any portion of Consultant’s duties under this Agreement without the prior written consent of Company. None of this Agreement, any right hereunder or interest herein may be assigned or transferred by Consultant without the express written consent of Company. Company may assign this Agreement to any entity that succeeds to substantially all of the business or assets of Company. This Agreement shall be governed by the laws of the State of Washington, without reference to its conflicts of law principles. This Agreement may only be amended or modified by a writing signed by both parties. Waiver of any term or provision of this Agreement or forbearance to enforce any term or provision by either party shall not constitute a waiver as to any subsequent breach or failure of the same term or provision or a waiver of any other term or provision of this Agreement. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to either Company or Consultant.

 

  - 5 -  

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

PHASERX, INC.   John A. Schmidt, Jr., M.D. LLC
     
By: /s/ Robert W. Overell   /s/ John A. Schmidt
       
Print Name: Robert W. Overell   Print Name: John A. Schmidt, Jr., M.D.
         
Title: President & CEO   Title: Proprietor
         
Address: 410 W Harrison St, Suite 300   Address: 709 7th Ave
         
  Seattle, Washington 98119     Belmar, NJ 07719
         
         

 

Date: November 1, 2010   Date: 11/05/10  
           
Phone: 206 805 6301   Phone: 732-282-8167  
           
FAX:     FAX: 732-280-0147  

 

  - 6 -  

 

 

EXHIBIT A

 

SERVICES AND COMPENSATION

 

1.           Services . Consultant (or, in the case of Services as a member of the board of directors of the Company, Dr. Schmidt) will render to Company the following Services. The provisions related to Dr. Schmidt’s Services as a member of the board of directors of the Company are being included herein as an administrative convenience. For the avoidance of doubt, nothing in the Agreement shall in any way limit of vitiate Dr. Schmidt’s duties and obligations to the Company under applicable law and nothing herein shall be construed as giving to Dr. Schmidt a contractual right to serve on the board of directors of the Company.

 

· Board Member: Serve as a member of the Company’s board of directors. Attend up to 6 meetings/year in person Seattle and approximately 6-8 board teleconferences as needed per year.

 

· Consultant: Provide expert consulting services to Company regarding research, development, clinical and business matters relating to: (1) pH sensitive, membrane disruptive polymers for the intracellular delivery of therapeutics, diagnostics and reagents and (2) the delivery of siRNA therapeutics (collectively, the “ Field of Interest ”). Consultant shall make himself available to consult with the Company for up to an average of four hours per week over the course of the year.

 

2.           Compensation .

 

Board Member:

 

· An option to purchase 70,000 shares of Common Stock of the Company with an exercise price equal to the fair market value of the Company’s Common Stock as of the date of grant (determined in accordance with the Company’s 2006 Stock Plan. The shares underlying such option will vest linearly and monthly over a four year period commencing on the Effective Date of this Agreement and continuing for as long as Dr. Schmidt continues to be a member of the board of directors of the Company, except that (a) in the event of a Change of Control (as defined in 2(h)(ii) of this Agreement) that is consummated when Dr. Schmidt a member of the board of directors of the Company, 50% of the then unvested shares underlying such option shall fully vest immediately prior to the consummation of such Change of Control; and (b) if at any time less than three (3) months prior to or within eighteen (18) months after a Change of Control Dr. Schmidt is removed from the board of directors for a reason other than Cause (as defined in 2(h)(i) of this Agreement) all then unvested shares underlying such option shall vest immediately prior to the consummation of such Change of Control or upon such termination, as the case may be.

 

· $10,000 in cash per year, paid in equal quarterly installments in arrears

 

  - 7 -  

 

 

Consultant

 

· $50,000 in cash per year, paid in equal quarterly installments in arrears

 

· Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.

 

· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. Company shall also reimburse consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred and Services performed on a monthly basis.

 

  - 8 -  

 

 

EXHIBIT B

 

OUTSIDE COMPANIES

 

[ List; if none, so indicate ]

 

None.
 
/s/ John A. Schmidt
 
11/05/10

 

  - 9 -  

 

 

Exhibit 10.28

 

AMENDMENT TO
AMENDED AND RESTATED CONSULTING AGREEMENT

 

This Amendment to the Consulting Agreement (the “ First Amendment ”) is entered into between PhaseRx Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (“ Company ”) corporation (“ Company ”) and John A. Schmidt, Jr., M.D. LLC having a place of business at 709 7 th Ave., Belmar, NJ 07719 Consultant ”).

 

RECITALS

 

WHEREAS, the Consultant and Company entered into a Consulting Agreement effectively dated November 1, 2010 (the “ Agreement ”), a copy of which is attached hereto.

 

WHEREAS, Consultant and Company desire to amend the Agreement to provide for Consultant to increase the available consulting time to eight hours per week. Company shall continue to pay Consultant at the rates previously agreed to in the Agreement.

 

NOW, THEREFORE, Consultant and Company agree as follows:

 

1.0 Definitions

 

Unless the context clearly requires otherwise, all capitalized terms as used herein shall have the same meanings as used in the Agreement.

 

2.0 Amendment Date

 

This Amendment shall be effective as of June 1, 2011.

 

3.0 Amendments to Agreement

 

The parties agree that the Agreement shall be amended as described in this Article 3.0.

 

3.1 Amend Section 1 of Exhibit A to read as follows:

 

1.           Services . Consultant (or, in the case of Services as a member of the board of directors of the Company, Dr. Schmidt) will render to Company the following Services. The provisions related to Dr. Schmidt’s Services as a member of the board of directors of the Company are being included herein as an administrative convenience. For the avoidance of doubt, nothing in the agreement shall in any way limit or vitiate Dr. Schmidt’s duties and obligations to the Company under applicable law and nothing herein shall be construed as giving Dr. Schmidt a contractual right to serve on the board of directors of the Company.

 

· Board Member: Serve as a member of the Company’s board of directors. Attend up to 6 meetings/year in person in Seattle and approximately 6-8 board teleconferences as needed per year.

 

 

 

 

· Consultant: Provide expert consulting services to Company regarding research, development, clinical and business matters relating to: (1) pH sensitive, membrane disruptive polymers for the intracellular delivery of therapeutics, diagnostics and reagents and (2) the delivery of siRNA therapeutics (collectively, the “ Field of Interest ”). Consultant shall make himself available to consult with the Company for up to an average of eight hours per week over the course of the year.

 

3.1 Amend Section 2, Consultant Compensation, of Exhibit A to read as follows:

 

Consultant

 

· $100,000 in cash per year, paid in equal quarterly installments in arrears.

 

· Company shall Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.

 

· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. Company shall also reimburse consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred on a monthly basis.

 

4.0 No Other Waivers or Modifications; Applicability of Agreement

 

Except to the extent expressly modified by Article 3.0 of this Amendment, no other covenant, term, provision, condition or agreement of the parties set forth in the Agreement shall be deemed to be waived, modified or amended in any way by this Amendment. All of the recitals, covenants, terms, provisions, conditions and agreements of the parties set forth in the Agreement shall be deemed applicable to this Amendment.

 

5.0 Entire Agreement

 

The Agreements, as modified by this Amendment, constitute the entire agreement between the parties, and supersedes all prior oral or written agreements, commitments, or understandings concerning the matters provided for herein.

 

  - 2 -  

 

 

6.0 Counterparts

 

This Amendment may be executed in any number of counterparts or, if mutually agreeable to the undersigned authorized signatories for the parties, through the exchange by facsimile or other electronic means (including electronically mailed PDF or similar imaging software) of duly-signed duplicates hereof, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

PHASERX INC.   CONSULTANT
         
By: /s/ Andrew J. Leon   By:   /s/ John A. Schmidt, Jr.
         
Print Name: Andrew J. Leon   Print Name: John A. Schmidt, Jr., M.D.
         
Title:   Vice President, Intellectual Property   Title:  
         
Address:    410 W. Harrison St., Ste 300   Address:  709 7 th Ave.
         
  Seattle, WA     Belmar, NJ
         
  98119     07719
         
Date: 7/5/2011   Date: 6/22/11

 

  - 3 -  

 

 

Exhibit 10.29

 

PHASERX, INC.
AMENDMENT NO. 2 TO AMENDED AND RESTATED CONSULTING AGREEMENT

 

This Amendment No. 2 to Amended and Restated Consulting Agreement (this “ Amendment ”), is entered into effective as of April 1, 2012 and amends the terms of the Amended and Restated Consulting Agreement dated February 22, 2008 (the “ Agreement ”) as later amended pursuant to the a First Amendment entered into on June 1, 2011 (the “ First Amendment ”), between PhaseRx, Inc., a Delaware corporation (“ Company ”) and John A. Schmidt, Jr., M.D. LLC (“ Consultant ”). Capitalized terms not defined in this Amendment have the meanings set forth in the Agreement.

 

Recitals

 

A. Company and Consultant desire to amend certain compensation terms set forth in the Agreement effective as of April 1, 2012.

 

B. Section 10 of the Agreement provides that such Agreement may be amended by a writing signed by both parties.

 

In consideration of the foregoing premises and other consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows:

 

Agreement

 

1. Amendment to Exhibit A . The first bullet point under the Consultant heading of Section 2 of Exhibit A is hereby amended and restated in its entirety to read as follows:

 

a. “Beginning on April 1, 2012, Consultant shall be paid at the rate of $60,000.00 per year, payable at the end of each quarter, so long as Consultant continues to provide services to Company on such payment dates.”

 

2. Acknowledgment of Payment . Consultant and Company hereby acknowledge and agree that Company has paid Consultant in full for all services that Consultant has rendered to Company prior to April 1, 2012 and that compensation for any services that Consultant renders to Company on or after April 1, 2012 shall be determined in accordance with the terms of the Agreement as amended hereby.

 

3. General . This Amendment shall be governed by the laws of the State of Washington, without reference to its conflicts of law principles, and may be executed in two counterparts, each of which shall be deemed an original and which together shall constitute a single instrument. Except as set forth in this Amendment, the Agreement shall continue in full force and effect.

 

ACKNOWLEDGED AND AGREED:

 

PHASERX, INC.   CONSULTANT
         
By: /s/ Robert Overell   By:   /s/ John A. Schmidt, Jr
         
Name: Robert Overell   Name: John A. Schmidt, Jr.
         
Title: President & CEO   Date: May 5, 2012
         
Date: 5/14/12      

 

 

 

Exhibit 10.30

 

AMENDMENT NO. 3 TO CONSULTING AGREEMENT

 

This Amendment No. 3 to Consulting Agreement (this “ Amendment ”), dated February 10, 2016, is entered into between PhaseRx, Inc., a Delaware corporation having a place of business at 410 West Harrison Street, Seattle, WA 98119 (the “ Company ”) and John A. Schmidt, Jr., M.D. LLC, having a place of business at 709 7 th Ave., Belmar, NJ 07719 (the “ Consultant ”).

 

RECITALS

 

WHEREAS, the Consultant and the Company entered into a Consulting Agreement, effective as of November 1, 2010, as previously amended by that certain Amendment to the Consulting Agreement, effective as of June 1, 2011, and as previously amended further by that certain Amendment No. 2 to Amended and Restated Consulting Agreement, effective as of April 1, 2012 (as so amended, the “ Agreement ”), a copy of which is attached hereto;

 

WHEREAS, the Company is considering conducting an initial public offering and sale of the Company’s common stock (the “ Offering ”); and

 

WHEREAS, in connection with the Offering, the Company and the Consultant desire to amend the Agreement to modify the services and fees set forth on Exhibit A attached thereto.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1. Definitions

 

Unless the context clearly requires otherwise, all capitalized terms as used herein shall have the same meanings as used in the Agreement.

 

2. Amendment Date

 

This Amendment shall be effective immediately prior to the consummation of the Offering.

 

3. Amendments to Agreement

 

Exhibit A to the Agreement shall be replaced in its entirety with Exhibit A attached hereto.

 

4. No Other Waivers or Modifications; Applicability of this Agreement

 

Except to the extent expressly modified by Section 3 of this Amendment, no other covenant, term, provision, condition or agreement of the parties set forth in the Agreement shall be deemed to be waived, modified or amended in any way by this Amendment. All of the recitals, covenants, terms, provisions, conditions and agreements of the parties set forth in the Agreement shall be deemed applicable to this Amendment.

 

5. Entire Agreement

 

The Agreement, as modified by this Amendment, constitute the entire agreement between the parties, and supersedes all prior or written agreements, commitments or understandings concerning the matters provided for herein.

 

 

 

 

6. Counterparts

 

This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or by electronic mail (in portable document format (“PDF”)) shall be effective as delivery of a manually executed counterpart of this Amendment.

 

[Signature page follows]

 

  - 2 -  

 

 

IN WITNESS WHEREOF, the partie s have executed t his Amendment as of the date and year first written above.

 

COMPANY:   CONSULTANT
     
PHASERX, INC.   JOHN A. SCHMIDT, JR. LLC
a Delaware corporation      
         
By: /s/ Robert Overell   By: /s/ John A. Schmidt
Name: Robert Overell   Name: John A. Schmidt, Jr.
Title: President & CEO   Title: Consultant

 

 

 

 

EXHIBIT A

 

SERVICES AND COMPENSATION

 

1. Services . Consultant will render to Company the following Services
     
· Provide expert consulting services to Company regarding research, development, clinical and business matters relating to: (1) pH sensitive, membrane disruptive polymers for intracellular delivery of therapeutics, diagnostics and reagents; and (2) the delivery of siRNA therapeutics (collectively, the “ Field of Interest ”). Consultant shall make himself available to consult with the Company for up to an average of eight hours per week over the course of the year.

 

2. Compensation .

 

· $60,000 in cash per year, paid in equal quarterly installments in arrears.
· Consultant shall submit monthly invoices to the Company for any amounts owing under this Agreement and shall include a summary of time spent on Company business. Each invoice will contain enough detail to enable Company to determine the accuracy of the amount(s) billed. With each invoice, Consultant will provide: (a) a detailed itemized listing of all expenses incurred under this Agreement, and (b) receipts for any individual expenses that exceed $50. Either an original or a copy may be submitted.
· Company shall reimburse Consultant for all reasonable, documented out-of-pocket expenses incurred by Consultant in performing Services pursuant to this Agreement. Company shall also reimburse consultant for attendance at conferences that are pre-approved by Company. Consultant shall submit to Company all statements for expenses incurred and Services performed on a monthly basis.

 

 

 

Exhibit 10.31

 

Execution Copy

 

 

 

LOAN AND SECURITY AGREEMENT

 

dated as of December 21, 2015

 

among

 

PhaseRx, Inc.

as Borrower,

 

and

 

the financial institutions and individuals listed on Annex A,

as Lenders 

 

and

 

Titan Multi-Strategy Fund I, LTD.,

as Security Agent

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 2
     
SECTION 1.01. Certain Defined Terms 2
SECTION 1.02. Times of Day 6
SECTION 1.03. Principles of Construction 7
     
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 7
     
SECTION 2.01. The Loan 7
SECTION 2.02. Repayment of Loan 7
SECTION 2.03. Interest 8
SECTION 2.04. Maximum Interest 8
SECTION 2.05. Prepayments of Loan 8
SECTION 2.06. Evidence of Debt 8
SECTION 2.07. Payments and Computations 9
SECTION 2.08. Mandatory Prepayments 9
     
ARTICLE III CONDITIONS OF LENDING 9
     
SECTION 3.01. Conditions Precedent 9
     
ARTICLE IV REPRESENTATIONS AND WARRANTIES 10
     
SECTION 4.01. Representations and Warranties 10
SECTION 4.02. Lender Representations and Warranties 13
     
ARTICLE V COVENANTS OF BORROWER 13
     
SECTION 5.01. Affirmative Covenants 13
SECTION 5.02. Negative Covenants 15
     
ARTICLE VI SECURITY INTEREST 17
     
SECTION 6.01. Granting of Security Interest 17
SECTION 6.02. Proceeds 18
SECTION 6.03. Delivery of Certain Collateral 18
SECTION 6.04. Authorization to File Financing Statements 18
     
ARTICLE VII EVENTS OF DEFAULT 18
     
SECTION 7.01. Events of Default 18
SECTION 7.02. Rights and Remedies 19
     
ARTICLE VIII CONVERSION 21
     
SECTION 8.01. Conversion of Term Loans 21
SECTION 8.02. Conversion Limitation 21

 

i

 

 

ARTICLE IX Indemnification 21
     
SECTION 9.01. Indemnification 21
     
ARTICLE X MISCELLANEOUS 22
     
SECTION 10.01. Amendments 22
SECTION 10.02. Notices; Effectiveness; Electronic Communications 22
SECTION 10.03. Waiver 23
SECTION 10.04. Equal Treatment of Lenders 23
SECTION 10.05. Costs and Expenses 23
SECTION 10.06. Governing Law; Submission to Jurisdiction 23
SECTION 10.07. Severability 24
SECTION 10.08. Counterparts; Integration; Effectiveness; Electronic Execution 24
SECTION 10.09. Confidentiality 24
SECTION 10.10. Cumulative Remedies 25
SECTION 10.11. Wire Instructions 25
SECTION 10.12.

Construction

25
SECTION 10.13.

Absolute Obligation

26
SECTION 10.14.

Entire Agreement

26

 

Annex A Lenders

 

Annex B Escrow Agreement

 

Annex C Rights, Responsibilities and Immunities of the Security Agent

 

Annex D Subordinated Lenders

 

Annex E Excluded Collateral

 

ii

 

 

This LOAN AND SECURITY AGREEMENT dated as of December 21, 2015, among PhaseRx, Inc., a Delaware corporation (“ Borrower ”) and the financial institutions and individuals listed on Annex A (collectively, the “ Lenders ” and each a, “ Lender ”).

 

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.01.         Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings:

 

Affiliate ” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, “controls” or is “controlled by” or is “under common control with” the Person specified.

 

Agreement ” means this Loan and Security Agreement.

 

Applicable Rate ” means the rate equal to five percent (5%) per annum.

 

Automatic Conversion ” has the meaning specified in Section 8.01 .

 

Bankruptcy Code ” means the Federal Bankruptcy Code of 1978, Title 11 of the United States Code, as amended from time to time.

 

Borrower ” has the meaning specified in the preamble hereto.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are required by law or other governmental action to close.

 

Closing Date ” means the earliest date on which the conditions precedent set forth in Section 3.01 shall have been satisfied or waived in accordance with Section 10.01 of this Agreement.

 

Code ” means the U.S. Internal Revenue Code of 1986.

 

Collateral has the meaning specified in Section 6.01 .

 

Conversion Shares ” means the shares of common stock of Borrower issuable upon an Automatic Conversion pursuant to Section 8.01 .

