Table of Contents

As filed with the Securities and Exchange Commission on June 12, 2015

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

P RO NA I T HERAPEUTICS , I NC .

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   20-0138994

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

2150 – 885 West Georgia Street

Vancouver, British Columbia, Canada V6C 3E8

(734) 233-3966

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

 

 

Nick Glover

Chief Executive Officer

ProNAi Therapeutics, Inc.

2150 – 885 West Georgia Street

Vancouver, British Columbia, Canada V6C 3E8

(604) 558-6536

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

 

 

Copies to:

Stephen M. Graham, Esq.

Robert A. Freedman, Esq.

James D. Evans, Esq.

Fenwick & West LLP

1191 Second Avenue, 10th Floor

Seattle, Washington 98101

(206) 389-4510

 

Charles S. Kim, Esq.

David Peinsipp, Esq.

Divakar Gupta, Esq.

Cooley LLP

4401 Eastgate Mall

San Diego, California 92121

(858) 550-6000

 

 

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

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 of 1933 check the following box.   ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) 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.   ¨

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.   ¨

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 number of the earlier effective registration statement for the same offering.   ¨

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

 

 

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, $0.001 par value per share

  $86,250,000   $10,022

 

 

(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2) Includes the offering price of additional shares that the underwriters have the option to purchase.

 

 

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 the 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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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JUNE 12, 2015

PRELIMINARY PROSPECTUS

                 Shares

 

LOGO

ProNAi Therapeutics, Inc.

Common Stock

 

 

We are offering                  shares of our common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate the initial public offering price to be between $             and $             per share.

We have applied to list our common stock on the NASDAQ Global Market under the symbol “DNAI.”

We are an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public reporting requirements for this prospectus and future filings.

 

 

Investing in our common stock involves risks. See “ Risk Factors ” beginning on page 12 of this prospectus.

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.

 

 

 

     Per
Share
     Total  

Public Offering Price

   $                    $                

Underwriting Discounts and Commissions (1)

   $                    $                

Proceeds to ProNAi Therapeutics, Inc. (before expenses)

   $                    $                

 

  (1) See “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters an option for a period of 30 days to purchase an additional                      shares of our common stock.

The underwriters expect to deliver the shares of common stock to purchasers on or about                     , 2015.

 

 

 

Jefferies   BofA Merrill Lynch
Wedbush PacGrow   SunTrust Robinson Humphrey

Prospectus dated                 , 2015


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     12   

Special Note Regarding Forward-Looking Statements

     53   

Statistical Data and Market Information

     53   

Use of Proceeds

     54   

Dividend Policy

     55   

Capitalization

     56   

Dilution

     58   

Selected Consolidated Financial Data

     61   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     63   

Business

     76   

Management

     106   

Executive Compensation

     113   

Certain Relationships and Related-Party Transactions

     120   

Principal Stockholders

     123   

Description of Capital Stock

     126   

Shares Eligible for Future Sale

     131   

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders

     133   

Underwriting

     138   

Legal Matters

     146   

Experts

     146   

Where You Can Find Additional Information

     146   

Index to Consolidated Financial Statements

     F-1   

 

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Until             , 2015 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.

 

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PROSPECTUS SUMMARY

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

PRONAI THERAPEUTICS, INC.

Overview

We are a clinical-stage oncology company pioneering a novel class of therapeutics based on our proprietary DNA interference (DNAi) technology platform. Our vision is to be the leader in developing and commercializing a portfolio of DNAi-based therapies to deliver extraordinary therapeutic outcomes that dramatically change patients’ lives. The core of our scientific expertise is our understanding of DNAi oligonucleotides, which are rationally designed DNA sequences that modulate the transcription of oncogenes known to be involved in cancer cell survival and proliferation. Our lead DNAi product candidate, PNT2258, targets BCL2, a widely overexpressed oncogene that is an important gatekeeper of the programmed cell death process known as apoptosis and has been linked to many forms of cancer. In a recent single-agent Phase 2 trial of 13 patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL), PNT2258 demonstrated evidence of anti-tumor activity, with 11 patients achieving a complete response (CR), partial response (PR) or stable disease (SD). Furthermore, all four of the diffuse large B-cell lymphoma (DLBCL) patients treated in this trial experienced a clinical response, including three CRs and one PR, with reported durations on study in the range of nine to more than 20 months. Although PNT2258 is in early stages of development and these trials were not statistically powered for a formal efficacy analysis, we believe the preliminary evidence of efficacy observed in this trial, coupled with safety and tolerability data collected to date, suggest that PNT2258 has the potential to change treatment paradigms across a wide range of oncology indications. Accordingly, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258.