 

Debt ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP, (a) all obligations of such Person for borrowed money; (b) all direct or contingent obligations of such Person arising under letters of credit, bankers’ acceptances, bank guaranties, surety bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due); (d) indebtedness secured by a Lien on property owned by such Person (including conditional sales or other title retention agreements, whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) capital leases and synthetic lease obligations; (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any equity interest in such Person or any other Person; and (g) all Guarantees of such Person in respect of any of the foregoing.

2

 

  

Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, bankruptcy, moratorium, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions.

 

Default ” means any event or condition that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

 

Default Premium ” has the meaning specified in Section 7.01 .

 

Disposition ” means any sale, transfer, lease, license, contribution or other conveyance (including by way of merger, partnering arrangement or stock purchase) of all or any portion of Borrower’s assets to any other Person in a single transaction or series of transactions, directly or indirectly.

 

Dollars ” and “ $ ” mean the lawful money of the United States.

 

End Date ” has the meaning specified in Section 5.01(j) .

 

Escrow Agreement ” means the escrow agreement to be employed in connection with the transactions described herein, a copy of which is annexed hereto as Annex B.

 

Events of Default ” has the meaning specified in Section 7.01 .

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Excluded Collateral ” means any Intellectual Property of Borrower that would otherwise be included as Collateral but for the express terms imposed by a Person other than the Borrower, of any license, contract or other agreement or instrument constituting or applicable to such Intellectual Property that prohibits the grant to the Security Agent of a security interest in and to such Intellectual Property or under which the grant to the Security Agent of a security interest in and to such Intellectual Property would impair the validity or enforceability of such Intellectual Property; provided, however, that any portion of any such Intellectual property or other right shall cease to constitute Excluded Collateral at the time and to the extent that the grant of a security interest therein does not result in any of the consequences specified above.

 

Facility Documents ” means, collectively, this Agreement, Escrow Agreement and each other agreement or instrument executed or delivered in connection herewith or therewith.

 

“GAAP” means generally accepted accounting principles in the United States.

 

Governmental Authority ” means the government of the United States of America or any other nation, or of any political subdivision thereof.

 

Guarantee ” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Debt or other obligation payable or performable by another Person (the “ primary obligor ”) in any manner, whether directly or indirectly, or (b) any Lien on any assets of such Person securing any Debt or other obligation of any other Person, whether or not such Debt or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Debt to obtain any such Lien).

 

3

 

  

Information ” has the meaning specified in Section 10.09 .

 

Intellectual Property means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

 

Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of equity interests of another Person, (b) a loan, advance or capital contribution to, guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

 

Law ” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

 

Lenders ” has the meaning specified in the preamble hereto and each of the Lenders, individually, a “ Lender .”

 

Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

 

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Major Disposition ” means the sale, transfer, lease, license, contribution or other conveyance of all or substantially all of the assets of Borrower that results in net cash proceeds to Borrower sufficient to and which are actually employed to fully satisfy all of the Obligations in accordance with Section 2.08 .

 

Material Adverse Effect ” means (a) a material impairment of the ability of Borrower to perform any of its obligations under any of the Facility Documents, (b) a material adverse effect upon the legality, validity, binding effect or enforceability of any material provision of any Facility Document, (c) a material adverse change in, or a material adverse effect upon, the business, properties, liabilities (actual or contingent), or financial condition of Borrower or (d) a material adverse change in, a material adverse effect upon, or a material impairment of, (i) the priority of the Lenders’ security interest in a material portion of the Collateral or (ii) the rights, remedies and benefits available to, or conferred upon, the Lenders under any Facility Document or the Lenders’ ability to foreclose on the Collateral at the times and in the manner contemplated herein.

 

Maturity Date ” means the date that is one year after the date of this Agreement, subject to acceleration as provided in Article VII .

 

Maximum Lawful Rate ” has the meaning specified in Section 2.04 .

 

Necessary Endorsement ” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Security Agent may reasonably request.

 

Obligations ” means the Term Loans to, and all debts, liabilities, obligations, covenants, indemnifications, and duties of, Borrower arising at any time and from time to time, whether matured or unmatured, fixed or contingent, liquidated or unliquidated, under any Facility Document, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against Borrower of any proceeding under any Debtor Relief Laws naming Borrower as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding and including the Prepayment Premium and Default Premium, if applicable.

 

Organization Documents ” means, as applicable, for any Person, such Person’s articles or certificate of incorporation, by-laws, memorandum and articles of association, partnership agreement, trust agreement, certificate of limited partnership, articles of organization, certificate of formation, shareholder agreement, voting trust agreement, operating agreement, subscription agreement, side letters, if any, limited liability company agreement and/or analogous documents.

 

Permitted Debt ” has the meaning specified in Section 5.02(a) .

 

Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

Prepayment Premium ” means, with respect to a repayment pursuant to Section 2.08 , an amount equal to 25% of the outstanding principal amount of the Term Loans on the date of repayment.

 

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Qualified Offering ” means collectively, (i) a firm commitment underwritten initial public offering of the common stock of Borrower which results not later than 167 calendar days after the Closing Date in gross proceeds to Borrower of at least $16,900,000 at a pre-Qualified Offering valuation of at least $36,000,000 (exclusive of the Term Loans and their subsequent conversion pursuant to Article VIII), (ii) contemporaneously with which the Borrower becomes an entity whose common stock is listed on the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, (iii) conducted by Laidlaw or another underwriter acceptable to Borrower and Required Lenders, (iv) in which shareholders of the Borrower as of the date of this Agreement invest not less than $9,400,000 in the Qualified Offering or on the terms of the Qualified Offering in a concurrent private placement but are not granted registration rights with respect to the common stock so acquired and, in any case, will be subject to the underwriters lockup imposed in connection with the Qualified Offering, which lockup shall not be more than 180-days and (v) which Qualified Offering is consistent with the post Qualified Offering capitalization set forth on Schedule 4.01(i) hereto.

 

Required Lenders ” means Lenders representing at least 51% of the outstanding principal amount of the Term Loans.

 

SEC ” means the U.S. Securities and Exchange Commission.

 

Securities ” means collectively the Term Loans and Conversion Shares.

 

Securities Act ” means the United States Securities Act of 1933, as amended.

 

Security Agent ” has the meaning specified in the preamble hereto or his replacement.

 

“Subordination Agreement” means the Subordination Agreement, dated as of the date hereof, among the Borrower, the subordinated lenders listed on Annex D hereto, and Titan Multi-Strategy Fund I, LTD., as agent for the Lenders.

 

Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Borrower.

 

Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

Term Loans ” means the term loans made pursuant to Section 2.01(a) .

 

UCC ” means Uniform Commercial Code in effect in the State of New York and any other applicable jurisdiction.

 

SECTION 1.02.         Times of Day . Unless otherwise specified, all references herein to times of day shall be references to local time in New York City, New York.

 

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SECTION 1.03.         Principles of Construction

 

(a)          The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Facility Document), (ii) except to the extent consent of the Required Lenders is required as provided herein, any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Facility Document, shall be construed to refer to such Facility Document in its entirety and not to any particular provision thereof, (iv) all references in a Facility Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Facility Document in which such references appear, and (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time.

 

(b)          In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

 

(c)          Section headings herein and in the other Facility Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Facility Document.

 

(d)          When used herein the terms Accessions, Account, Certificated Securities, Chattel Paper, Commercial Tort Claim, Commodity Account, Commodity Contract, Deposit Account, Document, Electronic Chattel Paper, Equipment, General Intangibles, Goods, Instrument, Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangible, Proceeds, Promissory Notes, Securities Account, Security Entitlement, Supporting Obligations and Uncertificated Securities have the meaning provided in Article 8 or Article 9, as applicable, of the UCC. Letter of Credit has the meaning provided in Section 5-102 of the UCC.

 

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

 

SECTION 2.01.         The Loan . Subject to the terms and conditions set forth herein, each Lender, severally and not jointly, agrees to make a loan in Dollars to Borrower in the amount set forth opposite such Lender’s name on Annex A (the “ Term Loans ”), by wire transfer in immediately available funds to the account as set forth in the Escrow Agreement, the terms of which are incorporated herein by this reference or by surrender of outstanding promissory notes of the Company of not more than $500,000 in principal. The surrender of notes for Term Loans pursuant to the preceding sentence shall be on a dollar-for-dollar basis. The aggregate original principal amount of the Term Loans shall be equal to $4,000,000 plus, if applicable, any accrued and unpaid interest on the principal amount of surrendered promissory notes. Amounts borrowed hereunder and repaid or prepaid may not be reborrowed.

 

SECTION 2.02.         Repayment of Loan . Borrower shall repay to the Lenders on the Maturity Date the principal amount of the Term Loans outstanding on such date, accrued but unpaid interest thereon and all other outstanding Obligations unless earlier converted in accordance with Article VIII .

 

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SECTION 2.03.         Interest.

 

(a)           Ordinary Interest . Borrower shall pay interest on the unpaid principal amount of the Term Loans, from the Closing Date until such principal amount shall be paid in full, at a rate per annum equal to the Applicable Rate. Interest shall be payable in arrears on the Maturity Date unless earlier converted in accordance with Article VIII hereof. Interest shall be computed on a year of 360 days and actual days elapsed in the period for which interest is payable. Interest (including the default interest set forth below) shall be due and payable before and after judgment or the commencement of any proceeding under any Debtor Relief Law.

 

(b)           Default Interest . If any Event of Default shall have occurred, Borrower shall pay interest on the Term Loans at a rate per annum equal at all times to fifteen percent (15%), from the day of such Event of Default, payable on demand (and in any event in arrears on the date such amount shall be paid in full).

 

SECTION 2.04.         Maximum Interest .   To the extent it may lawfully do so, Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Lender in order to enforce any right or remedy under any Facility Document. Notwithstanding any provision to the contrary contained in any Facility Document, it is expressly agreed and provided that the total liability of Borrower under the Facility Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “ Maximum Lawful Rate ”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that Borrower may be obligated to pay under the Facility Documents exceed such Maximum Lawful Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Facility Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Lawful Rate applicable to the Facility Documents from the Closing Date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Lawful Rate is paid by Borrower to any Lender with respect to indebtedness evidenced by the Facility Documents, such excess shall be applied by such Lender to the unpaid principal balance of any such indebtedness or be refunded to Borrower, the manner of handling such excess to be at such Lender’s election.

 

SECTION 2.05.         Prepayments of Loan. Except as set forth in this Agreement, Borrower may not prepay all or any portion of the outstanding principal amounts of the Term Loans or the accrued and unpaid interest without the prior written consent of the Required Lenders.

 

SECTION 2.06.         Evidence of Debt.

 

(a)          The records maintained by the Lenders regarding the Term Loans shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however , that the failure of the Lenders to maintain such records or any error therein shall not in any manner affect the obligation of Borrower to repay the Obligations in accordance with their terms.

 

(b)          No promissory note shall be required to evidence the Term Loans. Upon the request of the Required Lenders, Borrower shall execute and deliver to each Lender a promissory note, which shall evidence the Term Loans in addition to such records.

 

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SECTION 2.07.         Payments and Computations.

 

(a)          Borrower shall make each payment hereunder not later than 5:00 PM on the day when due in Dollars to the Lenders in immediately available funds. All payments received by the Lenders after 5:00 PM shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. All payments shall be made pro rata among the Lenders based on the outstanding principal amount of the Term Loans made by each Lender.

 

(b)          Whenever any payment hereunder would be due on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or any fees, as the case may be.

 

(c)          All payments (including prepayments and any other amounts received hereunder and payments and amounts received in connection with the exercise of the Lenders’ rights after an Event of Default) made by or on behalf of Borrower under any Facility Document shall be applied in the following order: (i) to any expenses and indemnities payable by Borrower to the Lenders; (ii) the Prepayment Premium and Default Premium, as applicable and without duplication; (iii) to any accrued and unpaid interest and fees due; (iv) to principal payments on the outstanding Term Loans; and (v) to the extent of any excess, to the payment of all other Obligations.

 

SECTION 2.08.         Mandatory Prepayments.

 

Upon any Major Disposition by Borrower, Borrower shall, within two (2) Business Days of Borrower’s receipt of the proceeds of such Major Disposition, satisfy the entire outstanding principal amount of the Term Loans, all accrued and unpaid interest thereon, and all other components of the Obligations together with the Prepayment Premium.

 

ARTICLE III

CONDITIONS OF LENDING

 

SECTION 3.01.         Conditions Precedent

 

(a)          The obligation of each Lender to make the Term Loans is subject to satisfaction of the following conditions precedent:

 

(i)          Each Lender shall have received duly executed counterparts of this Agreement and Escrow Agreement.

 

(ii)         Each other Lender shall have funded the amount set forth opposite each such other Lender’s name on Annex A in accordance with Section 2.01 .

 

(iii)        The representations and warranties of the Borrower contained herein shall be true and correct in all material respects (in the case of any representation or warranty not qualified by materiality or Material Adverse Effect) or in all respects (in the case of any representation or warranty qualified by materiality or Material Adverse Effect) on the date of this Agreement and on the Closing Date (unless as of a specific date therein in which case they shall be true and correct as of such date).

 

(iv)        There shall have been no Material Adverse Effect with respect to the Borrower since the date hereof.

 

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(v)         Secretary’s certificate containing (i) copies of the text of the resolutions by which the corporate action on the part of the Borrower necessary to approve this Agreement and the other documents and the transactions and actions contemplated hereby and thereby, which shall be accompanied by a certificate of the corporate secretary or assistant corporate secretary of Borrower dated as of the Closing Date certifying to the Lenders that such resolutions were duly adopted and have not been amended or rescinded, (ii) an incumbency certificate dated as of the Closing Date executed on behalf of Borrower by its corporate secretary or one of its assistant corporate secretaries certifying the office of each officer of Borrower executing this Agreement, or any other agreement, certificate or other instrument executed pursuant hereto, and (iii) copies of (A) the Borrower’s Certificate of Incorporation and bylaws in effect on the Closing Date, and (B) the certificate evidencing the good standing of Borrower as of a day within five (5) Business Days prior to the Closing Date.

 

(vi)        The Security Agent shall have received a form of subordination agreement acceptable to the Borrower and Security Agent executed on behalf of the Borrower and the subordinated lenders identified on Annex D hereto

 

The acceptance of the Term Loans shall be deemed to be a representation and warranty by Borrower that the conditions specified in Section 3.01 have been satisfied on and as of the Closing Date. For the avoidance of doubt, Borrower is not required to accept any Term Loans unless and until the Escrow Agent has received $4,000,000 or, if any Lender has surrendered a promissory note to the Company pursuant to Section 2.01, $3,500,000, as payment for the Term Loans, and each Lender has delivered its duly executed counterpart to this Agreement to the Escrow Agent.

 

(b)          Borrower’s obligations under this Agreement, and the Lenders’ and Security Agent’s rights and remedies hereunder, including under Section 2.03, Article V , Article VI , Article VII , and Article VIII , shall have no force or effect until the Escrow Agent (i) has released $4,000,000 or, if any Lender has surrendered a promissory note to the Company pursuant to Section 2.01, $3,500,000, to or for the benefit of Borrower, and (ii) has deemed released from escrow the documents deposited in escrow in connection therewith as set forth in the Escrow Agreement.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.01.         Borrower Representations and Warranties . Borrower represents and warrants to the Lenders that:

 

(a)          Borrower (i) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing in each other jurisdiction in which the conduct of its business requires it to so qualify or be licensed and where, in each case, failure so to qualify and be in good standing could have a Material Adverse Effect, and (iii) has all requisite company power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted.

 

(b)          The execution, delivery and performance by Borrower of this Agreement and the other Facility Documents to which Borrower is a party (when delivered) and the consummation of the transactions contemplated under the Facility Documents are within its company powers, have been duly authorized by all necessary company action, and do not and will not (i) contravene Borrower’s Organization Documents, (ii) contravene any contractual restriction binding on it or require any consent under any agreement or instrument to which it is a party or by which any of its properties or assets is bound, (iii) result in or require the creation or imposition of any material Liens upon any property or assets of Borrower, or (iv) violate any Law (including, but not limited to, the Securities Act and the Exchange Act and the regulations thereunder) or writ, judgment, injunction, determination or award, except, with respect to clauses (ii) – (iv), such conflicts, contraventions, violations, and Liens that would not reasonably be expected to result in a Material Adverse Effect.

 

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(c)          Except for any filings to perfect the Security Agent’s security interest in the Collateral and such consents that have been obtained, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption or waiver by, any Governmental Authority or any other third party, is required to authorize, or is required in connection with, (i) the execution, delivery and performance by Borrower of any Facility Document, (ii) the creation or perfection of the security interest in the Collateral granted to the Lenders hereunder or (iii) the legality, validity, binding effect or enforceability of any Facility Document by the Lenders.

 

(d)          Borrower is in compliance with the requirements of all Laws and all material orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (ii) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

(e)          This Agreement and the other Facility Documents that Borrower is party to are, and will be, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. The security interest in the Collateral granted herein is a valid and binding security interest in the Collateral subject to no other liens or security interests other than Liens set forth on Schedule 4.01(e) or are otherwise of an immaterial nature.

 

(f)          No Default or Event of Default has occurred and is continuing.

 

(g)          Borrower owns all of the Collateral free and clear of Liens, other than Liens set forth on Schedule 4.01(e) or are otherwise of an immaterial nature.

 

(h)          Borrower has delivered to the Lenders an unaudited balance sheet, and the related unaudited statements of income or operations and cash flows for the period ended October 31, 2015. The Financial Statements fairly present in all material respects the financial condition and operating results of Borrower as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the Financial Statements, Borrower has no material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to October 31, 2015; (ii) obligations under contracts and commitments incurred in the ordinary course of business; which, in all such cases, individually and in the aggregate would not reasonably be expected to have a Material Adverse Effect.

 

(i)          The capitalization of Borrower as of the date of this Agreement and the pro forma capitalization of the Borrower giving effect to the closing of the Qualified Offering (assuming the Borrower raises the minimum of $16,900,000 in the Qualified Offering) and the issuance of borrower’s securities in connection therewith are set forth on Schedule 4.01(i) .

 

(j)          The Term Loans are duly authorized, and the Conversion Shares, when issued and paid for in accordance with the applicable Facility Documents upon closing of the Qualified Offering, will be duly authorized and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Borrower other than restriction on transfer arising pursuant to applicable securities laws.

 

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(k)          Except as would not reasonably be expected to have a Material Adverse Effect, Borrower owns or licenses, believes it can license on commercially reasonable terms or otherwise has the right to use all licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, tradenames, copyrights, copyright applications, authorizations and other intellectual property rights that are necessary for the operation of its business. Except with respect to intellectual property rights Borrower believes it can license on commercially reasonable terms or would not reasonably be expected to have a Material Adverse Effect, the use of the aforementioned intellectual property rights by Borrower does not, to the Borrower’s knowledge, infringe upon or conflict in any material respect with any federally registered and issued intellectual property owned by any other Person. Except as would not reasonably be expected to have a Material Adverse Effect, Borrower has not received any communications alleging that Borrower has violated any Intellectual Property of any other Person.

 

(l)          There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Borrower, threatened against or affecting Borrower, or any of its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Facility Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.

 

(m)          Except as set forth on Schedule 4.01(m) , none of the officers or directors of the Borrower and, to the knowledge of the Borrower, none of the employees of the Borrower is presently a party to any transaction with the Borrower (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of Borrower, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of Borrower, and (iii) other employee benefits, including stock option agreements under any stock option plan of Borrower.

 

(n)          Except as set forth on Schedule 4.01(n) , no Person has any right to cause the Borrower to effect the registration under the Securities Act of any securities of the Borrower.

 

(o)          No registration under the Securities Act is required for the offer and sale of the Term Loans by the Borrower to the Lenders as contemplated hereby.

 

(p)          As of the date hereof, all Debt and Liens of the Borrower (other than Debt and Liens that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or are otherwise of an immaterial nature) and the principal terms thereof are set forth on Schedule 4.01(p) . Except as set forth on Schedule 4.01(p) , as of the date of this Agreement and the Closing Date, no Debt or other equity of the Borrower is or will be senior to the Term Loans in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

(q)          The Borrower has no Subsidiaries and does not hold any “securities” as such term is defined in the UCC.

 

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(r)          Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, Borrower (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of Borrower and Borrower knows of no basis for any such claim.

 

(s)          The foregoing representations and warranties shall survive the Closing.

 

SECTION 4.02.         Lender Representations and Warranties . Each Lender, severally and not jointly, represents and warrants to Borrower that:

 

(a)           Such Lender is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Lender is acquiring the Securities for investment for its own account and not with a present view towards, or for resale in connection with, the public sale or distribution of the Securities, except pursuant to sales registered or exempted under the Securities Act.

 

(b)          Such Lender understands and acknowledges that the Securities, upon issuance, will be “restricted securities” under the federal securities laws inasmuch as they are being acquired from Borrower in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, such Lender represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

(c)          Such Lender acknowledges that it can bear the economic and financial risk of its investment hereunder for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. Such Lender has had an opportunity to ask questions and receive answers from Borrower regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of Borrower.

 

ARTICLE V

COVENANTS OF BORROWER

 

SECTION 5.01.         Affirmative Covenants . On and after the Closing Date and so long as any Obligations have not been indefeasibly paid in full or converted pursuant to Article VIII :

 

(a)           Existence and Conduct of Business . Except in connection with a Major Disposition, Borrower shall preserve renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization. Except in connection with a Major Disposition in connection with the Qualified Offering, Borrower will conduct its operations in the ordinary course of business consistent with its past practices.

 

(b)           Use of Proceeds . Borrower will use the proceeds of the Term Loans for working capital and general corporate purposes in the ordinary course of business.

 

(c)           Payment of Obligations . Borrower shall pay and discharge as the same shall become due and payable, all its obligations and liabilities, including: (i) all material Taxes, assessments, claims and governmental charges or levies imposed upon it or upon its property; provided, however, that Borrower shall not be required to pay or discharge any such tax, assessment, claim or charge that is being diligently contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained; (ii) all material lawful claims which, if unpaid, would become a Lien on its property; and (iii) all material Debt, as and when due and payable.

 

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(d)           Inspection Rights . Subject to the entry into of a non-disclosure and confidentiality agreement reasonably acceptable to Borrower, Borrower shall, at any reasonable time during normal business hours and upon reasonable prior notice, from time to time permit the Security Agent and its agent and representative (in each case, subject to Section 10.09 ) to (i) discuss the affairs, finances, assets and accounts of Borrower with any of Borrower’s officers, directors or other representatives and independent certified public accountants and (ii) examine and make copies of and abstracts from their records and books of account, all at the expense of Borrower; provided , however , that so long as no Event of Default has occurred and is continuing, such examinations shall be limited to no more often than once per each six months; provided , further , however , in no event shall Borrower be required to provide access to any trade secrets, technical data or other commercially sensitive information.

 

(e)           Compliance with Laws . Borrower shall comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith would not reasonably be expected to result in a Material Adverse Effect.

 

(f)           Information Rights . As soon as available, but in any event within thirty (30) days after the end of each fiscal quarter, Borrower shall deliver to the Security Agent an unaudited balance sheet as at the end of such fiscal quarter, and the related unaudited statements of income or operations and cash flows for such fiscal quarter. Such financial statements shall be in a form consistent with the financial statements delivered to the Security Agent prior to the date hereof and need not comply with GAAP.

 

(g)           Security Interest . Borrower shall at all times maintain the Liens and security interest in the Collateral granted to the Security Agent hereunder as valid and perfected first priority Liens and security interests in the Collateral in favor of the Security Agent for the benefit of the Lenders. Borrower hereby agrees to defend the same against the claims of any and all Persons and entities. Borrower shall safeguard and protect all Collateral for the account of the Lenders.

 

(h)           Further Assurances . Borrower agrees to execute and/or deliver any additional agreements, documents and instruments, and take such further actions as may be reasonably requested by the Required Lenders and/or the Security Agent from time to time to carry out the intent of the Facility Documents. At the request of the Security Agent, Borrower will sign and deliver to the Security Agent on behalf of the Lenders at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Security Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Security Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, Borrower shall pay all fees, taxes and other amounts necessary to make any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches, and to maintain the Collateral and the security interest in the Collateral granted to the Lenders hereunder, and Borrower shall obtain and furnish to the Security Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the security interest in the Collateral granted to the Security Agent hereunder. Borrower shall promptly execute and deliver to the Security Agent such further deeds, mortgages, assignments, security agreements, or other instruments, documents, certificates and assurances and take such further action as the Security Agent may from time to time reasonably request to the extent necessary to perfect, protect or enforce the Security Agent’s security interest in the Collateral. The Security Agent is authorized to make any filings with any governmental agency it deems appropriate or necessary to perfect or protect the security interest in the Collateral.

 

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(i)           Audits . Not later than February 7, 2016, Borrower shall have delivered complete and accurate consolidated audited financial statements prepared in accordance with generally accepted accounting principles in the United States for the two annual periods ending December 31, 2013 and December 31, 2014, and any reviewed stub periods, as are required by the SEC in connection with the Qualified Offering, by a certified PCAOB auditing firm reasonably acceptable to the Required Lenders; it being agreed that Peterson Sullivan LLP is reasonably acceptable to the Required Lenders.

 

(j)           Qualified Offering . Borrower will use its reasonable best efforts to consummate the Qualified Offering on or prior to the date that is 167 calendar days after the date hereof (the “ End Date ”).

 

(k)           No Financial Advisors . Borrower acknowledges and agrees that each of the Lenders is acting solely in the capacity of an arm’s length purchaser with respect to the Facility Documents and the transactions contemplated thereby. Borrower further acknowledges that no Lender is acting as a financial advisor or fiduciary of Borrower (or in any similar capacity) with respect to the Facility Documents and the transactions contemplated thereby and any advice given by any Lender or any of their respective representatives or agents in connection with the Facility Documents and the transactions contemplated thereby is merely incidental to the Lenders’ purchase of the Securities. Borrower further represents to each Lender that Borrower’s decision to enter into this Agreement and the other Facility Documents has been based solely on the independent evaluation of the transactions contemplated hereby by Borrower and its representatives.

 

(l)           Registration Rights . The parties hereto shall enter into a registration rights agreement with respect to the resale of the Conversion Shares on terms mutually acceptable to Borrower and the Required Lenders within (45) days of the Closing Date. Such registration rights agreement shall provide that Borrower must cause the registration statement covering the Conversion Shares to be declared effective by the SEC concurrently with the registration statement for the Qualified Offering, which effectiveness shall be in a condition precedent to the Automatic Conversion as provided in Section 8.01. In no event shall the Lenders have any piggyback rights with respect to the Qualified Offering or rights to participate in the underwritten offering contemplated by the Qualified Offering.

 

(m)           Bad Actor Disqualification Notification . Borrower will notify the Security Agent in writing, prior to the Closing Date of (i) any Disqualification Event described in Rule 506(d)(1)(i) to (vii) under the Securities Act except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person. Issuer Covered Person shall mean any officer of Borrower participating in the offering hereunder, any beneficial owner of 20% or more of Borrower’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with Borrower in any capacity at the time of sale.

 

SECTION 5.02.         Negative Covenants . So long as any Obligations have not been indefeasibly paid in full or converted pursuant to Article VIII, without the prior written consent of the Required Lenders:

 

(a)           Additional Debt . Borrower shall not, directly or indirectly, create, incur or assume any Debt, other than (i) Debt created under the Facility Documents, (ii) trade payables not more than 120 days past due, (iii) Debt that is outstanding on the date hereof, and (iv) other Debt not to exceed $100,000 in the aggregate (clauses (i) – (iv) collectively, “ Permitted Debt ”).

 

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(b)           Liens . Except in connection with a Major Disposition, Borrower shall not, directly or indirectly, create, incur or assume any Lien upon any Collateral, whether now owned or hereafter acquired, except (i) Liens created under the Facility Documents, (ii) Liens that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or are otherwise of an immaterial nature and (iii) purchase money security interests in property acquired using Permitted Debt.

 

(c)           Mergers, Etc . Except in connection with a Major Disposition, without the prior consent of the Lenders, Borrower shall not, directly or indirectly, merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of, whether in one transaction or in a series of transactions, all or substantially all of the property and assets (whether now owned or hereafter acquired) of Borrower to any Person.

 

(d)           Investments . Borrower shall not hold any material Investments except Investments by Borrower outstanding on the date hereof.

 

(e)           Transaction with Affiliates . Borrower shall not enter into any material transaction of any kind with any Affiliate of Borrower, other than in the ordinary course of business on fair and reasonable terms substantially as favorable to Borrower as would be obtainable by Borrower at the time in a comparable arm’s length transaction with a Person other than an Affiliate.

 

(f)           Prepay Debt . Except in connection with a Major Disposition, Borrower shall not prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt of Borrower.

 

(g)           Change Name, Status, Jurisdiction, Tradename . Borrower shall not change its name, change its corporate status or jurisdiction, or use any trade name without delivering written notice to the Lenders at least twenty (20) days prior to the effectiveness of such change or use.

 

(h)           Disposition of Assets . Borrower shall not dispose of any interest in any Collateral, except for (i) any Major Disposition in accordance with Section 2.08, and (ii) any other Disposition that is not a Major Disposition of the Collateral to a third party in an arms-length transaction on terms fair and reasonable to Borrower as determined by Borrower’s board of directors in its sole discretion.

 

(i)           Capital Stock . Borrower will not issue any shares of its capital stock or grant or issue any securities convertible into shares of its capital stock, except for any issuances of capital stock pursuant to (i) Borrower’s equity incentive plan, (ii) any option or convertible security outstanding on the date hereof, (iii) issuances approved by the Required Lenders, and (iv) any transaction or agreement with one or more persons, firms or entities designated as a “strategic partner” of the Borrower, as determined in good faith by the Board of Directors of the Borrower, provided that each such person, firm or entity is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Borrower and in which the Borrower receives benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to one or more persons or entities whose primary business is investing in securities; provided that any such issuance of capital stock pursuant to the foregoing clause (iv) shall be at a price per share equal to the conversion price then in effect for the Borrower’s outstanding shares of Series A Preferred Stock and shall be attributed to “Existing PhaseRx Shareholders” in the pro forma capitalization of the Borrower set forth on Schedule 4.01(i) .

 

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ARTICLE VI

SECURITY INTEREST

 

SECTION 6.01.         Granting of Security Interest . Borrower hereby pledges, assigns and grants to the Security Agent for the benefit of the Lenders a first priority security interest in and lien on, and a right of set-off against, the following property and assets, whether now or hereafter existing, owned or acquired by Borrower (collectively, the “ Collateral ”) other than Excluded Collateral, to secure the payment and the performance of all the Obligations:

 

(a) Accounts;

 

(b) Chattel Paper;

 

(c) Commercial Tort Claims;

 

(d) Deposit Accounts;

 

(e) Documents;

 

(f) General Intangibles;

 

(g) Goods;

 

(h) Inventory;

 

(i) Equipment;

 

(j) Instruments;

 

(k) Intellectual Property;

 

(l) Investment Property;

 

(m) Letter-of-Credit Rights and Letters of Credit;

 

(n) Reserved;

 

(o) Supporting Obligations;

 

(p)          all books, records, writings, databases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 6.01 ;

 

(q)          all Accessions to, Proceeds, substitutions and replacements of the foregoing and, to the extent not otherwise included, (i) all payments under insurance (whether or not the Security Agent is the loss payee thereof) other than directors and officers insurance and (ii) all tort claims; and

 

(r)          all other property and rights of every kind and description and interests therein.

 

The parties hereto agree that, as of the date of this Agreement, the “Excluded Collateral” consists of the Intellectual Property set forth on Annex E attached hereto.

 

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SECTION 6.02.         Proceeds . Except as permitted to be distributed to Borrower pursuant to the terms herein, (a) any property received by Borrower, which shall comprise such Accessions to, Proceeds, additions, substitutes and replacements for, or proceeds of, the Collateral, shall, after the occurrence and during the continuance of an Event of Default, be held in trust for the Lenders, and (y) any cash proceeds of the Collateral shall, after the occurrence and during the continuance of an Event of Default, be held in trust for the Lenders.

 

SECTION 6.03.         Authorization to File Financing Statements . Borrower hereby authorizes the Security Agent to file financing statements or take any other action required to memorialize or perfect the Security Agent’s security interests in the Collateral, without notice to Borrower, with all appropriate jurisdictions to perfect or protect the Lenders’ interest or rights under the Facility Documents, including a notice that any disposition of the Collateral, except to the extent permitted by the terms of this Agreement, by Borrower, or any other Person, shall be deemed to violate the rights of the Lenders or the Security Agent under the UCC. Security Agent shall provide written notice to Borrower of the filing of any financing statement promptly after the filing thereof.

 

SECTION 6.04.         Appointment of Security Agent . The Lenders hereby appoint Security Agent to act as their agent (the “ Security Agent ”) for purposes of exercising any and all rights and remedies of the Lenders hereunder. Such appointment shall continue until revoked in writing by the Required Lenders, at which time the Required Lenders shall appoint a new agent. The Security Agent shall have the rights, responsibilities and immunities set forth in Annex C hereto.

 

ARTICLE VII

EVENTS OF DEFAULT

 

SECTION 7.01.         Events of Default . If any of the following events (“ Events of Default ”) shall occur:

 

(a)          Borrower shall fail to pay when due (i) any of the outstanding principal of the Term Loans, or (ii) accrued interest on the Term Loans or other amounts or fees owing pursuant to any of the Facility Documents, and, in the case of clause (ii), such failure continues for three (3) days after the due date; or

 

(b)          Except for the non-occurrence of the firm commitment underwritten initial public offering component of the Qualified Offering and the other components of the Qualified Offering contingent on such public offering, Borrower shall fail to perform or observe in any material respect any term, covenant, or agreement contained in any Facility document and such failure if susceptible to cure shall continue for ten (10) days after receipt of written notice thereof from the Security Agent or Required Lenders; or

 

(c)           (i) any Facility Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder, ceases to be in full force and effect; (ii) Borrower contests in any manner the validity or enforceability of any Facility Document; or (iii) Borrower denies that it has any or further liability or obligation under any Facility Document; or

 

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(d)           (i) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of Borrower and is not released, vacated or fully bonded within sixty (60) days after its issue or levy; (ii) Borrower institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors, or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; (iii) any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of Borrower and the appointment continues undischarged or unstayed for thirty (30) calendar days; (iv) any proceeding under any Debtor Relief Law relating to Borrower or to all or any material part of its property is instituted without the consent of Borrower and continues undischarged or unstayed for thirty (30) calendar days, or an order for relief is entered in any such proceeding; or (v) Borrower shall take any action to authorize any of the actions set forth above in this Section 7.01(d) ;

 

(e)          except as otherwise provided or permitted herein, the Lenders cease to have a first priority perfected Lien in a material portion of the Collateral;

 

(f)          there is entered against the Borrower (i) one or more final judgments or orders for the payment of money in an aggregate amount exceeding $100,000 (as to all such judgments or orders), and (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

 

(g)          the occurrence of an Event of Default with respect to fewer than all of the Lenders;

 

then, and in any such event, the Required Lenders may declare the Term Loans, all accrued interest thereon, all fees and all other accrued amounts payable under this Agreement and the other Facility Documents to be forthwith due and payable, whereupon the (i) Term Loans, (ii) all such interest and fees and (iii) all such other amounts hereunder plus (iv) an additional amount equal to 25% of the outstanding principal amount of the Term Loans (the “ Default Premium ”) (the sum of (i) – (iv), the “ Default Amount ”) shall become and be forthwith due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrower; provided, however , that upon the occurrence of any event in Section 7.01(d) , the Default Amount shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by Borrower.

 

SECTION 7.02.         Rights and Remedies.

 

(a)          Following acceleration of the Term Loans pursuant to Section 7.01 after the occurrence of an Event of Default, the Security Agent may, on behalf of the Lenders, exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to them, all the rights and remedies of a Secured Party (as defined in Article 9 of the UCC) on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may:

 

(i)          take possession of any Collateral not already in the possession of a Lender without demand and without legal process;

 

(ii)         require Borrower to, and Borrower hereby agrees that it will, at its expense and upon request of the Security Agent forthwith, assemble all or part of the Collateral as directed by the Security Agent and make it available to the Security Agent at a place to be designated by the Security Agent that is reasonably convenient to both Borrower and the Security Agent;

 

(iii)        enter onto the property where any Collateral is located and take possession thereof without demand and without legal process;

 

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(iv)        without notice except as specified below, lease, license, sell or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at the Security Agent’s office or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Security Agent may deem commercially reasonable. Borrower agrees that, to the extent notice of sale shall be required by law, at least ten (10) days’ prior notice to Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Security Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Security Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

(b)          All cash proceeds received by the Security Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral shall be applied to the Term Loans in the order set forth in Section 2.07 (c) .

 

(c)          The Security Agent may:

 

(i)          transfer all or any part of the Collateral into the name of the Security Agent or the Lenders, with or without disclosing that such Collateral is subject to the Lien hereunder;

 

(ii)         notify the parties obligated on any of the Collateral to make payment to the Lenders or the Security Agent on behalf of the Lenders of any amount due or to become due thereunder;

 

(iii)        withdraw, or cause or direct the withdrawal, of all funds from any Deposit Account or Securities Account of Borrower;

 

(iv)        enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto;

 

(v)         endorse any checks, drafts, or other writings in Borrower’s name to allow collection of the Collateral;

 

(vi)        take control of any proceeds of the Collateral;

 

(vii)       use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by Borrower; and

 

(viii)      execute (in the name, place and stead of Borrower) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral.