Our DNAi technology platform is based on our scientific expertise in DNA, the basic genetic building block for human life. DNA is a double strand of nucleic acids that encodes the genetic instructions used in the development and function of all living organisms. The information stored in DNA encodes genes that are transcribed into messenger RNA (mRNA), which are then translated to produce specific proteins that regulate cell generation, proliferation, survival and death. Cancer cells may overexpress particular genes called oncogenes, which encode the proteins that promote the uncontrolled growth and survival of abnormal cells.

We believe that there is substantial opportunity in the treatment of cancer to target DNA itself by directly interfering with the expression of the oncogenes responsible for cancer. The vast majority of cancer therapy today is targeted downstream at the protein level and, in some cases, at RNA. Our proprietary DNAi technology platform targets DNA, the upstream genetic material underlying the expression of proteins, and is therefore distinct from therapeutic approaches that target proteins or RNA. This difference may allow our DNAi technology to more profoundly impact oncogenic targets that may be difficult to effectively drug with these other approaches, and potentially result in enhanced efficacy, durability and safety outcomes. In addition, we believe that our unique mechanism for impacting downstream oncogenic proteins could also potentially amplify and be complementary to other therapeutic modalities.

 

 

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Our proprietary platform consists of two components:

 

    Rationally-Designed DNAi Oligonucleotides. Our DNAi technology platform is a proprietary drug discovery engine that allows us to rationally design unique, single-stranded DNA sequences that hybridize to complementary regions of genomic DNA in order to interfere with the transcription of specific target genes. By affecting gene transcription, our DNAi product candidates are designed to reduce the downstream production of the corresponding proteins responsible for cancer and other diseases, resulting in a therapeutic benefit.

 

    Lipid Nanoparticle (LNP) Delivery Technology. Our LNPs, which we license from Marina Biotech, Inc., are protective amphoteric liposomes designed to encapsulate our DNAi oligonucleotides and provide enhanced serum stability and optimized pharmacokinetic properties. This facilitates the broad systemic distribution of our DNAi oligonucleotides after intravenous infusion. Within the acidic environment found in tumors, our LNPs become positively charged and therefore more amenable to cellular uptake and cytoplasmic release of their payloads, allowing the DNAi oligonucleotides to traffic into the cells’ nuclei, where they modulate gene transcription.

We have never generated revenue from the sale of products and have incurred significant operating and net losses since inception. While PNT2258, our sole product candidate, has completed Phase 1 and Phase 2 trials and is currently being investigated in a Phase 2 trial, it is not currently being sold on a commercial basis. Prior to distributing and marketing PNT2258 or any future product candidates, we must receive regulatory approvals from the U.S. Food and Drug Administration (FDA) or similar regulatory agencies, which is a lengthy and complex process. We have not received regulatory approval for any product candidate to date, and in order to obtain regulatory approval and commercialize PNT2258, we will need to complete additional clinical trials. If these additional clinical trials are successful, we will then need to complete a variety of manufacturing-related activities in preparation for the filing of a new drug application and product launch. It is not possible to set forth with specificity or certainty the timeframe in which these events will occur, if at all.

Our Lead Product Candidate: PNT2258

Our lead DNAi product candidate, PNT2258, is a proprietary formulation of our single-stranded 24-base DNAi oligonucleotide, known as PNT100, encapsulated in our LNP. PNT100 DNAi targets and interferes with BCL2, an important and validated oncogene known to be dysregulated in many types of cancer. This dysregulation, which is manifested in the excess production of BCL2 protein, is believed to provide certain cancer cells with the ability to resist naturally occurring programmed cell death, a process referred to as apoptosis, which is a primary mechanism for the removal of aged, damaged or unnecessary cells. PNT100 targets a specific regulatory region associated with the BCL2 oncogene, interfering with its transcription. This affects downstream BCL2 protein production, resulting in a restoration of apoptotic processes leading to the death of cancer cells. Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we believe there is a significant opportunity to develop PNT2258 across many oncology indications.

We are pursuing a multi-faceted clinical development strategy that is designed to efficiently achieve regulatory approval and maximize the commercial opportunity of PNT2258. Under an investigational new drug application approved by the FDA, we have conducted two clinical trials with PNT2258 to date: a Phase 1 safety trial in patients with relapsed or refractory solid tumors and a Phase 2 trial in patients with relapsed or refractory NHL. In a Phase 2 trial of 13 patients with relapsed or refractory NHL, PNT2258 demonstrated evidence of anti-tumor activity, with 11 patients achieving a CR, PR or SD. Having observed preliminary evidence of efficacy and tolerability, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258.