 

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ARTICLE VIII

CONVERSION

 

SECTION 8.01.         Conversion of Term Loans . Subject to the other terms and provisions of this Article VIII , upon the closing of the Qualified Offering, and compliance by Borrower with all components comprising the Qualified Offering and provided that all Conversion Shares to be issued hereunder are registered for resale pursuant to an effective registration statement on Form S-1, the entire outstanding principal amount of Term Loans together with all accrued and unpaid interest thereon shall automatically convert, without any action on the part of the Lenders, into shares of common stock of Borrower as are issued in the Qualified Offering at a conversion price equal to 80% of the Qualified Offering price (an “ Automatic Conversion ”). Upon such Automatic Conversion, each Investor shall be deemed to be a purchaser in the Qualified Offering and shall be granted all rights afforded to a purchaser in the Qualified Offering. Upon such Automatic Conversion, Articles II, V, VI, and VII shall be of no further force and effect.

 

SECTION 8.02.         Conversion Limitation . Notwithstanding Section 8.01 , in no event shall any portion of the Obligations due and owing to a Lender convert into Common Stock if it would cause such Lender’s “beneficial ownership” (within the meaning of Section 13(d) of the Exchange Act), when taken together with other securities of Borrower owned by such Lender (together with the Lender’s Affiliates, and any Persons acting as a group together with the Lender or any of the Lender’s Affiliates), to exceed, at the written election of such Lender, either 4.99% or 9.99% of the outstanding Common Stock (the “ Beneficial Ownership Limitation ”). In such event, the portion of the Obligations that would cause such Lender to exceed the Beneficial Ownership Limitation, shall instead be converted into a “common stock equivalent” preferred stock or special warrants which shall have terms customary for “common stock equivalent” preferred stock or special warrants, as applicable, including, convertibility into a number of shares of common stock that such Lender would have received under this Article VIII but for the Beneficial Ownership Limitation, a Section 13(d) conversion blocker, participation rights with respect to dividends and distributions on the common stock, and customary anti-dilution adjustments for stock splits, reverse splits, stock dividends and similar events.

 

ARTICLE IX

Indemnification

 

SECTION 9.01.         Indemnification . Subject to the provisions of this Section, Borrower will indemnify and hold each Lender and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Lender (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, an “ Indemnified Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Indemnified Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by Borrower in this Agreement or in the other Facility Documents or (b) any action instituted against Indemnified Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of Borrower who is not an Affiliate of such Indemnified Party, with respect to any of the transactions contemplated by the Facility Documents (unless such action is based upon a breach of such Indemnified Party’s representations, warranties or covenants under the Facility Documents or any agreements or understandings such Indemnified Party may have with any such stockholder or any violations by such Indemnified Party of state or federal securities laws or any conduct by such Indemnified Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Indemnified Party in respect of which indemnity may be sought pursuant to this Agreement, such Indemnified Party shall promptly notify Borrower in writing, and Borrower shall have the right to assume the defense thereof with one counsel of its own choosing reasonably acceptable to the Indemnified Party. Any Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party except to the extent that (i) the employment thereof has been specifically authorized by Borrower in writing, (ii) Borrower has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of Borrower and the position of such Indemnified Party, in which case Borrower shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. Borrower will not be liable to any Indemnified Party under this Agreement (y) for any settlement by a Indemnified Party effected without Borrower’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Indemnified Party’s breach of its representations, warranties or covenants under the Facility Documents, or any violations by such Indemnified Party of state or federal securities laws or any conduct by such Indemnified Party which constitutes fraud, gross negligence, willful misconduct or malfeasance. The indemnification required by this Section 9.01 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Indemnified Party against Borrower or others and any liabilities Borrower may be subject to pursuant to law.

 

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ARTICLE X

MISCELLANEOUS

 

SECTION 10.01.         Amendments. No amendment of any provision of this Agreement or any other Facility Document shall be effective unless in writing signed by the Required Lenders and Borrower.

 

SECTION 10.02.         Notices; Effectiveness; Electronic Communications.

 

(a)           Notices Generally . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, email, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, email receipt or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: PhaseRx, Inc., 410 W. Harrison Street, Suite 300, Seattle, Washington 98119, Attn: Robert Overell, CEO, email: robert@phaserx.com, with a copy by personal delivery, fax or email only, to: Haynes and Boone, LLP, 30 Rockefeller Plaza, 26 th Floor, New York, NY 10112, Attn: Rick Werner, Esq., fax: (212) 884-8234, email: Rick.Werner@haynesboone.com, and (ii) if to the Lenders or Security Agent, to: the addresses and fax numbers indicated on the signature pages hereto, with an additional copy by personal delivery, fax or email only, to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, fax: (212) 697-3575, email: counslers@aol.com.

 

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SECTION 10.03.         Waiver . No waiver of any provision of this Agreement or any other Facility Document and no consent to any departure by Borrower therefrom shall be effective unless in writing signed by the Required Lenders and Borrower, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No waiver or consent by any party shall operate or be construed as a waiver or consent in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure on the part of a Lender to exercise, and no delay in exercising any right hereunder or under any other Facility Document shall operate as a waiver thereof nor shall the single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of a Lender to any other or further action in any circumstances without notice or demand.

 

SECTION 10.04.         Equal Treatment of Lenders . No consideration (including any modification of any Facility Documents) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provisions related to the Term Loans and Facility Documents unless the same consideration is also offered to all Lenders. All payments hereunder shall be made pro rata among the Lenders based on the portion of the Term Loans funded by each Lender as set forth on Annex A.

 

SECTION 10.05.         Costs and Expenses . Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Lenders and their Affiliates (including the reasonable fees, charges and disbursements of counsel) in connection with the credit facilities provided for herein the preparation, negotiation, execution, delivery and administration of the Facility Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and for being Escrow Agent in the amount set forth in the Escrow Agreement, (ii) all out-of-pocket expenses incurred by the Lenders (including the fees, charges and disbursements of any counsel), in connection with the enforcement or protection of its rights in connection with this Agreement and the other Facility Documents, including their rights under this Section 10.05 , including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Term Loans, and (iii) the fees, expenses and other obligations of the Borrower pursuant to the placement agent agreement between the Borrower and Palladium Capital Advisors LLC dated December 17, 2015. Borrower will also, upon demand, pay to the Security Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Security Agent, for the benefit of the Lenders, may incur in connection with (a) the enforcement of this Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (c) the exercise or enforcement of any of the rights of the Lenders under the Facility Documents.

 

SECTION 10.06.         Governing Law; Submission to Jurisdiction.

 

(a)           Governing Law . All questions concerning the construction, validity, enforcement and interpretation of the Facility Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Facility Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Facility Documents), and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Facility Documents, then, in addition to the obligations of Borrower, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

23

 

 

(b)           WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY 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 ANY OTHER FACILITY DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER FACILITY DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.06(d) .

 

SECTION 10.07.         Severability . In case any provision in this Agreement or any other Facility Document shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Agreement or such other Facility Document, as the case may be, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

SECTION 10.08.         Counterparts; Integration; Effectiveness; Electronic Execution . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Facility Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page of this Agreement by PDF shall be effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 10.09.         Confidentiality . Each Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to such Lender’s Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, trustees, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies under any Facility Document or any action or proceeding relating to any Facility Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 10.09 , to (i) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to Borrower or the Obligations, (g) with the consent of Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to such Lender, or any of its Affiliates on a nonconfidential basis from a source other than Borrower.

 

24

 

 

For purposes of this Section, “ Information ” means any and all information received from Borrower hereof relating to Borrower or its business. Any Person required to maintain the confidentiality of Information as provided in this Section 10.09 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information, but in no event less than a reasonable degree of care. Each Lender acknowledges that (i) Borrower is under no obligation to disclose Information except as expressly provided herein and (ii) such Lender may be required to enter into further non-disclosure agreements in order to receive certain Information in Borrower’s possession that are subject to confidentiality obligations owed to third parties. Notwithstanding anything contained herein to the contrary, the provisions of this Section 10.09 shall survive the repayment of the Term Loans, any conversion of the Term Loans into capital stock of Borrower or any termination of this Agreement.

 

SECTION 10.10.         Cumulative Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Lenders and Borrower will be entitled to specific performance under the Facility Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Facility Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

SECTION 10.11.         Independent Nature of Lenders’ Obligations and Rights . The obligations of each Lender under any Facility Document are several and not joint with the obligations of any other Lender, and no Lender shall be responsible in any way for the performance or non-performance of the obligations of any other Lender under any Facility Document. Nothing contained herein or in any other Facility Document, and no action taken by any Lender pursuant hereto or thereto, shall be deemed to constitute the Lenders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Lenders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Facility Documents. Each Lender shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Facility Documents, and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. Each Lender has been represented by its own separate legal counsel in its review and negotiation of the Facility Documents. For reasons of administrative convenience only, each Lender and its respective counsel have chosen to communicate with Borrower through Grushko & Mittman, P.C. Borrower has elected to provide all Lenders with the same terms and Facility Documents for the convenience of Borrower and not because it was required or requested to do so by any of the Lenders. It is expressly understood and agreed that each provision contained in this Agreement and in each other Facility Document is between Borrower and a Lender, solely, and not between Borrower and the Lenders collectively and not between and among the Lenders. In the event circumstances do not enable or allow Borrower to fulfill its obligation in full to all Lenders, then Borrower shall fulfill its obligations to multiple Lenders having the same rights, pro rata to each such affected Lender’s Subscription Amount actually delivered to Borrower.

 

SECTION 10.12.          Construction . The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Facility Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Facility Documents or any amendments thereto. In addition, each and every reference to share prices and shares of common stock in any Facility Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the date of this Agreement.

 

25

 

 

SECTION 10.13.          Absolute Obligation . Except as expressly provided herein, no provision of this Agreement shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on the Term Loan at the time, place, and rate, and in the coin or currency, herein prescribed. The Term Loan is a direct debt obligation of Borrower. The Term Loan ranks pari passu with all other Term Loans now or hereafter issued under the terms set forth herein.

 

SECTION 10.14.         Entire Agreement . THIS AGREEMENT AND THE OTHER FACILITY DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES .

 

[END OF TEXT]

 

26

 

 

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers or representatives thereunto duly authorized, as of the date first above written.

 

  BORROWER :
   
  PhaseRx, Inc.
  as Borrower
     
  By: /s/ Robert Overell
     
  Name: Robert Overell
     
  Title: President & CEO
     
  Security Agent :
   
  Titan Multi-Strategy Fund I, LTD.
     
  By: /s/ Jonathan Honig
     
  Name: Jonathan Honig
     
  Title: Manager
     
  Address: 4263 NW 61st Lane
    Boca Raton, Fl 33496
  Fax: 561-241-4749

 

[Signature pages of Lenders follow]

 

Signature Page to Loan and Security Agreement

 

 

 

 

  [SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: RIDING THE BULL LLC

 

Signature of Authorized Signatory of Lender : /s/ Mark E Groussman

 

Name of Authorized Signatory: Mark E Groussman

 

Title of Authorized Signatory: Manager

 

Email Address of Authorized Signatory: ######@##############.###

 

Facsimile Number of Authorized Signatory: ________________________________________

 

State of Residence of Lender: ___ ## _____________________________________________

 

Address for Notice to Lender: __ #### ## ##### #####, ##### #####, ## ##### ___________

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: __ $1,050,000 ______________

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: _ Alpha Capital Anstalt _________

 

Signature of Authorized Signatory of Lender : _ /s/ Konrad Ackermann ___________________

 

Name of Authorized Signatory: Konrad Ackermann __________________________________

 

Title of Authorized Signatory: _ Director __________________________________________

 

Email Address of Authorized Signatory: __________________________________________

 

Facsimile Number of Authorized Signatory: __ Fax: ###-###-#### _______________________

 

State of Residence of Lender: #############

 

Address for Notice to Lender: ALPHA CAPITAL ANSTALT

 

############ ##

 

#### #####

 

############ ## #############

 

e-mail: ####@###########.###

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

ALPHA CAPITAL ANSTALT

 

c/o ## ######### ######## ####.

 

### ####### ###### ##### ####

 

### ####, ## #####

 

Principal Amount: __ $500,000 ________________________

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Titan Multi-Strategy Fund I, LTD

 

Signature of Authorized Signatory of Lender : /s/ Jonathan Honig

 

Name of Authorized Signatory: Jonathan Honig

 

Title of Authorized Signatory: Manager

 

Email Address of Authorized Signatory: #############@###.###

 

Facsimile Number of Authorized Signatory: ###-###-####

 

State of Residence of Lender: #######

 

Address for Notice to Lender: #### ## #### ####

 

#### #####, ## #####

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $500,000

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Chesed Found Ltd.

 

Signature of Authorized Signatory of Lender : /s/ Menachem Goldshmid

 

Name of Authorized Signatory: Menachem Goldshmid

 

Title of Authorized Signatory: Director

 

Email Address of Authorized Signatory: ############@#####.###

 

Facsimile Number of Authorized Signatory: _______________________________________

 

State of Residence of Lender: ######

 

Address for Notice to Lender: #### ###, ### #####. ##. ####### ########. # ### #####

 

######. #######.

 

#### ####

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $400,000.000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Fame Associates

 

Signature of Authorized Signatory of Lender : /s/ Abraham H. Fruchthandler

 

Name of Authorized Signatory: Abraham H. Fruchthandler

 

Title of Authorized Signatory: General Partner

 

Email Address of Authorized Signatory: ###@##########.###

 

Facsimile Number of Authorized Signatory: ### ### ####

 

State of Residence of Lender: ### ####

 

Address for Notice to Lender: c/o ### ######, ### ######## #### #####

 

### ###, #.#. #####

 

_________________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: 250,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: H&M MACHINE Co.

 

Signature of Authorized Signatory of Lender : /s/ Hershel Parnes

 

Name of Authorized Signatory: HERSHEL PARNES

 

Title of Authorized Signatory: SECT/ TREAS

 

Email Address of Authorized Signatory: #####@########.###

 

Facsimile Number of Authorized Signatory: ________________________________________

 

State of Residence of Lender: _ ## _______________________________________________

 

Address for Notice to Lender: _________________________________________________

 

__ ## ### ### ______________________________________________________________

 

__ ######, ## ##### _________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $250,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: KUYKENDALL ASSOCIATES, LLC & RETIREMENT TRUST, FREDERICK T KUYKENDALL III TRUSTEE

 

Signature of Authorized Signatory of Lender : /s/ Frederick T. Kuykendall III

 

Name of Authorized Signatory: Frederick T. Kuykendall III

 

Title of Authorized Signatory: Trustee

 

Email Address of Authorized Signatory: ############@#####.###

 

Facsimile Number of Authorized Signatory: ________________________________________

 

State of Residence of Lender: _ ####### __________________________________________

 

Address for Notice to Lender: __________________________________________________

 

__ ## #### ###### ##### _____________________________________________________

 

__ ######, ####### ##### ____________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

__ #### ###### ##### _______________________________________________________

 

__ ######, ####### ##### ____________________________________________________

 

Principal Amount: 250,000.00

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Israel Muller

 

Signature of Authorized Signatory of Lender : /s/ Israel Muller

 

Name of Authorized Signatory: Israel Muller

 

Title of Authorized Signatory: Self

 

Email Address of Authorized Signatory: #####@####.###

 

Facsimile Number of Authorized Signatory: #####@####.###

 

State of Residence of Lender: _ ###### ___________________________________________

 

Address for Notice to Lender: __________________________________________________

 

__ # ####### ##### _________________________________________________________

 

__ #######, ## ###### _______________________________________________________

 

__ ###### _________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_____ Same ________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $150,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Robert S. Colman Trust UDT 3/13/85

 

Signature of Authorized Signatory of Lender : /s/ Robert S. Colman

 

Name of Authorized Signatory: Robert S. Colman

 

Title of Authorized Signatory: Trustee

 

Email Address of Authorized Signatory: #######@###############.###/ #####@###############.###

 

Facsimile Number of Authorized Signatory: _______________________________________

 

State of Residence of Lender: _ ##### ____________________________________________

 

Address for Notice to Lender: __ ## ### ####, ####### ## ##### ______________________

 

_ for overnight delivery: ## ##### ##### ##, ####### ## ##### ________________________

 

__ **please confirm before sending** ____________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

___________ same __________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $150,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Joseph Hoch

 

Signature of Authorized Signatory of Lender : /s/ Joseph Hoch

 

Name of Authorized Signatory: Joseph Hoch

 

Title of Authorized Signatory: __________________________________________________

 

Email Address of Authorized Signatory: #####@##########.###

 

Facsimile Number of Authorized Signatory: ###-###-#### _____________________________

 

State of Residence of Lender:    ### ##### _________________________________________

 

Address for Notice to Lender: __ ## #### #### ######## ____________________________

 

     ###-## ###### ####, ##### ### _____________________________________________

 

     ### #######, ## ##### ____________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $100,000

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Point Capital Inc.

 

Signature of Authorized Signatory of Lender : /s/ Eric Weisblum

 

Name of Authorized Signatory: Eric Weisblum

 

Title of Authorized Signatory: _ President __________________________________________

 

Email Address of Authorized Signatory: ####@###############.###

 

Facsimile Number of Authorized Signatory: ###=###=#### ____________________________

 

State of Residence of Lender: _ ## _______________________________________________

 

Address for Notice to Lender: __ ### ##### ### #### # ______________________________

 

__ ######### ## ##### _____________________________________________________

 

_________________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_______ same ______________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $100,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Mordechai Belsky

 

Signature of Authorized Signatory of Lender : /s/ Mordechai Belsky

 

Name of Authorized Signatory: Mordechai Belsky

 

Title of Authorized Signatory: Self _______________________________________________

 

Email Address of Authorized Signatory: ####@##########.###

 

Facsimile Number of Authorized Signatory: ________________________________________

 

State of Residence of Lender: _ ### #### __________________________________________

 

Address for Notice to Lender: __ ### ###### ### __________________________________

 

__ ########, ## ##### ______________________________________________________

 

_________________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_______ same ______________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $100,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: 2004 Leon Scharf Irrevocable Trust Corp

 

Signature of Authorized Signatory of Lender : /s/ Willy Beer

 

Name of Authorized Signatory: Willy Beer

 

Title of Authorized Signatory: _ Investment Trustee __________________________________

 

Email Address of Authorized Signatory: #####@###############.###

 

Facsimile Number of Authorized Signatory:    ###-###-####                                                                    

 

State of Residence of Lender:    ## ________________________________________________

 

Address for Notice to Lender: __ #### ######### ###. ##### ###, ########, ## ##### _____

 

_______________________________________________________________________

 

    _______________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

____ #### ######### ###. ##### ###, ########, ## ##### __________________________

 

_________________________________________________________________________

 

Principal Amount: $50,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Max M. Mizrachi

 

Signature of Authorized Signatory of Lender : /s/ Max M. Mizrachi

 

Name of Authorized Signatory: Max M. Mizrachi

 

Title of Authorized Signatory: _ Self ______________________________________________

 

Email Address of Authorized Signatory: ####@####.###

 

Facsimile Number of Authorized Signatory: _ (###) ###-#### ___________________________

 

State of Residence of Lender: _ ### #### __________________________________________

 

Address for Notice to Lender: __ #### #### ### ###### ______ _______________________

 

########, ## ##### ________________________________________________________

 

__ _______________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $50,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Erick Richardson

 

Signature of Authorized Signatory of Lender : /s/ Erick Richardson

 

Name of Authorized Signatory: Erick Richardson

 

Title of Authorized Signatory: _ Self ______________________________________________

 

Email Address of Authorized Signatory: ##@##################.###

 

Facsimile Number of Authorized Signatory: ________________________________________

 

State of Residence of Lender: _ ## _______________________________________________

 

Address for Notice to Lender: __ ##### ###### #### _______________________________

 

### ######, ## ##### ______________________________________________________

 

_________________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: 44,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Chaim Gross

 

Signature of Authorized Signatory of Lender : /s/ Chaim Gross

 

Name of Authorized Signatory: Chaim Gross

 

Title of Authorized Signatory: _ Self ______________________________________________

 

Email Address of Authorized Signatory: ##########@#####.###

 

Facsimile Number of Authorized Signatory:     ###-###-####                                                                  

 

State of Residence of Lender: _## _______________________________________________

 

Address for Notice to Lender: __ #### ########## ##, ########, ## ##### ______________

 

________________________________________________________________________

 

      ______________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_________________________________________________________________________

 

_________________________________________________________________________

 

Principal Amount: $30,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

  

[SIGNATURE PAGE OF LENDERS TO LOAN AND SECURITY AGREEMENT]

  

Name of Lender: Jacob Maziar Arjang

 

Signature of Authorized Signatory of Lender : /s/ Jacob Maziar Arjang

 

Name of Authorized Signatory: Jacob Maziar Arjang

 

Title of Authorized Signatory: _ Self ______________________________________________

 

Email Address of Authorized Signatory: #######@########.###

 

Facsimile Number of Authorized Signatory: ___ (###) ###-#### _________________________

 

State of Residence of Lender: _ ### #### __________________________________________

 

Address for Notice to Lender: __ ## ####### #### _ _________________________________

 

##### ####, ## ##### _______________________________________________________

 

__ _______________________________________________________________________

 

Address for Delivery of Securities to Lender (if not same as address for notice):

 

_ _ ## ####### #### _ _______________________________________________________

 

##### ####, ## ##### ______________________________________________________

 

Principal Amount: $26,000

 

Beneficial Ownership Limitation: [4.99% or 9.99%]: ____________________

 

 

 

 

Annex A

 

Lenders

 

 Riding the Bull, LLC   $ 1,050,000  
Alpha Capital Anstalt   $ 500,000  
Titan Multi-Strategy Fund I, Ltd. 1   $ 500,000  
Chesed Found Ltd.   $ 400,000  
Fame Associates   $ 250,000  
H & M Machine Co.   $ 250,000  
Kuykendall Associates, LLC Retirement Trust   $ 250,000  
Muller, Israel   $ 150,000  
Robert S. Colman Trust UDT 3/13/85   $ 150,000  
Hoch, Joseph   $ 100,000  
Point Capital, Inc.   $ 100,000  
Belsky, Mordechai   $ 100,000  
2004 Leon Scharf Irrevocable Trust Corp   $ 50,000  
Mizrachi, Max   $ 50,000  
Richardson, Erick   $ 44,000  
Gross, Chaim   $ 30,000  
Arjang, Jacob Maziar   $ 26,000  
Total   $ 4,000,000  

  

1 Titan Multi-Strategy Fund I, LTD.’s payment is being deemed paid by the cancellation of a promissory note, in the aggregate principal amount of $500,000, dated as of December 11, 2015, issued by the Company to Titan Multi-Strategy Fund I, LTD.

 

 

 

 

Annex B 

 

Execution Copy

 

ESCROW AGREEMENT

 

This Agreement is dated as of the 21 st day of December, 2015 among PhaseRx, Inc., a Delaware corporation (the “ Company ”), the parties identified on Schedule A hereto (each a “ Lender ”, and collectively “ Lenders ”), and Grushko & Mittman, P.C. (the “ Escrow Agent ”):

 

WITNESSETH :

 

WHEREAS, the Company and Lenders have entered into a Loan and Security Agreement calling for loans by the Lenders to the Company of an aggregate of $4,000,000; and

 

WHEREAS, the parties hereto require the Escrowed Payments (as defined below) to be delivered to the Escrow Agent, along with the other documents, instruments and payments hereinafter described, to be held in escrow and released by the Escrow Agent in accordance with the terms and conditions of this Agreement; and

 

WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement;

 

NOW THEREFORE, the parties agree as follows:

 

ARTICLE I

 

INTERPRETATION

 

1.1.           Definitions . Capitalized terms used and not otherwise defined herein that are defined in the Loan and Security Agreement shall have the meanings given to such terms in the Loan and Security Agreement. Whenever used in this Agreement, the following terms shall have the following respective meanings:

 

§ Agreement ” means this Agreement and all amendments made hereto and thereto by written agreement between the parties;

 

§ Closing Date ” shall have the meaning set forth in Section 1 of the Loan and Security Agreement;

 

§ " Escrowed Payment " means an aggregate cash payment of $4,000,000 (or $3,500,000 in the circumstance described in Section 3.01(b) of the Loan and Security Agreement);

 

§ Loan and Security Agreement " means the Loan and Security Agreement (and the exhibits thereto) entered into or to be entered into by the parties in reference to the Loans;

 

§ Security Agent ” shall mean Titan Multi-Strategy Fund I, LTD.;

 

§ The Company executed Loan and Security Agreement and the annexes and schedules thereto are referred to as " Company Documents "; and

 

§ Collectively, the Escrowed Payment, each Lender’s and Security Agent’s executed Loan and Security Agreement and the annexes and schedules thereto are referred to as " Lenders Documents ".

 

1  

 

  

1.2.           Entire Agreement . This Agreement along with the Company Documents and the Lenders Documents to which the Lenders and the Company or Subsidiary are a party constitute the entire agreement between the parties hereto pertaining to the Company Documents and Lenders Documents and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof, except as specifically set forth in this Agreement, the Company Documents and the Lenders Documents.

 

1.3.           Extended Meanings . In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders. The word “person” includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative.

 

1.4.           Waivers and Amendments . This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance. Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

 

1.5.           Headings . The division of this Agreement into articles, sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

 

1.6.           Law Governing this Agreement . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party (which shall be the party which receives an award most closely resembling the remedy or action sought) shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

 

1.7.           Specific Enforcement, Consent to Jurisdiction . The Company and Lenders acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injuction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 1.6 hereof, each of the Company and Lenders hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

2  

 

  

ARTICLE II

 

DELIVERIES TO THE ESCROW AGENT

 

2.1.           Company Deliveries . On or before the Closing Date, the Company shall execute and deliver the Company Documents to the Escrow Agent.

 

2.2.           Lenders Deliveries. (i) On or before the Closing Date, Lenders shall execute and deliver the Lenders Documents, shall cause the Security Agent to execute and deliver the Loan and Security Agreement, and shall deliver the Escrowed Payment in cash, to the Escrow Agent. The Escrowed Payment will be delivered pursuant to the following wire transfer instructions:

 

Citibank, N.A.

1155 6 th Avenue

New York, NY 10036

ABA Number: ####-#####

For Credit to: Grushko & Mittman, IOLA Trust Account

Account Number: ##########

 

2.3.           Intention to Create Escrow Over Company Documents and Lenders Documents . The Lenders and Company intend that the Company Documents and Lenders Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement for their benefit as set forth herein.

 

2.4.           Escrow Agent to Deliver Company Documents and Lenders Documents . The Escrow Agent shall hold and release the Company Documents and Lenders Documents only in accordance with the terms and conditions of this Agreement.

 

ARTICLE III

 

RELEASE OF COMPANY DOCUMENTS AND LENDERS DOCUMENTS

 

3.1.           Release of Escrow . Subject to the provisions of Section 4.2, the Escrow Agent shall release the Company Documents and Lenders Documents as follows:

 

(a)          On the Closing Date, the Escrow Agent will simultaneously (A) release the Company Documents to the Lenders, (B) release the Lender Documents to the Company and (C) release (i) to Palladium Capital Advisors LLC the amounts to be paid to Palladium Capital Advisors LLC mutually agreed by Palladium Capital Advisors LLC and the Company, (ii) to itself the sum of $17,500 plus Escrow Agent’s documented, out-of-pocket costs for filing UCC financing statements (which shall be in full satisfaction of the Company’s obligations under clause (i) of Section 10.05 of the Loan and Security Agreement), (iii) such other amounts described in Section 10.05 of the Loan and Security Agreement pursuant to written instructions approved by the Company, Palladium Capital Advisors LLC and Security Agent, and (iii) to the Company, the balance of the Escrowed Payment. The Escrow Agent may request any written representations, certifications and documents in Escrow Agent’s absolute discretion before releasing any funds from escrow.

 

(b)          Notwithstanding the above, upon receipt by the Escrow Agent of joint written instructions (“ Joint Instructions ”) signed by the Company and the Lenders, it shall deliver the Company Documents and Lenders Documents in accordance with the terms of the Joint Instructions.

 

3  

 

  

(c)          Anything herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree or award of a court of competent jurisdiction (a “ Court Order ”), the Escrow Agent shall deliver the Company Documents and Lenders Documents in accordance with the Court Order. Any Court Order shall be accompanied by an opinion of counsel for the party presenting the Court Order to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect that the court issuing the Court Order has competent jurisdiction and that the Court Order is final and non-appealable.

 

3.2.          The Closing may take place on or before December 21, 2015. After December 21, 2015, the Escrow Agent will promptly return the applicable Company Documents to the Company and return the Lenders Documents to the Lenders.

 

3.3.           Acknowledgement of Company and Lenders; Disputes . The Company and the Lenders acknowledge that the only terms and conditions upon which the Company Documents and Lenders Documents are to be released are set forth in Sections 3 and 4 of this Agreement. The Company and the Lenders reaffirm their agreement to abide by the terms and conditions of this Agreement with respect to the release of the Company Documents and Lenders Documents. Any dispute with respect to the release of the Company Documents and Lenders Documents shall be resolved pursuant to Section 4.2 or by agreement between the Company and Lenders.

 

ARTICLE IV

 

CONCERNING THE ESCROW AGENT

 

4.1.           Duties and Responsibilities of the Escrow Agent . The Escrow Agent’s duties and responsibilities shall be subject to the following terms and conditions:

 

(a)          The Lenders and Company acknowledge and agree that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be required to inquire into whether either the Lenders or Company is entitled to receipt of the Company Documents and Lenders Documents pursuant to any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv) may assume that any person believed by the Escrow Agent in good faith to be authorized to give notice or make any statement or execute any document in connection with the provisions hereof is so authorized; (v) shall not be under any duty to give the property held by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its own similar property; and (vi) may consult counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in respect of any action taken, suffered or omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.

 

(b)          The Lenders and Company acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and that the Escrow Agent shall not be liable for any action taken by Escrow Agent in good faith and believed by Escrow Agent to be authorized or within the rights or powers conferred upon Escrow Agent by this Agreement. The Lenders and Company, jointly and severally, agree to indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s partners, employees, agents and representatives for any action taken or omitted to be taken by Escrow Agent or any of them hereunder, including the fees of outside counsel and other costs and expenses of defending itself against any claim or liability under this Agreement, except in the case of gross negligence or willful misconduct on Escrow Agent’s part committed in its capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a duty only to the Lenders and Company under this Agreement and to no other person.

 

4  

 

  

(c)          The Lenders and Company jointly and severally agree to reimburse the Escrow Agent for reasonable outside counsel fees, to the extent authorized hereunder and incurred in connection with the performance of its duties and responsibilities hereunder.

 

(d)          The Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) days prior written notice of resignation to the Lenders and the Company. Prior to the effective date of the resignation as specified in such notice, the Lenders and Company will issue to the Escrow Agent a Joint Instruction authorizing delivery of the Company Documents and Lenders Documents to a substitute Escrow Agent selected by the Lenders and Company. If no successor Escrow Agent is named by the Lenders and Company, the Escrow Agent may apply to a court of competent jurisdiction in the State of New York for appointment of a successor Escrow Agent, and to deposit the Company Documents and Lenders Documents with the clerk of any such court.

 

(e)          The Escrow Agent does not have and will not have any interest in the Company Documents and Lenders Documents, but is serving only as escrow agent, having only possession thereof. The Escrow Agent shall not be liable for any loss resulting from the making or retention of any investment in accordance with this Escrow Agreement.

 

(f)          This Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied duties or obligations shall be read into this Agreement.

 

(g)          The Escrow Agent shall be permitted to act as counsel for the Lenders in any dispute as to the disposition of the Company Documents and Lenders Documents, in any other dispute between the Lenders and Company, whether or not the Escrow Agent is then holding the Company Documents and Lenders Documents and continues to act as the Escrow Agent hereunder.

 

(h)          The provisions of this Section 4.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement.

 

4.2.           Dispute Resolution: Judgments . Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions:

 

(a)          If any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Company Documents and Lenders Documents, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Company Documents and Lenders Documents pending receipt of a Joint Instruction from the Lenders and Company, or (ii) deposit the Company Documents and Lenders Documents with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent shall give written notice thereof to the Lenders and the Company and shall thereupon be relieved and discharged from all further obligations pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings which relate to the Company Documents and Lenders Documents. The Escrow Agent shall have the right to retain counsel if it becomes involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to consult counsel.

 

5  

 

  

(b)          The Escrow Agent is hereby expressly authorized to comply with and obey any Court Order. In case the Escrow Agent obeys or complies with a Court Order, the Escrow Agent shall not be liable to the Lenders and Company or to any other person, firm, corporation or entity by reason of such compliance.

 

ARTICLE V

 

GENERAL MATTERS

 

5.1.           Termination . This escrow shall terminate upon the release of all of the Company Documents and Lenders Documents or at any time upon the agreement in writing of the Lenders and Company.

 

5.2.           Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, email (including email transmission of a PDF file), telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, email receipt or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received), (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur or (c) if by e-mail upon confirmation of receipt by the recipient. The addresses for such communications shall be:

 

(a)          If to the Company, to:

 

PhaseRx, Inc.

410 W. Harrison Street, Suite 300

Seattle, Washington 98119

Attn: Robert Overell, CEO

Email: robert@phaserx.com

 

With a copy by personal delivery, fax or email only, to (which shall not constitute notice):

 

Haynes and Boone, LLP

30 Rockefeller Plaza, 26 th Floor

New York, NY 10112

Attn: Rich Werner, Esq.

Fax: (212) 884-8234

Email: Rick.Werner@haynesboone.com

 

(b)          If to the Lenders: to: the addresses and fax numbers listed on Schedule A hereto.

 

With a copy by personal delivery, fax or email only, to (which shall not constitute notice):

 

6  

 

  

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Attn: Edward M. Grushko, Esq.

Fax: (212) 697-3575

Email: counslers@aol.com

 

(c)          If to the Escrow Agent, to:

 

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Attn: Edward M. Grushko, Esq.

Fax: (212) 697-3575

 

or to such other address as any of them shall give to the others by notice made pursuant to this Section 5.2.

 

5.3.           Interest . The Escrowed Payment shall not be held in an interest bearing account nor will interest be payable in connection therewith. In the event the Escrowed Payment is deposited in an interest bearing account, any interest earned on the Escrowed Payment will be paid in the New York State Client Protection Fund or for a similar purpose.

 

5.4.           Assignment; Binding Agreement . Neither this Agreement nor any right or obligation hereunder shall be assignable by any party without the prior written consent of the other parties hereto. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns.

 

5.5.           Invalidity . In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

 

5.6.           Counterparts/Execution . This Agreement may be executed in any number of counterparts and by different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by e-mail transmission of a PDF or facsimile transmission and delivered by mail transmission of a PDF facsimile transmission.

 

5.7.           Agreement . Each of the undersigned states that he has read the foregoing Escrow Agreement and understands and agrees to it.

 

7  

 

  

IN WITNESS WHEREOF , the undersigned have executed and delivered this Escrow Agreement, as of the date first written above.

 

  COMPANY:
  PHASERX, INC.
  A Delaware corporation
     
  By:  
  Name:  
  Title:  

 

  ESCROW AGENT :
   
  GRUSHKO & MITTMAN, P.C.

 

8  

 

 

[SIGNATURE PAGE OF LENDERS TO ESCROW AGREEMENT]

 

Name of Lender:  
Signature of Authorized Signatory of Lender :  
Name of Authorized Signatory:  
Title of Authorized Signatory:  
Email Address of Authorized Signatory:  
Facsimile Number of Authorized Signatory:  
State of Residence of Lender:  
   
Address for Notice to Lender:  
 
 
   
Address for Delivery of Securities to Lender (if not same as address for notice):
 
 

 

Principal Amount:  

 

9  

 

  

SCHEDULE A TO ESCROW AGREEMENT

 

LENDER AND ADDRESS  

LOAN PRINCIPAL

 
       
Riding the Bull, LLC
#### ## ##### #####
##### #####, ## #####
  $ 1,050,000  
         
Alpha Capital Anstalt
########## ##
##-#### #####
########## #############
  $ 500,000  
         
Titan Multi-Strategy Fund I, Ltd. 1
#### ## #### ####
#### #####, ## #####
  $ 500,000  
         
Chesed Found Ltd.
#### ###, ### #####
##. ####### ########
# ### ##### ###### #######
#### ####
  $ 400,000  
         
Fame Associates
c/o ### #######
### ########, #### #####
### ####, ## #####
  $ 250,000  
         
H & M Machine Co.
## ### ###
######, ## #####
  $ 250,000  
         
Kuykendall Associates, LLC Retirement Trust
#### ###### #####
######, ## #####
  $ 250,000  
         
Muller, Israel
# ########  ######
#######, ## ### ###
######
  $ 150,000  
         
Robert S. Colman Trust UDT 3/13/85
## ### ####
#######, ## #####
  $ 150,000  
         
Hoch, Joseph
c/o #### ##### ########
###-## ###### #########, ##### ###
### #######, ## #####
  $ 100,000  
         
Point Capital, Inc.
### ##### ######, ######## #
#########, ## #####
  $ 100,000  
         
Belsky, Mordechai
### ###### ######
########, ## #####
  $ 100,000  
         
2004 Leon Scharf Irrevocable Trust Corp
#### ######### ######, ##### ###
########, ## #####
  $ 50,000  
         
Mizrachi, Max
#### #### ### ######
########, ## #####
  $ 50,000  
         
Richardson, Erick
##### ###### ####
### #######, ## #####
  $ 44,000  
         
Gross, Chaim
#### ########## ######, ##
########, ## #####
  $ 30,000  
         
Arjang, Jacob Maziar
## ####### ####
##### ####, ## #####
  $ 26,000  
         
Total   $ 4,000,000  

 

 

1 Titan Multi-Strategy Fund I, LTD.’s payment is being deemed paid by the cancellation of a promissory note, in the aggregate principal amount of $500,000, dated as of December 11, 2015, issued by the Company to Titan Multi-Strategy Fund I, LTD.