 

 

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In December 2014, we initiated “Wolverine,” an open-label 60 patient Phase 2 trial evaluating PNT2258 for the treatment of third-line relapsed or refractory DLBCL. DLBCL is the most prevalent form of NHL, comprising approximately 30% of the annual NHL diagnoses in the United States according to a 2013 report by the Leukemia & Lymphoma Society. By mid-2015, we plan to initiate “Brighton,” an open-label 50 patient Phase 2 trial evaluating PNT2258 for the treatment of Richter’s transformed chronic lymphocytic leukemia (Richter’s CLL). Richter’s CLL is a rare and aggressive form of NHL with no currently approved therapies. We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as acute myeloid leukemia, acute lymphoblastic leukemia and multiple myeloma; and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies. As appropriate, we may apply for orphan drug, breakthrough therapy, fast track or other regulatory designations in the future; however, we cannot assure you that regulatory agencies will grant PNT2258 these designations.

The table below summarizes the current development of our programs and anticipated milestones.

 

Trial

 

Regimen

 

Indication

 

Status/Milestones

Wolverine   PNT2258   R/R* Third-Line DLBCL   Phase 2 Trial Ongoing (First Patient Enrolled Dec 2014)
Brighton   PNT2258   Richter’s CLL   Initiate Phase 2 Trial Mid-2015
Combination Trial #1   PNT2258 + Other Anti-cancer Drug(s)   R/R* Second-Line DLBCL   Initiate Phase 2 Trial First Quarter of 2016
Single-Agent Trial   PNT2258  

Hematologic Malignancies

  Initiate Phase 2 Trial Second Quarter of 2016
Combination Trial #2   PNT2258 + Other Anti-cancer Drug(s)   Other DLBCL   Initiate Phase 2 Trial Third Quarter of 2016

*R/R denotes relapsed or refractory.

Our vision is to be the leader in developing and commercializing a portfolio of DNAi-based therapies to deliver extraordinary therapeutic outcomes that dramatically change patients’ lives. We are at the forefront of DNAi-based therapies, as we believe that PNT2258 is the only product candidate in clinical testing using this novel approach. In the near term, we plan to broadly develop and commercialize PNT2258 in oncology indications with high unmet medical needs. In the long term, we aspire to commercialize additional DNAi-based therapies with the potential to impact medical paradigms in oncology and other major diseases. Our DNAi platform technology was invented at Wayne State University and Karmanos Cancer Institute. We acquired this technology and subsequently developed the algorithm that we employ for rationally designing our DNAi product candidates using bioinformatics and our understanding of gene regulatory domains.

We have assembled an experienced and talented group of stakeholders to execute on our vision. Our management team is led by Dr. Nick Glover, President and Chief Executive Officer, and Dr. Angie You, Chief Business and Strategy Officer and Head of Commercial. Dr. Glover, the former President and Chief Executive Officer of YM Biosciences Inc., and Dr. You, the former Chief Business Officer of Aragon Pharmaceuticals, Inc. joined our company in the third quarter of 2014. We completed a $59.5 million private financing in April 2014 led by a well-established group of institutional healthcare investors, including Vivo Capital, Frazier Healthcare Ventures, OrbiMed Advisors, RA Capital, Caxton Alternative Management, Sectoral Asset Management, Janus Capital Management, Adams Street Partners and Hopen Life Science Ventures. Existing investors also include Apjohn Ventures Fund and Capital Midwest Fund.

 

 

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As of March 31, 2015, we had cash, cash equivalents and short-term investments of $34.1 million. Although it is difficult to predict, we believe that these funds, together with the proceeds from this offering, will be sufficient to fund our operations for the next      months, which we believe will allow us to achieve clinical read-outs for the Wolverine and Brighton Phase 2 trials. We anticipate that we will need additional funding for the completion of these and our other planned clinical trials.

Our Strategy

Key elements of our business strategy are to:

 

    Expedite the Clinical Development and Regulatory Approval of PNT2258.  We plan to advance our lead product candidate, PNT2258, initially in DLBCL and Richter’s CLL and may pursue accelerated registration paths and other regulatory designations if data are compelling. In December 2014, we initiated Wolverine, a Phase 2 trial for the treatment of third-line relapsed or refractory DLBCL, and by mid-2015, we plan to initiate Brighton, a Phase 2 trial for the treatment of Richter’s CLL.

 

    Pursue a Multi-Faceted Development Strategy for PNT2258 Across Many Oncology Indications. In addition to Wolverine and Brighton, we intend to expand the commercial market opportunity for PNT2258 by developing it for the treatment of a wide variety of BCL2-driven tumors, including other hematologic malignancies, such as leukemias and myelomas, as monotherapy and in combination with other therapeutic agents or treatment regimens. BCL2 overexpression has also been implicated as a driver of a wide variety of solid tumors, including breast, prostate and lung, which could provide additional future development opportunities for PNT2258.