 

10  

 

 

Annex C

 

THE AGENT

 

1.           Appointment . The Lenders (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Loan and Security Agreement to which this Annex C is attached (the “ Agreement ”)), by their acceptance of the benefits of the Agreement, hereby designate Titan Multi-Strategy Fund I, LTD. (the “ Security Agent ”) as the Security Agent to act as specified herein and in the Agreement. Each Lender shall be deemed irrevocably to authorize the Security Agent to take such action on its behalf under the provisions of the Agreement and any other Facility Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Security Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Security Agent may perform any of its duties hereunder by or through its agents or employees.

 

2.           Nature of Duties . The Security Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Security Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Security Agent shall be mechanical and administrative in nature; the Security Agent shall not have by reason of the Agreement or any other Facility Documents a fiduciary relationship in respect of any Borrower or any Lender; and nothing in the Agreement or any other Facility Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Security Agent any obligations in respect of the Agreement or any other Facility Documents except as expressly set forth herein and therein.

 

3.           Lack of Reliance on the Security Agent . Independently and without reliance upon the Security Agent, each Lender, to the extent it deems appropriate, has made and shall continue to make (a) its own independent investigation of the financial condition and affairs of Borrower in connection with such Lender’s investment in Borrower, the creation and continuance of the Obligations, the transactions contemplated by the Facility Documents, and the taking or not taking of any action in connection therewith, and (b) its own appraisal of the creditworthiness of Borrower, and of the value of the Collateral from time to time, and the Security Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter.

 

The Security Agent shall not be responsible to Borrower or any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Facility Documents, or for the financial condition of Borrower or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Facility Documents, or the financial condition of Borrower, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement or any of the other Facility Documents.

 

 

 

 

4.           Certain Rights of the Security Agent . The Security Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Lenders. To the extent practical, the Security Agent shall request instructions from the Lenders with respect to any material act or action (including failure to act) in connection with the Agreement or any other Facility Documents, and shall be entitled to act or refrain from acting in accordance with the instructions of the Required Lenders; if such instructions are not provided despite the Security Agent’s request therefor, the Security Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Lenders in respect of actions to be taken by the Security Agent; and the Security Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Lender shall have any right of action whatsoever against the Security Agent as a result of the Security Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Facility Documents, and Borrower shall have no right to question or challenge the authority of, or the instructions given to, the Security Agent pursuant to the foregoing and (b) the Security Agent shall not be required to take any action that the Security Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Facility Documents or applicable law.

 

5.           Reliance . The Security Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Facility Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Facility Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Security Agent shall have no obligation whatsoever to any Lender to assure that the Collateral exists or is owned by Borrower or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

 

6.           Indemnification . To the extent that the Security Agent is not reimbursed by Borrower, the Lenders will jointly and severally reimburse and indemnify the Security Agent, in proportion to their respective principal amounts of the Term Loans, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Security Agent in performing its duties hereunder or under the Agreement or any other Facility Documents, or in any way relating to or arising out of the Agreement or any other Facility Documents except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Security Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Security Agent, the Security Agent may require each Lender to deposit with it sufficient sums as it determines in good faith is necessary to protect the Security Agent for costs and expenses associated with taking such action.

 

7.             Resignation by the Security Agent .

 

(a)          The Security Agent may resign from the performance of all its functions and duties under the Agreement and the other Facility Documents at any time by giving thirty (30) days’ prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the appointment of a successor Security Agent pursuant to clauses (b) and (c) below.

 

 

 

 

(b)          Upon any such notice of resignation, the Required Lenders shall appoint a successor Security Agent hereunder.

 

(c)          If a successor Security Agent shall not have been so appointed within said 30-day period, the Security Agent shall then appoint a successor agent who shall serve as Security Agent until such time, if any, as the Lenders appoint a successor agent as provided above. If a successor agent has not been appointed within such 30-day period, the Security Agent may petition any court of competent jurisdiction or may interplead Borrower and the Lenders in a proceeding for the appointment of a successor Security Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by Borrower on demand.

 

8.           Rights with respect to Collateral . Each Lender agrees with all other Lenders and the Security Agent (a) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Security Agent or any of the other Lenders in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (b) that such Lender has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Facility Documents.

 

Upon the acceptance of any appointment as the Security Agent hereunder by a successor Security Agent, such successor Security Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Security Agent and the retiring Security Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Security Agent’s resignation or removal hereunder as the Security Agent, the provisions of the Agreement including this Annex C shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Security Agent.

 

 

 

 

Annex D

 

SUBORDINATED LENDERS

 

ARCH Venture Fund VII, L.P.

Alexandria Equities, LLC

Versant Venture Capital III, L.P.

Versant Side Fund III, L.P.

5AM Ventures II, LP

5AM Co-Investors II, LP

 

 

 

 

Annex E

 

EXCLUDED COLLATERAL

 

1) Exclusive Patent License Agreement, dated as of December 6, 2006, by and between The University of Washington and PhaseRx, Inc., for Membrane Disruptive Polymers, as amended.

 

2) RAFT Non-Exclusive License Agreement, dated as of October 26, 2009, by and between the Commonwealth Scientific and Industrial Research Organisation and PhaseRx, Inc.

 

 

 

  

DISCLOSURE SCHEDULE

 

This Disclosure Schedule is made and given pursuant to Section 4 of the Loan and Security Agreement, dated as of December 21, 2015 (the “ Agreement ”), among PhaseRx, Inc., a Delaware corporation (the “ Company ”), the Investors listed on Annex A thereto and Titan Multi-Strategy Fund I, LTD., as security agent, and shall be interpreted and applied as part of the Agreement solely in connection with the Closing occurring on December 21, 2015. All capitalized terms used but not defined herein shall have the meanings as defined in the Agreement, unless otherwise provided. The section numbers below correspond to the section numbers of the representations and warranties in the Agreement; provided, however, that any information disclosed herein under any section number shall be deemed to be disclosed and incorporated into any other section number under the Agreement where such disclosure would be reasonably apparent from a reading of such disclosure item that it would also apply to such other representation or warranty.

 

Nothing in this Disclosure Schedule is intended to broaden the scope of any representation or warranty contained in the Agreement or to create any covenant. Inclusion of any item in this Disclosure Schedule (1) does not represent a determination that such item is material or establish a standard of materiality, (2) does not represent a determination that such item did not arise in the ordinary course of business, (3) does not represent a determination that the transactions contemplated by the Agreement require the consent of third parties, and (4) shall not constitute, or be deemed to be, an admission to any third party concerning such item.

  

 

 

 

Section 4.01(e).

 

None.

 

Section 4.01(i). Capitalization

 

Capital Stock as of the Date of the Agreement

 

Common Stock     5,678,408  
Common Stock Options        
Outstanding     4,808,646  
Available for Grant     243,042  
Preferred Stock     20,216,583  
Series A-1 Stock     5,500,000  
Bridge Notes*     19,368,623  
Common Stock Warrants     -  
Preferred Stock Warrants     3,614,761  
         
Total     59,430,063  

 

*Number of shares of common stock issuable upon conversion of all of the convertible promissory notes set forth in Annex 4.01(p) as of the date of the Agreement.

 

Pro Forma Capitalization

 

    Shares     Amount ($)     Price     Ownership %     Ownership $     Ownership %     Ownership $  
Existing PhaseRx Shareholders(1)     7,393,939                       66.28 %   $ 44,363,636       58.99 %   $ 39,483,636  
New PhaseRx Insider Investment     1,566,667     $ 9,400,000     $ 6.00       14.04 %   $ 9,400,000       12.50 %   $ 8,366,000  
Bridge Loan into Private Company     833,333     $ 4,000,000     $ 4.80       7.47 %   $ 5,000,000       6.65 %   $ 4,450,000  
IPO     1,250,000     $ 7,500,000     $ 6.00       11.20 %   $ 7,500,000       9.97 %   $ 6,675,000  
Palladium Capital Advisors     112,000                       1.00 %   $ 672,000       0.89 %   $ 598,080  
Total     11,155,939     $ 20,900,000               100.00 %   $ 66,935,636       89.00 %   $ 59,572,716  
                                                         
ESOP     1,378,824                                       11.00 %   $ 7,362,920  
                                                         
Total     12,534,763                                       100.00 %   $ 66,935,636  

 

(1) Including 19,404,163 shares of common stock issuable upon conversion of all of the convertible promissory notes set forth in Annex 4.01(p) as of December 31, 2015.

 

- 2

 

 

Section 4.01(m).

 

None.

 

Section 4.01(n). Registration Rights

 

1. The Company is a party to the Second Amended and Restated Investors’ Rights Agreement (the “IRA”), dated November 17, 2014, by and among the Company and the holders of shares of the Company’s convertible preferred stock and certain warrants (including Lighthouse, as defined below) and Company’s founders listed on the exhibits thereto, which provides such holders and founders certain registration rights over the shares of common stock held by the Company’s founders and shares of common stock issued or issuable pursuant to the conversion of shares of Series A and Series A-1 convertible preferred stock or upon exercise of certain warrants (collectively, the “Registrable Securities”).

 

Demand registration rights

 

Under the IRA, the holders of not less than 20% of the voting power of the Registrable Securities may, on not more than two occasions, request that the Company file a registration statement to register all or a portion of their Registrable Securities, subject to certain marketing and other limitations.

 

Piggyback registration rights

 

Holders of the Registrable Securities are entitled to certain piggyback registration rights. If the Company registers any of its securities for its own account or the account of other security holder or holders, the holders of Registrable Securities may require the Company to include their Registrable Securities in the registration upon written request made within 10 days after notice of such registration is mailed by the Company, subject to certain marketing and other limitations.

 

Form S-3 registration rights

 

Holders of the Registrable Securities are entitled to certain Form S-3 registration rights, provided that the Company has not already effected one such registration within the twelve-month period preceding the date of such request. Such holders may make a request that the Company register their shares on Form S-3 if the Company is qualified to file a registration statement on Form S-3. The Company is not obligated to effect such request for registration if such request for registration on Form S-3 does not cover securities at an aggregate price to the public of less than $1,000,000.

 

- 3

 

  

The Company will pay the registration expenses, other than underwriting discounts and commissions, of the shares registered pursuant to the demand, piggyback and Form S-3 registrations described above. Generally, in an underwritten offering, the underwriters have the right, subject to specified conditions, to limit, or exclude entirely, the number of shares such holders may include. The demand, piggyback and Form S-3 registration rights described above terminate upon the earliest to occur of: (i) such date, on or after the closing of the Company’s first registered public offering of common stock, on which all shares of common stock subject to the registration rights can be sold under Rule 144 during any ninety day period, (ii) the date that is four years after the closing of the Company’s firm commitment underwritten public offering of the Company’s common stock registered under the Securities Act of 1933, as amended; or (iii) upon termination of the IRA.

 

2. On December 1, 2010, the Company issued a Preferred Stock Purchase Warrant (the “Lighthouse Warrant”) to purchase up to 112,520 shares of the Company’s Series A Preferred Stock to Lighthouse Capital Partners VI, L.P. (“Lighthouse”) in connection with that certain Loan and Security Agreement with Lighthouse. Pursuant to Section 15 of the Lighthouse Warrant, the shares of common stock issuable upon conversion of shares of Series A Preferred Stock issuable upon exercise of the Lighthouse Warrant are subject to the registration rights to the holders of Registrable Securities under the IRA.

 

- 4

 

  

Section 4.01(p). Debt and Liens

 

Promissory Note, in the aggregate principal amount of $500,000, dated as of December 11, 2015, held by Titan Multi-Strategy Fund I, LTD., which shall be due and payable on June 10, 2016. Upon and as part of the closing of the Term Loans, the Promissory Note will be surrendered and the outstanding principal balance and all accrued interest thereunder will be automatically converted into a Term Loan.

 

Convertible promissory notes set forth in Annex 4.01(p).

 

[ End of Document ]

 

- 5

 

  

      PhaseRx, Inc. Page 1 of 2
Report Date : 12/11/15    
      Convertible Promissory Notes (Next Equity or A)  
Date Printed : 12/11/15 at 4:03:33 PM    
      (Alphabetic Listing of Outstanding Notes)  

 

 

  Instr.   Instr.   Instr.   Principal   Interest   Interest   Compound   Principal Plus     Shares Issuable on   Shares Issued on
  Noteholder   Number   Date   Due Date   Amount ($)   Rate   Type   Rate   Accrued Interest     Convertible   Conversion of Notes   Conversion of Notes
                                             
5AM Co-Investors II, LP       02/01/12   02/01/13   37,960.11   8.0000   Simple   N-A   49,683.02   Y        
        12/10/12   06/10/13   17,082.05   8.0000   Simple   N-A   21,185.49   Y        
        04/09/13   06/10/13   17,082.05   8.0000   Simple   N-A   20,736.20   Y        
5AM Ventures II, LP       02/01/12   02/01/13   962,039.89   8.0000   Simple   N-A   1,259,138.82   Y        
        12/10/12   06/10/13   432,917.95   8.0000   Simple   N-A   536,913.12   Y        
        04/09/13   06/10/13   432,917.95   8.0000   Simple   N-A   525,526.79   Y        
Alexandria Equities, LLC       12/10/12   06/10/13   150,000.00   8.0000   Simple   N-A   186,032.87   Y        
        04/09/13   06/10/13   150,000.00   8.0000   Simple   N-A   182,087.66   Y        
        07/02/12   06/10/13   160,000.00   8.0000   Simple   N-A   204,081.09   Y        
        09/19/13   03/19/14   140,000.00   8.0000   Simple   N-A   164,946.85   Y        
        12/04/13   06/04/14   140,000.00   8.0000   Simple   N-A   162,614.79   Y        
        04/29/15   10/29/15   75,000.00   8.0000   Simple   N-A   78,715.07   Y        
        06/17/15   12/17/15   75,000.00   8.0000   Simple   N-A   77,909.59   Y        
        08/04/15   12/17/15   75,000.00   8.0000   Simple   N-A   77,120.54   Y        
        10/01/15   03/01/16   100,000.00   8.0000   Simple   N-A   101,556.16   Y        
ARCH Venture Fund VII, L.P.       12/10/12   06/10/13   450,000.00   8.0000   Simple   N-A   558,098.60   Y        
        04/09/13   06/10/13   450,000.00   8.0000   Simple   N-A   546,262.99   Y        
        06/28/13   12/28/13   500,000.00   8.0000   Simple   N-A   598,191.76   Y        
        07/16/13   12/28/13   900,000.00   8.0000   Simple   N-A   1,073,194.49   Y        
        07/02/12   06/10/13   1,440,000.00   8.0000   Simple   N-A   1,836,729.79   Y        
        09/19/13   03/19/14   1,260,000.00   8.0000   Simple   N-A   1,484,521.62   Y        
        12/04/13   06/04/14   400,000.00   8.0000   Simple   N-A   464,613.70   Y        
        06/17/15   12/17/15   375,000.00   8.0000   Simple   N-A   389,547.93   Y        
        04/29/15   10/29/15   375,000.00   8.0000   Simple   N-A   393,575.34   Y        
        08/04/15   12/17/15   375,000.00   8.0000   Simple   N-A   385,602.72   Y        
        10/01/15   03/01/16   1,100,000.00   8.0000   Simple   N-A   1,117,117.76   Y        
        02/01/12   02/01/13   1,300,000.00   8.0000   Simple   N-A   1,701,468.39   Y        

 

Report Name : NotealphaSpec.rpt

 

 

 

 

         
      PhaseRx, Inc. Page 2 of 2
Report Date : 12/11/15    
      Convertible Promissory Notes (Next Equity or A)  
Date Printed : 12/11/15 at 4:03:33 PM    
      (Alphabetic Listing of Outstanding Notes)  

  

Noteholder   Instr.
Number
  Instr.
Date
 

  Instr.
Due Date

  Principal
Amount ($)
  Interest
Rate
  Interest
Type
  Compound
Rate
  Principal Plus
Accrued Interest
  Convertible   Shares Issuable on
Conversion of Notes
  Shares Issued on
Conversion of Notes
                                             
Versant Side Fund III, L.P.       02/01/12   02/01/13   7,631.00   8.0000   Simple   N-A   9,987.62   Y        
        12/10/12   06/10/13   2,641.50   8.0000   Simple   N-A   3,276.04   Y        
        04/09/13   06/10/13   2,641.50   8.0000   Simple   N-A   3,206.56   Y        
        12/04/13   06/04/14   5,870.00   8.0000   Simple   N-A   6,818.21   Y        
        04/29/15   10/29/15   2,201.25   8.0000   Simple   N-A   2,310.29   Y        
        06/17/15   12/17/15   2,201.25   8.0000   Simple   N-A   2,286.65   Y        
        08/04/15   12/17/15   2,201.25   8.0000   Simple   N-A   2,263.49   Y        
Versant Venture Capital III, L.P.       02/01/12   02/01/13   1,292,369.00   8.0000   Simple   N-A   1,691,480.77   Y        
        12/10/12   06/10/13   447,358.50   8.0000   Simple   N-A   554,822.57   Y        
        04/09/13   06/10/13   447,358.50   8.0000   Simple   N-A   543,056.43   Y        
        12/04/13   06/04/14   994,130.00   8.0000   Simple   N-A   1,154,716.03   Y        
        04/29/15   10/29/15   372,798.75   8.0000   Simple   N-A   391,265.05   Y        
        06/17/15   12/17/15   372,798.75   8.0000   Simple   N-A   387,261.28   Y        
        08/04/15   12/17/15   372,798.75   8.0000   Simple   N-A   383,339.23   Y        
                                             
        Total :       16,215,000.00                            
                                             
No. of Noteholders :   6                                        

 

Report Name : NotealphaSpec.rpt

 

 

 

 

 

Exhibit 10.32

 

SUBORDINATION AGREEMENT

 

THIS SUBORDINATION AGREEMENT is entered into effective as of December 21, 2015, among the parties identified on Schedule A hereto (the “ Subordinated Lender ”), PhaseRx, Inc., a Delaware corporation (the “Borrower” ), and Titan Multi-Strategy Fund I, LTD., in its capacity as a Senior Lender (as defined below) and in its capacity as representative for itself and for the other Senior Lenders (the “ Representative ”), the parties identified on Schedule B hereto (together with the Representative, are collectively referred to herein as the “ Senior Lenders ”).

 

RECITALS

 

A.           The Borrower desires to execute and deliver to each of the Senior Lenders instruments memorializing senior secured instruments or debt obligations dated at or about the date hereof, in an aggregate original principal amount of up to $4,000,000 (such instruments, which may include promissory notes, together with any promissory notes or other securities issued in exchange or substitution therefor or replacement thereof, and as any of the same may be amended, supplemented, restated or modified and in effect from time to time, the “ Notes ”). The Notes will be issued pursuant to that certain Loan and Security Agreement dated at or about the date hereof (as the same may be otherwise dated, redated, amended, restated, supplemented or otherwise modified, the “ LSA ”), by and among the Borrower and the Senior Lenders, and pursuant to which the Senior Lenders will make certain loans (the “ Loans ”) to the Borrower.

 

B.           The execution and delivery of this Agreement is a condition precedent to the Senior Lenders making the Loans.

 

ACCORDINGLY, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Subordinated Lender, the Borrower, the Representative and the Senior Lenders agree as follows:

 

1.           Unless otherwise defined herein, or the context hereof otherwise requires, each term defined in the Notes is used in this Agreement with the same meaning. As used herein, the following terms have the meanings indicated:

 

Senior Debt ” means, whether now or hereafter arising, the obligations of the Borrower to any Senior Lender, including, without limitation, all indebtedness, obligations, and liabilities arising under or related to any Note, the LSA and the other Facility Documents (as defined in the LSA), including, without limitation, interest accruing after the commencement of any bankruptcy, insolvency or similar proceeding with respect to the Borrower, whether or not a claim for such post-commencement interest is allowed.

 

Subordinated Debt ” means all indebtedness, liabilities, and obligations of the Borrower, now existing or hereafter arising, to the Subordinated Lender, including, but not limited to: (i) all indebtedness of the Borrower payable to the order of the Subordinated Lender as further described on Schedule A annexed hereto, and (ii) any and all other obligations owing by the Borrower now or hereafter to the Subordinated Lender.

 

2.           The payment of any and all Subordinated Debt is hereby expressly subordinated to all Senior Debt to the extent and in the manner set forth in this Agreement.

 

3.           Except as expressly set forth herein, the Subordinated Lender shall not accelerate, demand, sue for, commence any collection or enforcement action or proceeding, take, receive, accept, or retain any payment or distribution of any character, whether in cash, securities, or other property, in respect of the principal of, premium on, or interest on, the Subordinated Debt until all Senior Debt is indefeasibly paid in full or satisfied pursuant to the terms of the Notes.

 

     

 

 

4.           Notwithstanding any provision of the Subordinated Debt to the contrary and in addition to any other limitations set forth herein or therein, no payment (whether made in cash, securities or other property or by set-off) of principal, interest or any other amount due with respect to the Subordinated Debt shall be made or received, and the Subordinated Lender shall not exercise any right of set-off or recoupment with respect to any Subordinated Debt, until all of the Senior Debt is indefeasibly paid in full or satisfied pursuant to the terms of the Notes.

 

5.           In the event any payment or distribution of any character, whether in cash, securities, or other property, is received by the Subordinated Lender in contravention of the terms of this Agreement, and before all Senior Debt shall have been paid in full or satisfied pursuant to the terms of the Notes, such payment or distribution shall be held by the Subordinated Lender, as trustee of an express trust, in trust for the benefit of, and shall be paid over or delivered and transferred to the Representative for the benefit of the Senior Lenders for application to all Senior Debt remaining unpaid until such Senior Debt shall have been paid in full or satisfied pursuant to the terms of the Notes. The Subordinated Lender hereby assigns to the Representative, for the benefit of the Senior Lenders, all its rights to any such payments or distributions, which the Representative, for the benefit of the Senior Lenders, may exercise in any Senior Lender’s name or in the name of the Subordinated Lender, and agrees to execute such instruments as may be required by the Representative to enable the Senior Lenders to enforce such claims. Any payments or distributions received in excess of the amount sufficient to pay all Senior Debt in full shall be returned by the Senior Lenders pro rata to the Subordinated Lender.

 

6.           Each Senior Lender may, at any time and from time to time, without the consent of or notice to the Subordinated Lender, without incurring responsibility to the Subordinated Lender, and without impairing or releasing any of such Senior Lender’s rights, or any of the obligations of the Subordinated Lender hereunder, (a) change the amount, manner, place, or terms of payment, or change or extend the time of payment of or renew or alter all or any part of the Senior Debt or amend, modify, supplement, or restate, any of the Facility Documents in any manner whatsoever; (b) sell, exchange, release, or otherwise deal with all or any part of any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, all or any part of the Senior Debt; (c) release any Person liable in any manner for the payment or collection of all or any part of the Senior Debt; (d) exercise or refrain from exercising any rights against the Borrower; and (e) apply any sums, by whomsoever paid or however realized, to the Senior Debt.

 

7.           The Subordinated Debt shall at no time be secured by any security interest in or lien on any property; any security interests and liens now or hereafter held by the Subordinated Lender in any collateral for the Subordinated Debt shall be released in their entirety, and, to the extent not released, shall be junior and subordinate to any security interests and liens now or hereafter held by the Senior Lenders in the same collateral. So long as the Senior Debt shall remain unpaid, the Representative on behalf of, and for the benefit of, the Senior Lenders, may at all times in its sole discretion exercise any and all powers and rights which it now has or may hereafter acquire with respect to any of the collateral securing the Senior Debt or any guaranties thereof, all without the necessity of obtaining any consent or approval of the Subordinated Lender.

 

8.           In the event of the institution of and in connection with any proceeding against the Borrower or any guarantor of the Senior Debt pursuant to any insolvency, bankruptcy, receivership, custodianship, liquidation, reorganization, assignment for the benefit of creditors or other proceeding for the liquidation, dissolution or other winding up of the Borrower or any subsidiary thereof, or any of their respective properties, and unless or until the Senior Debt is indefeasibly paid in full or otherwise satisfied pursuant to the terms of the Notes:

 

  - 2 -  

 

 

(a)           all Senior Debt shall first be paid in full before any payment or distribution of any character, whether in cash, securities, or other property, shall be made in respect of the principal of, premium on, or interest on the Subordinated Debt;

 

(b)           any payment or distribution of any character, whether in cash, securities, or other property, which would otherwise (but for the terms hereof) be payable or deliverable in respect of the principal of, premium on, or interest on the Subordinated Debt, shall be paid or delivered directly to the Representative on behalf of, and for the benefit of, the Senior Lenders, and the Subordinated Lender irrevocably authorizes, empowers, and directs all receivers, trustees, liquidators, conservators, and others having authority to effect all such payments and deliveries;

 

(c)           the Representative, may, as attorney-in-fact for the Subordinated Lender, take such action on behalf of the Subordinated Lender for the benefit of the Senior Lenders, and each Subordinated Lender hereby appoints the Representative as its attorney-in-fact, to demand, sue for, collect, and receive any and all such moneys, dividends, or other assets and give acquittance therefor and to file any claim, proof of claim, or other instrument of similar character and to take such other proceedings in the name of the Subordinated Lenders as the Representative may deem necessary or advisable for the benefit of the Senior Lenders in connection with the enforcement of this Agreement; and

 

(d)           The Subordinated Lender shall execute and deliver to the Representative, on behalf of the Senior Lenders, all such further instruments confirming the authorization referred to in the foregoing clauses (b) and (c) and all such proofs of claim, assignments of claim, and other instruments and shall take all such other actions as may be reasonably requested by the Representative in order to enable the Representative to enforce all rights of the Senior Lenders hereunder and all claims of the Senior Lenders upon or in respect of the Subordinated Debt, and failing execution of such instruments or taking of such actions by the Subordinated Lender, the Representative is hereby authorized and empowered to execute and perform the same on behalf of the Subordinated Lender.

 

9.           The Subordinated Lender represents and warrants, as applicable, that it is duly organized, validly existing, and in good standing and has the power and authority under applicable law and under its organizational documents to enter into this Agreement; all actions necessary or appropriate for its execution and performance of this Agreement have been taken and upon its execution, this Agreement will constitute its valid and binding obligation enforceable in accordance with its terms; and the making and performance of this Agreement will not violate any law or organizational documents, or result in any violation of or constitute a default under any agreement by which it or any of its property is bound.

 

10.           This Agreement is a continuing agreement of subordination and any Senior Lender may continue to make loans to or otherwise accept the obligations of the Borrower in reliance hereon, without notice to the Subordinated Lender.

 

11.           While this Agreement remains in effect, the Subordinated Lender covenants and agrees that it will not (a) modify or amend or permit modification or amendment of the terms and conditions of the Subordinated Debt, without obtaining the prior written consent of the Representative, or (b) grant or permit the granting of any security interest to secure the Subordinated Debt. The Subordinated Lender represents and warrants to each Senior Lender that as of the date hereof the Borrower has not granted any security interest to secure the Subordinated Debt.

 

  - 3 -  

 

 

12.           No amendment, waiver, or discharge to or under this Agreement is valid unless it is in writing and is signed by the party against whom it is sought to be enforced. The Subordinated Lender hereby waives all notices with respect to the subject matter hereof, including, but not limited to, notice of acceptance of this Agreement, of the making of loans or advances to the Borrower or any extensions, renewals, or modifications thereof, releases of collateral security or guarantors or other indulgences of any character, or of the occurrence or declaration of any default or the taking of any collection or enforcement action. This Agreement shall be governed by and construed according to the Laws of the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the LSA or this Agreement, then, in addition to the obligations of Borrower, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

13.           This Agreement inures to the benefit of each Senior Lender, and its respective successors and assigns, and the rights under this Agreement may be assigned in accordance with the terms of the Note, the LSA and the other Facility Documents in whole or in part in connection with any partial or complete assignment or transfer of the Senior Debt. This Agreement binds the Subordinated Lender and its successors and assigns, and the Subordinated Lender will advise each future holder of all or any part of the Subordinated Debt that the Subordinated Debt is subordinated to the Senior Debt in the manner and to the extent set forth in this Agreement.

 

14.           This Agreement may be executed in a number of identical counterparts, each of which is deemed an original for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this Agreement, it is not necessary to produce or account for more than one counterpart.

 

15.           Subject to the provisions of this Agreement (including, without limitation, Section 3 of this Agreement) and the rights of the Senior Lenders hereunder, nothing herein contained shall impair the obligation of the Borrower, which is absolute and unconditional, to pay the Subordinated Debt as and when the same shall become due and payable in accordance with the terms thereof.

 

16.           EACH PARTY HERETO HEREBY IRREVOCABLY 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 ANY OTHER FACILITY DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEGES 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.

 

17.            THIS AGREEMENT, THE NOTE, THE LSA AND THE OTHER FACILITY DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

  - 4 -  

 

 

18.           The Subordinated Lender shall not sell, assign, dispose of or otherwise transfer all or any portion of the Subordinated Debt (a) without giving prior written notice of such action to the Representative and, (b) unless prior to the consummation of any such action, the transferee thereof shall execute and deliver to the Representative for the benefit of the Senior Lenders a joinder to this Agreement, or an agreement substantially identical to this Agreement and acceptable to the Representative, in either case providing for the continued subordination and forbearance of the Subordinated Debt to the Senior Debt as provided herein and for the continued effectiveness of all of the rights of the Senior Lenders arising under this Agreement. In the event of a permitted sale, assignment, disposition or other transfer, the Subordinated Lender engaging in such sale, assignment, disposition or other transfer, prior to the consummation of any such action, shall cause the transferee thereof to execute and deliver to the Representative for the benefit of the Senior Lenders a joinder to this Agreement, or an agreement substantially identical to this Agreement and acceptable to the Representative, in either case providing for the continued subordination and forbearance of the Subordinated Debt to the Senior Debt as provided herein and for the continued effectiveness of all of the rights of the Senior Lenders arising under this Agreement. Notwithstanding the failure to execute or deliver any such agreement, the subordination effected hereby shall survive any sale, assignment, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon the successors and assigns of the Subordinated Lender.

 

19.           All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, email, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, email receipt or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

If to the Subordinated Lender:   To the addresses identified on Schedule A hereto
     
If to any the Borrower:  

PhaseRx, Inc.

410 W. Harrison Street, Suite 300

Seattle, Washington 98119

Attn: Robert Overell, CEO

Email: robert@phaserx.com

 

  - 5 -  

 

 

with a copy by personal delivery, fax or email only, to:  

Haynes and Boone, LLP

30 Rockefeller Plaza, 26 th Floor

New York, NY 10112

Attn: Rick Werner, Esq.

Fax: (212) 884-8234

Email: Rick.Werner@haynesboone.com

     
If to Representative:  

Titan Multi-Strategy Fund I, LTD.

4263 NW 61st Lane

Boca Raton, Fl 33496

Fax: 561-241-4749

Email: jonathanhonig@aol.com

     
With a copy by personal delivery, fax or email only, to:  

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Attn: Edward M. Grushko, Esq.

Fax: (212) 697-3575

Email: counslers@aol.com

     
If to Senior Lenders:   To the addresses identified on Schedule B hereto
     
With a copy by personal delivery, fax or email only, to:  

Grushko & Mittman, P.C.

515 Rockaway Avenue

Valley Stream, New York 11581

Attn: Edward M. Grushko, Esq.

Fax: (212) 697-3575

Email: counslers@aol.com

 

20.           (a) Each Senior Lender hereby (i) appoints Titan Multi-Strategy Fund I, LTD. as the Representative under this Agreement and (ii) authorizes the Representative (and its officers, directors, employees and agents) to take such action on such Senior Lender’s behalf in accordance with the terms hereof. The Representative shall not have, by reason hereof or any other Facility Document, a fiduciary relationship in respect of any other Senior Lender. Neither the Representative nor any of its officers, directors, employees and agents shall have any liability to any other Senior Lender for any action taken or omitted to be taken in connection hereof except to the extent caused by its own gross negligence or willful misconduct, and each other Senior Lender agrees to defend, protect, indemnify and hold harmless the Representative and all of its officers, directors, employees and agents (collectively, the “ Indemnitees ”) from and against any losses, damages, liabilities, obligations, penalties, actions, judgments, suits, fees, costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses) incurred by such Indemnitee, whether direct, indirect or consequential, arising from or in connection with the performance by such Indemnitee of the duties and obligations of the Representative pursuant hereto or any other Facility Document. Except as expressly set forth herein, the Representative shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the holders of at least a majority in principal amount of the Notes then outstanding, and such instructions shall be binding upon all  of the Senior Lenders; provided , however , that the Representative shall not be required to take any action which, in the reasonable opinion of the Representative, exposes the Representative to liability or which is contrary to this Agreement or any other Facility Document or applicable law.

 

  - 6 -  

 

 

(b)           The Representative shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person (as defined in the LSA), and with respect to all matters pertaining to this Agreement or any other Facility Document and its duties hereunder, upon advice of counsel selected by it.

 

(c)           The Representative may resign from the performance of all its functions and duties hereunder by giving at least ten (10) business days’ prior written notice to the Subordinated Lender and each other Senior Lender. Such resignation shall take effect upon the acceptance by a successor representative of appointment as provided below. Upon any such notice of resignation, the holders of a majority of the outstanding principal under the Notes shall appoint a successor representative. Upon the acceptance of the appointment as the successor representative, such successor representative shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring representative, and the retiring representative shall be discharged from its duties and obligations under this Agreement. After any representative's resignation hereunder, the provisions of this Section 20(c) (including the indemnification of all of the Senior Lenders who are not serving in the capacity of a representative) shall inure to its benefit. If a successor representative shall not have been so appointed within said ten (10) business day period, the retiring representative, shall then appoint a successor representative who shall serve until such time, if any, as the holders of a majority of the outstanding principal under the Notes appoint a successor representative as provided above.

 

[Signature Pages Follow]

 

  - 7 -  

 

 

IN WITNESS WHEREOF , the undersigned have executed and delivered this Subordination Agreement as of the date first written above.

 

  REPRESENTATIVE:
   
  Titan Multi-Strategy Fund I, LTD.
     
  By: /s/ Jonathan Honig
    Name: Jonathan Honig
    Title: Manager
     
  BORROWER:
   
  PHASERX, INC.
     
  By: /s/Robert Overell
    Name: Robert Overell
    Title: President and CEO

 

[SIGNATURE PAGE TO THE SUBORDINATION AGREEMENT]

 

     

 

 

[SIGNATURE PAGE OF SENIOR LENDERS TO SUBORDINATION AGREEMENT]

 

Name of Senior Lender: Titan Multi-Strategy Fun I, LTD

 

Signature of Authorized Signatory of Senior Lender : /s/Jonathan Honig

 

Name of Authorized Signatory: Jonathan Honig

 

Title of Authorized Signatory: Manager

 

Email Address of Authorized Signatory: jonathanhonig@aol.com

 

Facsimile Number of Authorized Signatory: 561-241-4749

 

State of Residence of Senior Lender: FL

 

Address for Notice to Senior Lender: 4263 NW, 61 st Lane, Boca Raton, FL 33496

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

5AM Ventures II, LP

 

By: 5AM Partners II LLC

Its: General Partner

 

Signature of Authorized Signatory of Subordinated Lender : /s/John D. Diekman

 

Name of Authorized Signatory: John D. Diekman

 

Title of Authorized Signatory: Managing Member

 

Email Address of Authorized Signatory: john@5amventures.com

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

5AM Co-Investors II, LP

 

By: 5AM Partners II LLC

Its: General Partner

 

Signature of Authorized Signatory of Subordinated Lender : /s/John D. Diekman

 

Name of Authorized Signatory: John D. Diekman

 

Title of Authorized Signatory: Managing Member

 

Email Address of Authorized Signatory: john@5amventures.com

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

ARCH Venture Fund VII, L.P.

 

By: ARCH Venture Partners VII, L.P.

its General Partner

 

By: ARCH Venture Partners VII, LLC

its General Partner

 

Signature of Authorized Signatory of Subordinated Lender : /s/Robert Nelson

 

Name of Authorized Signatory: Robert Nelson

 

Title of Authorized Signatory: Managing Director

 

Email Address of Authorized Signatory: rn@archventure.com

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

Versant Side Fund III, L.P.

 

By: Versant Ventures III, LLC

Its: General Partner

 

Signature of Authorized Signatory of Subordinated Lender : /s/Brian Atwood

 

Name of Authorized Signatory: Brian Atwood

 

Title of Authorized Signatory: Managing Director

 

Email Address of Authorized Signatory: brian@versantventures.com

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

Versant Venture Capital III, L.P.