 

    Maximize the Global Commercial Value of PNT2258. We have retained all commercial rights to PNT2258 and future DNAi product candidates. As we further develop PNT2258, we plan to build a commercial infrastructure to directly market in North America and possibly other major geographies that are core to our commercial strategy. We plan to enter into collaborations for the development, marketing and commercialization of PNT2258 in additional geographies at an appropriate time. We also plan to invest in scaling our manufacturing capacity to support our global commercial strategy.

 

    Maintain our Competitive Advantage by Continuing to Invest in our Proprietary DNAi Technology Platform. We plan to continue to conduct research in the field of DNAi to further our understanding of the role this technology plays in modulating gene transcription. We also plan to continue fostering relationships with leading scientific advisers and physicians to support these efforts.

 

    Broaden our Pipeline of Novel Product Candidates by Leveraging our Proprietary DNAi Technology Platform. We believe DNAi technology may be applicable to additional high value genetic targets beyond BCL2 that are also challenging to effectively drug by conventional means. We plan to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer and potentially genes implicated in other diseases.

Risks Related to Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common stock. We may be unable to implement our business strategy for many reasons, including those that are beyond our control. In particular, these risks include, but are not limited to, the following:

 

    we have not generated revenue, have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses for the foreseeable future;

 

 

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    our business is highly dependent on the success of our only clinical product candidate, PNT2258, which we may be unable to successfully develop, obtain regulatory approval for and commercialize;

 

    we are very early in our development efforts and have only one product candidate in clinical development, which has only been tested in a limited number of patients and has not received regulatory approval;

 

    PNT2258 or future product candidates that we may develop may fail to demonstrate safety and efficacy or may not otherwise produce positive results;

 

    the report of our independent registered public accounting firm on our 2014 consolidated financial statements contains an explanatory paragraph regarding going concern, and we will need additional financing to fund our current operating plans and to continue as a going concern;

 

    if we fail to obtain additional capital, we may be unable to execute our current operating plans or complete the development and commercialization of PNT2258 or any future product candidates;

 

    we may encounter difficulties enrolling patients in our clinical trials;

 

    because we are developing other product candidates based on technology substantially similar to the technology on which PNT2258 is based, if PNT2258 encounters safety or efficacy problems, developmental delays or regulatory issues or other problems, our development plans and business may be significantly harmed;

 

    the manufacture of our DNAi product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling up of our manufacturing capabilities;

 

    our reliance on third-party manufacturing partners may cause our supply of research and development, preclinical and clinical development materials to become limited or interrupted or fail to be of satisfactory quantity or quality;

 

    we may be unable to obtain U.S. or foreign regulatory approval of PNT2258, a process that can be lengthy, time consuming and expensive, and as a result, we may be unable to market and sell PNT2258;

 

    we rely on intellectual property licensed from a third party and will owe to our licensor and another third party milestone payments and low single-digit royalties on net sales of PNT2258 and future DNAi product candidates; and

 

    we may be unable to obtain and enforce patent protection for our technologies or product candidates.

Our Corporate Information

We were incorporated in Delaware in May 2003 as Phenome Systems, Inc. and changed our name to ProNAi Therapeutics, Inc. in April 2004. Shortly thereafter, we merged with SenseGene Therapeutics Inc., a Michigan corporation, with ProNAi Therapeutics, Inc. being the surviving corporation. Our principal executive offices are located at 2150 – 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3E8, and our telephone number is (604) 558-6536. Our website address is www.pronai.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus. Unless the context indicates otherwise, as used in this prospectus, the terms “ProNAi,” “we,” “us” and “our” refer to ProNAi Therapeutics, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. ProNAi and DNAi are our registered trademarks. The “ProNAi” logo and all product names are our common law trademarks. This prospectus contains additional trade names, trademarks and service marks of other companies, which are the property of their respective owners. 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, these other companies.

 

 

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Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as the term is used in The Jumpstart Our Business Startups Act of 2012 (JOBS Act), and therefore, we may take advantage of certain exemptions from various public company reporting requirements, including:

 

    a requirement to only have two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis;

 

    exemption from the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

 

    reduced disclosure obligations regarding executive compensation; and

 

    exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700.0 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits of the JOBS Act. We have taken advantage of some of the reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

 

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The Offering

 

Common stock to be offered

             shares

 

Common stock to be outstanding immediately following this offering

             shares

 

Option to purchase additional shares

We have granted to the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to          additional shares of common stock.