 

By: Versant Ventures III, LLC

Its: General Partner

 

Signature of Authorized Signatory of Subordinated Lender : /s/Brian Atwood

 

Name of Authorized Signatory: Brian Atwood

 

Title of Authorized Signatory: Managing Director

 

Email Address of Authorized Signatory: brian@versantventures.com

 

     

 

 

[SIGNATURE PAGE OF SUBORDINATED LENDER TO SUBORDINATION AGREEMENT]

 

Name of Subordinated Lender:

 

Alexandria Equities, LLC,

a Delaware limited liabilitiy company

 

By: Alexandria Real Estate Equities, Inc.,

a Maryland corporation, managing member

 

Signature of Authorized Signatory of Subordinated Lender : /s/Jennifer Banks

 

Name of Authorized Signatory: Jennifer Banks

 

Title of Authorized Signatory: EVP, General Counsel

 

Email Address of Authorized Signatory: investements@are.com

 

     

 

 

SCHEDULE A

 

SUBORDINATED LENDERS

 

ARCH Venture Fund VII, L.P.
8725 West Higgins Road
Suite 290
Chicago, IL 60631
 
Alexandria Equities, LLC
385 E. Colorado Blvd.
Suite 299
Pasadena, CA 91101
 
Versant Venture Capital III, L.P.
One Sansome Street
Suite 3630
San Francisco, CA 94104
 
Versant Side Fund III, L.P.
One Sansome Street
Suite 3630
San Francisco, CA 94104
 
5AM Ventures II, LP
2200 Sand Hill Road
Suite 110
Menlo Park, CA 94025
 
5AM Co-Investors II, LP
2200 Sand Hill Road
Suite 110
Menlo Park, CA 94025

 

     

 

 

SCHEDULE B

 

SENIOR LENDERS

 

Riding the Bull, LLC   $ 1,050,000  
Alpha Capital Anstalt   $ 500,000  
Titan Multi-Strategy Fund I, Ltd.   $ 500,000  
Chesed Found Ltd.   $ 400,000  
Fame Associates   $ 250,000  
H & M Machine Co.   $ 250,000  
Kuykendall Associates, LLC Retirement Trust   $ 250,000  
Muller, Israel   $ 150,000  
Robert S. Colman Trust UDT 3/13/85   $ 150,000  
Hoch, Joseph   $ 100,000  
Point Capital, Inc.   $ 100,000  
Belsky, Mordechai   $ 100,000  
2004 Leon Scharf Irrevocable Trust Corp   $ 50,000  
Mizrachi, Max   $ 50,000  
Richardson, Erick   $ 44,000  
Gross, Chaim   $ 30,000  
Arjang, Jacob Maziar   $ 26,000  
Total   $ 4,000,000  

 

     

 

 

Exhibit 10.33

 

AMENDMENT TO AMENDED AND RESTATED OFFER LETTER AGREEMENT

 

This Amendment to Amended and Restated Offer Letter Agreement (this “ Amendment ”) is made and entered into as of the 13th day of March, 2016, by and between PhaseRx, Inc., a Delaware corporation, having a place of business at 410 West Harrison Street, Seattle, WA 98119 (the “ Company ”), and Robert W. Overell, Ph.D., having a place of business at 1854 NW 195 th St. #302, Shoreline, WA 98177 (the “ Executive ”).

 

RECITALS

 

WHEREAS, the Executive and the Company entered into an Amended and Restated Offer Letter Agreement, dated as of August 17, 2009 (the “ Agreement ”).

 

WHEREAS, the Company and the Executive desire to amend the Agreement as set forth in this Amendment.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1.             Definitions

 

Unless the context clearly requires otherwise, all capitalized terms as used herein shall have the same meanings as used in the Agreement.

 

2.             Amendments to Agreement

 

The following heading and paragraph, set forth in Section C under Section II of Exhibit A to the Agreement shall be deleted in its entirety:

 

C.           Bonus Eligibility upon Acquisition

 

If the Company is sold in an acquisition generating at least $150 million in gross proceeds to the Company prior to the consummation of an Equity Financing (as defined below) (an “ Acquisition ”), the Company will use its best efforts to provide you with consideration equivalent to the consideration, if any, payable in connection with such Acquisition to a holder of the Company’s Common Stock equal to one percent (1%) of the Company’s fully diluted share capital immediately prior to the closing of such Acquisition (which, for the avoidance of doubt, shall include all then outstanding shares of capital stock of the Company and rights to acquire capital stock of the Company), subject to the terms of any definitive agreements entered into in connection with such Acquisition, including without limitation escrow and holdback provisions, if any. An “ Equity Financing ” shall mean a transaction or series of related transactions occurring on or after September 1, 2009 pursuant to which the Company issues and sells shares of its Preferred Stock for the principal purpose of raising capital.”

 

3.             No Other Waivers or Modifications; Applicability of this Agreement

 

Except to the extent expressly modified by Section 2 of this Amendment, no other covenant, term, provision, condition or agreement of the parties set forth in the Agreement shall be deemed to be waived, modified or amended in any way by this Amendment. All of the recitals, covenants, terms, provisions, conditions and agreements of the parties set forth in the Agreement shall be deemed applicable to this Amendment.

 

 

 

 

4.             Entire Agreement

 

The Agreement, as modified by this Amendment, constitute the entire agreement between the parties, and supersedes all prior or written agreements, commitments or understandings concerning the matters provided for herein.

 

5.             Counterparts

 

This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or by electronic mail (in portable document format (“PDF”)) shall be effective as delivery of a manually executed counterpart of this Amendment.

 

[Signature page follows]

 

  - 2 -  

 

 

IN WITNESS WHEREOF, the partie s have executed t his Amendment as of the date and year first written above.

 

COMPANY: EXECUTIVE
   
PHASERX, INC. /s/ Robert W. Ovrell, Ph.D.
a Delaware corporation Robert W. Overell, Ph.D.

 

By: /s/ Helen Tsui  
Name: Helen Tsui  
Title: Vice President, Finance  

 

[Signature page to the Amendment to Amended and Restated Offer Letter Agreement]

 

 

 

 

Exhibit 10.34

 

[410 Elliott/Fourth Amendment]

 

FOURTH AMENDMENT TO LEASE

 

THIS FOURTH AMENDMENT TO LEASE (this " Fourth Amendment ") is made as of February 23, 2016, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease Agreement (“ First Amendment ”) dated October 1, 2014, that certain Second Amendment to Lease Agreement (“ Second Amendment ”) dated May 21, 2015, and that certain Third Amendment to Lease Agreement (“ Third Amendment ”) dated September 8, 2015 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 2,896 rentable square feet (" Premises ") in a building located at 410 Elliott, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B.            The Base Term of the Lease expires on August 31, 2016.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 3 months to expire on November 30, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on November 30, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on August 31, 2016. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 39(a) of the Lease (as amended by Section 3 of the First Amendment, Second Amendment and Third Amendment) is hereby deleted in its entirety and replaced with the following:

 

“So long as Tenant exercises its Extension Right (as defined in the Other Lease) pursuant to the Other Lease, Tenant shall have 1 right (an " Extension Right ") to extend the term of this Lease for 5 years (an " Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent) by giving Landlord written notice of its election to exercise the Extension Right on or before May 31, 2016.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Fourth Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

  1

 

 

 

[410 Elliott/Fourth Amendment]

 

5. Miscellaneous .

 

a.             This Fourth Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Fourth Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.             This Fourth Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.             Tenant acknowledges that it has read the provisions of this Fourth Amendment, understands them, and is bound by them. Time is of the essence in this Fourth Amendment.

 

d.             This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto.

 

e.             Except as amended and/or modified by this Fourth Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Lease, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment.

 

[Signatures are on the next page]

 

  2

 

 

[410 Elliott/Fourth Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Fourth Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
         
  By: /s/ Robert Overell
  Its: President and CEO
         
  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
         
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member
         
    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its: Jackie Clem, Senior Vice President
        RE Legal Affairs

 

  3

  

 

Exhibit 10.35

 

[410 W Harrison/Sixth Amendment]

 

SIXTH AMENDMENT TO LEASE

 

THIS SIXTH AMENDMENT TO LEASE (this " Sixth Amendment ") is made as of February 23, 2016, by and between ARE-SEATTLE NO. 10, LLC , a Delaware limited liability company (" Landlord "), and PHASERX INC. , a Delaware corporation (" Tenant ").

 

RECITALS

 

A.            Landlord and Tenant entered into that certain Lease Agreement dated as of February 9, 2010, as amended by that certain First Amendment to Lease dated as of July 1, 2010, that certain Second Amendment to Lease Agreement dated as of April 4, 2011, that certain Third Amendment to Lease (“ Third Amendment ”) dated as of October 1, 2014, that certain Fourth Amendment to Lease (“ Fourth Amendment ”) dated as of May 21, 2015, and that certain Fifth Amendment to Lease (“ Fifth Amendment ”) dated as of September 8, 2015 (as amended, the " Lease "). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 11,291 rentable square feet (" Premises ") in a building located at 410 West Harrison, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

 

B. The Base Term of the Lease expires on August 31, 2016.

 

C.            Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, among other things, (i) extend the Base Term of the Lease for a period of 3 months to expire on November 30, 2016, and (ii) extend the date by which Tenant must give Landlord written notice of its election to exercise is Extension Right.

 

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1. Base Term . The Base Term of the Lease is hereby extended to expire on November 30, 2016.

 

2. Rent . Tenant shall pay Base Rent through the expiration of the Base Term of the Lease (as extended pursuant to Section 1 above), at the rates in effect on August 31, 2016. Tenant shall continue to pay Tenant’s Share of Operating Expenses and all other charges as set forth in the Lease.

 

3. Extension Right . The first sentence of the first paragraph of Section 40(a) of the Lease (as amended by Section 3 of the Third Amendment, Section 4 of the Fourth Amendment and Section 3 of the Fifth Amendment) is hereby deleted in its entirety and replaced with the following:

 

“Tenant shall have 1 right (an “Extension Right” ) to extend the term of this Lease for 5 years (an “ Extension Term ") on the same terms and conditions as this Lease (other than with respect to Base Rent and the Work Letter) by giving Landlord written notice of its election to exercise the Extension Right on or before May 31, 2016.”

 

4. Brokers . Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, " Broker ") in connection with the transaction reflected in this Sixth Amendment and that no Broker brought about this transaction. Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

 

    1

 

 

[410 W Harrison/Sixth Amendment]

 

5. Miscellaneous .

 

a.            This Sixth Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions. This Sixth Amendment may be amended only by an agreement in writing, signed by the parties hereto.

 

b.            This Sixth Amendment is binding upon and shall inure to the benefit of the parties hereto, their respective agents, employees, representatives, officers, directors, divisions, subsidiaries, affiliates, assigns, heirs, successors in interest and shareholders.

 

c.            Tenant acknowledges that it has read the provisions of this Sixth Amendment, understands them, and is bound by them. Time is of the essence in this Sixth Amendment.

 

d.            This Sixth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Sixth Amendment attached thereto.

 

e.            Except as amended and/or modified by this Sixth Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Sixth Amendment. In the event of any conflict between the provisions of this Sixth Amendment and the provisions of the Lease, the provisions of this Sixth Amendment shall prevail. Whether or not specifically amended by this Sixth Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Sixth Amendment.

 

[Signatures are on the next page]

 

    2

 

 

[410 W Harrison/Sixth Amendment]

 

IN WITNESS WHEREOF , the parties hereto have executed this Sixth Amendment as of the day and year first above written.

 

  TENANT:
   
  PHASERX INC. ,
  a Delaware corporation
   
  By: /s/ Robert Overell
  Its: President and CEO

 

  LANDLORD:
   
  ARE-SEATTLE NO. 10, LLC,
  a Delaware limited liability company
   
  By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
    a Delaware limited partnership,
    managing member

 

    By: ARE-QRS CORP.,
      a Maryland corporation,
      general partner
         
      By: /s/ Jackie Clem
      Its:   Jackie Clem, Senior Vice President
        RE Legal Affairs

 

    3

 

 

Exhibit 10.36

 

AMENDMENT TO

 

LOAN AND SECURITY AGREEMENT

 

This Amendment to Loan and Security Agreement (this “ Amendment ”) is made as of April 6, 2016, by and among PhaseRx, Inc., a Delaware corporation (the “ Company ”), and certain lenders under that certain Loan and Security Agreement, dated as of December 21, 2015 (the “ Loan Agreement ”), among the Company and the financial institutions and individuals listed on Annex A thereto, who execute this Amendment (the “ Lenders ”).

 

WITNESSETH:

 

WHEREAS, the Company and the Lenders are parties to the Loan Agreement; and

 

WHEREAS, pursuant to Section 10.01 of the Loan Agreement, the Loan Agreement may be amended by written agreement of the Company and the Required Lenders (as defined in the Loan Agreement); and

 

WHEREAS, the Lenders constitute the Required Lenders; and

 

WHEREAS, the Company and the Lenders desire to amend the Loan Agreement to modify the definition of the term “Qualified Offering” for purposes of the Loan Agreement;

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto, intending legally to be bound, hereby agree as follows:

 

1.          The definition of “Qualified Offering” in Section 1.01 of the Loan Agreement is hereby amended and restated by replacing the amount of “$36,000,000” in such definition with the amount of “$24,000,000”.

 

2.          Section 4.01(i) of the Disclosure Schedule made and given pursuant to Section 4 of the Loan Agreement is hereby deleted in its entirety and replaced with Schedule 4.01(i) attached hereto.

 

3.          This Amendment shall be effective upon its execution by the Company and the Lenders constituting the Required Lenders.

 

4.          This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or by electronic mail (in portable document format (“PDF”)) shall be effective as delivery of a manually executed counterpart of this Amendment.

 

5.          This Amendment shall be governed by and construed according to the laws of the State of Delaware, without regard to the conflict of laws provisions thereof.

 

[Signature page follows]

 

 

 

 

The partie s have ca u se d this Amendment to be duly executed and delivered by their proper an d duly authorized officers as of the date and year first written above.

 

  COMPANY:
   
  PHASERX, INC.
  a Delaware corporation
     
  By: /s/ Robert W. Overell
  Name: Robert W. Overell
  Title: President and Chief Executive Officer

 

[ Signature pages of Lenders follow ]

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: 2004 Leon Sharf Irrevocable  
Signature of Authorized Signatory of Lender : /s/ Willy Bear  
Name of Authorized Signatory: Willy Bear  
Title of Authorized Signatory: Trustee  
Principal Amount: $50,000  

  

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Alpha Capital Anstalt  
Signature of Authorized Signatory of Lender : /s/ Kondrad Ackermann  
Name of Authorized Signatory: Kondrad Ackermann  
Title of Authorized Signatory: Director  
Principal Amount: $500,000  

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Chessed Found Ltd.  
Signature of Authorized Signatory of Lender : /s/ Menachem Goldshmidt  
Name of Authorized Signatory: Menachem Goldshmidt  
Title of Authorized Signatory: Manager  
Principal Amount: $400,000  

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Joseph Hoch  
Signature of Authorized Signatory of Lender : /s/ Joseph Hoch  
Name of Authorized Signatory: Joseph Hoch  
Title of Authorized Signatory:    
Principal Amount: $100,000  

 

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Point Capital Inc.  
Signature of Authorized Signatory of Lender : /s/ Eric Weisblum  
Name of Authorized Signatory: Eric Weisblum  
Title of Authorized Signatory: President  
Principal Amount: $100,000  

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Robert S. Coleman Trust UDT 3/13/85  
Signature of Authorized Signatory of Lender : /s/ Robert S. Coleman  
Name of Authorized Signatory: Robert S. Coleman  
Title of Authorized Signatory: Trustee  
Principal Amount: $150,000  

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Titan Multi Strategy Fund LTD  
Signature of Authorized Signatory of Lender : /s/ Jonathan Honig  
Name of Authorized Signatory: Jonathan Honig  
Title of Authorized Signatory: Manager  
Principal Amount: $500,000.00  

 

 

 

 

[SIGNATURE PAGE OF LENDERS TO AMENDMENT

TO LOAN AND SECURITY AGREEMENT]

 

Name of Lender: Riding The Bull LLC  
Signature of Authorized Signatory of Lender : /s/ Mark Groussman  
Name of Authorized Signatory: Mark Groussman  
Title of Authorized Signatory: Managing Member  
Principal Amount: $1.050,000  

 

 

 

  

Schedule 4.01(i)

 

Section 4.01(i). Capitalization

 

Capital Stock as of the Date of the Agreement

 

Common Stock     5,678,408  
Common Stock Options        
Outstanding     4,808,646  
Available for Grant     243,042  
Preferred Stock     20,216,583  
Series A-1 Stock     5,500,000  
Bridge Notes*     19,368,623  
Common Stock Warrants     -  
Preferred Stock Warrants     3,614,761  
         
Total     59,430,063  

 

*Number of shares of common stock issuable upon conversion of all of the convertible promissory notes set forth in Annex 4.01(p) as of the date of the Agreement.

 

 

 

 

Pro Forma Capitalization (for illustrative purposes only, assuming the issuance of 1,250,000 shares of common stock at a public offering price per share of $6.00 in the Qualified Offering)

 

                      Without     Without     With        
                      ESOP     ESOP     ESOP     With ESOP  
    Shares     Amount ($)     Price     Ownership %     Ownership $     Ownership %     Ownership $  
Existing PhaseRx Shareholders     5,999,983                       53.32 %   $ 35,999,900       47.46 %   $ 32,039,911  
New PhaseRx Insider Investment     1,566,667     $ 9,400,000     $ 6.00       13.92 %   $ 9,400,000       12.39 %   $ 8,366,000  
Shire Investment     -     $ -     $ -       0.00 %   $ -       0.00 %   $ -  
Private Sale     1,406,549     $ -     $ -       12.50 %   $ 8,439,292       11.13 %   $ 7,510,970  
Bridge Loan into Private Company     916,667     $ 4,400,000     $ 4.80       8.15 %   $ 5,500,000       7.25 %   $ 4,895,000  
Palladium Clients     1,250,000     $ 7,500,000     $ 6.00       11.11 %   $ 7,500,000       9.89 %   $ 6,675,000  
Palladium Capital Advisors     112,524                       1.00 %   $ 675,143       0.89 %   $ 600,878  
Total     11,252,389     $ 21,300,000               100.00 %   $ 67,514,336       89.00 %   $ 60,087,759  
                                                         
ESOP     1,390,745                                       11.00 %   $ 7,426,577  
                                                         
Total     12,643,134                                       100.00 %   $ 67,514,336  

 

Existing PhaseRx Shareholders includes preferred, common, noteholders, warrentholders, and optionholders

 

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the inclusion in the Registration Statement on Form S-1 of PhaseRx, Inc. of our report dated February 12, 2016, on our audits of the balance sheets of PhaseRx, Inc. ("the Company") as of December 31, 2015 and 2014, and the related statements of operations, stockholders' deficit, and cash flows for the years then ended. We also consent to the reference to us under the heading "Experts" in the Registration Statement.

 

Our report dated February 12, 2016, contains an explanatory paragraph that states that the financial statements have been prepared assuming the Company will continue as a going concern. The Company has recurring operating losses and negative cash flows from operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

/S/ PETERSON SULLIVAN LLP

 

Seattle, Washington

April 18, 2016