 

Use of proceeds

We estimate that 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 range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $     million, or $     million if the underwriters’ option to purchase additional shares is exercised in full. We anticipate that we will use the net proceeds from this offering to make significant investments in the clinical and manufacturing activities related to PNT2258, to support preclinical activities focused on PNT2258’s mechanism of action, to further develop our DNAi technology platform and broaden our pipeline of DNAi-based product candidates and for working capital and other general corporate purposes. We will also use a portion of the net proceeds to pay the accrued dividends to our Series B and Series B-1 redeemable convertible preferred stockholders as described in “Dividend Policy.” We may also use a portion of the net proceeds to acquire, license and invest in complementary products, technologies or businesses. See “Use of Proceeds.”

 

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

Dividend policy

The terms of our current certificate of incorporation provide that, upon conversion of the preferred stock into common stock in connection with this offering, the holders of Series B and Series B-1 redeemable convertible preferred stock will receive a cash dividend equal to 50% of the accrued dividend, and the holders of the Series C and Series D redeemable convertible preferred stock will receive a dividend of shares of our common stock in an amount equal to 50% of the accrued dividend divided by the original issuance price of the respective series. The remaining 50% of the accrued dividend will be forfeited by all series of preferred stock in accordance with the terms of our current certificate of incorporation. As of March 31, 2015, we had $         million of cumulative but unpaid accruing dividends to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders. Dividends payable to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders have continued to accrue subsequent to March 31, 2015. Assuming this offering is completed on             , 2015, immediately prior to the completion of this offering, we expect to pay $         million of cumulative accrued dividends in cash to our Series B and Series B-1 redeemable convertible stockholders and issue                 shares of

 

 

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common stock in payment of $         million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. The cash dividends will be paid from the net proceeds of this offering, and neither the cash nor the stock dividends will be paid on any shares purchased in this offering. We do not pay dividends on our common stock and do not anticipate paying any dividends on our common stock for the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our board of directors and will depend on various factors. See “Dividend Policy.”

 

Proposed NASDAQ Global Market symbol

“DNAI”

The number of shares of our common stock to be outstanding after this offering is based on (i) 12,043,369 shares of our common stock outstanding as of March 31, 2015; (ii) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock as of March 31, 2015 into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (iii)                 shares that we expect to issue upon completion of this offering to pay accrued dividends on our Series C and Series D redeemable convertible preferred stock (assuming this offering is completed on                     , 2015); and (iv)              shares that we expect to issue, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the net exercise of warrants outstanding as of March 31, 2015 that would otherwise expire upon completion of this offering, and excludes:

 

    18,346,606 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2015, with a weighted-average exercise price of $0.16 per share;

 

    5,475,000 shares of common stock issuable upon the exercise of options granted on June 11, 2015, with an exercise price of $0.90 per share; and

 

                     shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 8,923,249 shares of common stock reserved for future issuance under our 2008 Equity Incentive Plan as of March 31, 2015, which shares will be added to the shares to be reserved for issuance under our 2015 Equity Incentive Plan upon completion of this offering, (ii)                  additional shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii)                  shares of common stock reserved for future issuance under our 2015 Employee Stock Purchase Plan, which will become effective on the date of this prospectus.

Our 2015 Equity Incentive Plan and 2015 Employee Stock Purchase Plan will each provide for annual automatic increases in the number of shares reserved under such plans. In addition, our 2015 Equity Incentive Plan will provide for increases in the number of shares that may be granted under the plan based on shares granted under our 2008 Equity Incentive plan that expire, are forfeited or otherwise repurchased by us at cost. On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2008 Equity Incentive plan will be added to the shares reserved under our 2015 Equity Incentive Plan, and we will cease granting awards under our 2008 Equity Incentive plan. See “Executive Compensation—Employee Benefit and Stock Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

 

    the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock as of March 31, 2015 into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering;

 

    a      -for-      reverse stock split, which will become effective prior to the completion of this offering;

 

    the filing of our restated certificate of incorporation in Delaware and the adoption of our restated bylaws, each of which will occur upon the completion of this offering; and

 

    no exercise of the underwriters’ option to purchase additional shares.

 

 

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Summary Consolidated Financial Data

We have derived the following summary consolidated statements of operations data for the years ended December 31, 2013 and 2014 and the summary consolidated balance sheet data as of December 31, 2014 from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2014 and 2015 and the summary consolidated balance sheet data as of March 31, 2015 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair presentation of our financial position and results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results should not necessarily be considered indicative of results that may be expected for the full year or any other period. You should read the following summary consolidated financial data together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
    2013     2014     2014     2015  
    (in thousands, except share and per share amounts)  

Consolidated Statements of Operations Data:

       

Operating expenses (1) :

       

Research and development

  $ 2,843      $ 19,078      $ 1,827      $        5,296   

General and administrative

    1,162        3,500        493        1,441   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  4,005      22,578      2,320      6,737   
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

  (4,005   (22,578   (2,320   (6,737

Other income (expense), net:

Interest expense

  (2,719   —        —        —     

Change in fair value of preferred stock warrants

  (202   (1,380   (149   (1,326

Other income (expense)

  94      87      2      25   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

  (2,827   (1,293   (147   (1,301
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

  (6,832   (23,871   (2,467   (8,038

Provision for income taxes

  —        2      —        10   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  (6,832   (23,873   (2,467   (8,048

Adjustment to redemption value on redeemable convertible preferred stock

  (5,713   (49,849   (2,442   (11,005
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

$ (12,545 $ (73,722 $ (4,909 $ (19,053
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (2)

$ (2.57 $ (9.27 $ (0.77 $ (1.72
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (2)

  4,871,851      7,951,340      6,339,566      11,068,107   
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (3)

$      $     
   

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (3)

   

 

 

     

 

 

 

(footnotes appear on following page)

 

 

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(1) Includes the following stock-based compensation:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2013      2014      2014      2015  
     (in thousands)  

Stock-based compensation:

           

Research and development

   $ 5       $ 65       $ 9       $ 74   

General and administrative

     17         237         13         106   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $   22       $ 302       $   22       $ 180   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) Basic and diluted net loss per share attributable to common stockholders is computed based on the weighted-average number of shares of common stock outstanding during each period. For additional information, see Note 3 to our consolidated financial statements included elsewhere in this prospectus.
(3) Pro forma basic and diluted net loss per share attributable to common stockholders and pro forma weighted-average number of shares used in computing pro forma basic and diluted net loss per share attributable to common stockholders reflect (i) automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the issuance of              shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at December 31, 2014 and March 31, 2015 that would otherwise expire upon completion of this offering; (iii) the vesting of stock options upon the achievement of a performance condition that will be achieved upon the completion of this offering and service-based criteria; and (iv) the issuance of          and          additional shares of common stock that would have been required to be issued, based on an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, to pay $7.2 million and $8.2 million in unpaid accruing dividends at December 31, 2014 and March 31, 2015, respectively, to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders. We do not expect to issue these shares to the Series B and Series B-1 redeemable convertible preferred stockholders. Instead, immediately prior to the completion of this offering, we expect to pay $             million in cumulative but unpaid accruing dividends in cash to the Series B and Series B-1 redeemable convertible preferred stockholders and issue                 shares of common stock in payment of $         million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders (assuming this offering is completed on                     , 2015). For additional information, see Notes 3 and 13 to our consolidated financial statements included elsewhere in this prospectus.

 

     March 31, 2015  
     Actual     Pro Forma (1)      Pro Forma
As Adjusted (2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

  

Cash and cash equivalents

   $ 24,054      $                    $                

Short-term investments

     10,019        

Working capital

     30,086        

Total assets

     36,311        

Preferred stock warrant liabilities

     3,136        

Total liabilities

     7,594        

Convertible preferred stock

     2,543        

Redeemable convertible preferred stock

     152,837        

Accumulated deficit

     (126,675     

Total stockholders’ deficit

     (126,663     

 

(1)

Reflects (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the accrual for the payment of $             million in cumulative but unpaid accruing dividends to our Series B and Series B-1 redeemable convertible preferred stockholders and the related reduction in working capital and additional paid-in capital; (iii) the issuance of                 shares of common stock in payment of $         million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders; (iv) the issuance of              shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering and the related reclassification of preferred stock warrant liabilities to

 

 

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  additional paid-in capital; and (v) a $             million increase in stock-based compensation associated with stock options that vest upon the achievement of a performance condition that will be achieved upon the completion of this offering and service-based criteria, and the related increase to additional paid-in capital and accumulated deficit.
(2) Reflects (i) the pro forma adjustments set forth above in footnote 1; (ii) the issuance and sale of              shares of common stock in this offering, at an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses; and (iii) the payment of the accrued dividend described above in footnote 1 immediately prior to the completion of the offering. Dividends payable to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders have continued to accrue subsequent to March 31, 2015. Assuming this offering is completed on             , 2015, immediately prior to the completion of this offering, we expect to pay $             million of cumulative accrued dividends in cash to our Series B and Series B-1 redeemable convertible preferred stockholders and issue                 shares of common stock in payment of $         million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. See “Use of Proceeds” and “Dividend Policy.”
(3) Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, would increase (decrease) each of our cash and cash equivalents, working capital, total assets and total stockholders’ deficit by approximately $             million, assuming that the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of our cash and cash equivalents, working capital, total assets and total stockholders’ deficit by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions.

The information above is illustrative only, and our consolidated balance sheet following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses for the foreseeable future.

We are a clinical-stage oncology company with a limited operating history. Since inception, we have incurred significant operating losses. Our net losses were $6.8 million and $23.9 million for the years ended December 31, 2013 and 2014, respectively, and $2.5 million and $8.0 million for the three months ended March 31, 2014 and 2015, respectively. As of March 31, 2015, we had an accumulated deficit of $126.7 million. Investment in oncology product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue the development of our lead product candidate, PNT2258, further research and develop our DNAi technology platform, seek to identify additional product candidates, seek regulatory approval, prepare for potential commercialization and become a public company.

Even if we succeed in commercializing PNT2258 or any future product candidates we may develop, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

Our business is highly dependent on the success of our only clinical product candidate, PNT2258. If we are unable to successfully develop, obtain regulatory approval for and commercialize PNT2258, or experience significant delays in doing so, our business will be materially harmed.

Our business and future success depends on our ability to successfully develop, obtain regulatory approval for and commercialize our only clinical product candidate, PNT2258, which is at an early stage of development. We have invested significant effort and financial resources in the research and development of PNT2258, and PNT2258 will require significant additional clinical testing before we can seek regulatory approval and potentially launch commercial sales. Further development of PNT2258 will require additional clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales, if approved.

We cannot commercialize product candidates in the United States without first obtaining regulatory approval for the product candidates from the U.S. Food and Drug Administration (FDA). Similarly, we cannot commercialize product candidates outside of the United States without obtaining regulatory approval from similar regulatory authorities outside of the United States, such as the European Medicines Agency in Europe. Even if PNT2258 or

 

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another product candidate were to be approved by the FDA and non-U.S. regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for PNT2258 in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development, marketing or commercialization of PNT2258 or any other product candidate that we may discover, in-license, develop or acquire in the future. Furthermore, even if we obtain regulatory approval for PNT2258, we will still need to develop a commercial organization, or collaborate with a third party for the commercialization of PNT2258, establish commercially viable pricing and obtain approval for coverage and adequate reimbursement from third parties, including government payors. If we are unable to successfully commercialize PNT2258, we may not be able to generate sufficient revenues to continue our business.

In addition, because we are developing other product candidates based on technology substantially similar to the technology on which PNT2258 is based, if PNT2258 encounters safety or efficacy problems, developmental delays or regulatory issues or other problems, our development plans and business may be significantly harmed.

We are very early in our development efforts and have only one product candidate in clinical development, which has only been tested in a limited number of patients. If we are unable to successfully develop and commercialize product candidates or experience significant delays in doing so, our business will be materially harmed.

We are very early in our development efforts and have only one product candidate, PNT2258, in clinical development. PNT2258 has only been tested in a limited number of patients, and the results of completed preclinical studies and early-stage clinical trials may not be indicative of the results from future clinical trials with a larger number of enrolled patients. The success of PNT2258 and any future product candidates that we may develop will depend on several factors, including the following:

 

    completion of preclinical studies with positive results;

 

    successful enrollment in, and completion of, clinical trials with positive results;

 

    receipt of marketing approvals from applicable regulatory authorities;

 

    establishment of commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

    effective patent and trade secret protection and regulatory exclusivity;

 

    establishment of a commercial sales team, if and when approved, whether alone or in collaboration with others;

 

    acceptance, if and when approved, by patients, the medical community and third-party payors;

 

    coverage and adequate reimbursement by third-party payors, including government payors;

 

    our ability to compete with other therapies;

 

    continued acceptable safety profile following approval;

 

    enforcement of intellectual property rights and claims;

 

    achievement of desirable medicinal properties for the intended indications; and

 

    effective growth of an organization of scientists and business people who can develop and commercialize the products, if approved, and technology.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize PNT2258 or other product candidates that we may develop, which would materially harm our business.

 

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If clinical trials of PNT2258 or future product candidates that we may develop fail to demonstrate safety and efficacy or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of PNT2258 or future product candidates.

In December 2014, we initiated Wolverine, an open-label 60 patient Phase 2 trial evaluating single-agent PNT2258 for the treatment of third-line relapsed or refractory diffuse large B-cell lymphoma (DLBCL). By mid-2015, we plan to initiate Brighton, an open-label 50 patient Phase 2 trial evaluating single-agent PNT2258 for the treatment of Richter’s transformed chronic lymphocytic leukemia (Richter’s CLL). We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as acute myeloid leukemia, acute lymphoblastic leukemia and multiple myeloma; and in the third quarter, a second Phase 2 combination trial. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. We cannot, therefore, guarantee that we will be successful in obtaining the required efficacy and safety profile from the performance of any of our clinical programs. A failure of one or more clinical trials can occur at any stage of testing.

Before obtaining marketing approval from regulatory authorities, including the FDA, for the sale of our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans and an acceptable risk/benefit profile. The risk/benefit profile for product approval may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease or an improvement in survival. For example, response rates from the use of our product candidates will likely not be sufficient to obtain regulatory approval unless we can also show an adequate duration of response.

The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. To date, we have only obtained results from Phase 1 and Phase 2 clinical trials that are uncontrolled, involve small sample sizes and are of shorter duration than would be required for regulatory approval. Data from these clinical trials and our preclinical studies should not be relied upon as evidence that later or larger-scale, controlled clinical trials will succeed. For example, although the results from our Phase 2 trial of PNT2258 in patients with relapsed or refractory NHL characterized stable disease (SD) as providing evidence of anti-tumor activity, the FDA generally does not consider SD to provide a direct measure of anti-tumor activity. Accordingly, SD will likely not be a component of the primary efficacy endpoint of overall response rate of any pivotal trials necessary to obtain regulatory approval. There may be other reasons why our early clinical trials are not predictive of later clinical trials. For example, we have not discussed the design, including sample size, trial arms, duration and endpoints, or any results, of our completed, ongoing or planned clinical trials with the FDA, and thus we may not have the benefit of the FDA’s current thinking on trial designs. In addition, the results of clinical trials in one set of patients or line of treatment may not be predictive of those obtained in other clinical trials, and protocols may need to be revised based on unexpected early results.

Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and even if the trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. To the extent that the results of our trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

 

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We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

 

    regulators or institutional review boards (IRBs) may not authorize us or our investigators to initiate a clinical trial or conduct a clinical trial at a prospective trial site;

 

    government or regulatory delays and changes in regulatory requirements, policy and guidelines;

 

    delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and contract research organizations (CROs), or failure by such CROs or trials sites to carry out the clinical trial in accordance with the terms of our agreements with them;

 

    negative or inconclusive results of clinical trials;

 

    decision by us to conduct additional clinical trials or abandon product development programs;

 

    a higher number of patients required for clinical trials, slower than expected enrollment, greater than expected competition for patients or higher than expected drop out rates;

 

    clinical sites electing to terminate their participation in one of our clinical trials, which would likely have a detrimental effect on subject enrollment;

 

    failure of third-party contractors to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

    inability or unwillingness of patients or medical investigators to follow our clinical trial protocols;

 

    suspension or termination of clinical trials for various reasons, including unacceptable health risks;

 

    imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or site by the FDA or other regulatory authorities;

 

    greater than expected cost of clinical trials;

 

    insufficient supply or quality of product candidates or other materials necessary to conduct clinical trials;

 

    undesirable side effects or other unexpected characteristics of our product candidates, causing us or our investigators, regulators or IRBs to suspend or terminate the trials; and

 

    revision of legal or regulatory requirements for approving our product candidates.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

    be delayed in obtaining marketing approval for our product candidates;

 

    not obtain marketing approval at all;

 

    obtain marketing approval in some countries and not in others;

 

    obtain approval for indications or patient populations that are not as broad as intended or desired;

 

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

    be subject to additional post-marketing testing requirements; or

 

    have the product removed from the market after obtaining marketing approval.

 

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If the efficacy data obtained in some or all of our PNT2258 clinical trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies. If we pursue, and ultimately obtain, accelerated approval from FDA for PNT2258 based on a surrogate endpoint, the FDA would require us to conduct a confirmatory trial to verify the predicted clinical benefit and additional safety studies. The results from the confirmatory trial may not support the clinical benefit, which would result in the approval being withdrawn. Moreover, the FDA may withdraw approval of a product approved under the accelerated approval pathway if, for example:

 

    the clinical trial or trials required to verify the predicted clinical benefit of the product candidate fail to verify such benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with the drug;

 

    other evidence demonstrates that the product candidate is not shown to be safe or effective under the conditions of use;

 

    we fail to conduct any required post-approval trials with due-diligence; or

 

    we disseminate false or misleading promotional materials relating to the relevant product or product candidate.

Product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will continue as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could allow our competitors to bring products to market before we do and could impair our ability to successfully commercialize our product candidates, any of which may harm our business and results of operations.

Our ability to continue as a going concern will require us to obtain additional financing to fund our current operations, which may be unavailable on attractive terms, or at all.

Our recurring operating losses and our current operating plans raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2014 with respect to this uncertainty. Our ability to continue as a going concern will require us to obtain additional financing to fund our current operating plans. We believe that the net proceeds from this offering and our existing cash and cash equivalents and short-term investments will be sufficient to fund our current operating plans through at least the next      months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and need to raise additional funds sooner than we anticipate. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and drug development programs or commercialization efforts.

If we fail to obtain additional capital, we may be unable to complete the development and commercialization of PNT2258 or any future product candidates.

We have used substantial funds to develop our DNAi technology platform and PNT2258. We expect to continue to spend substantial amounts to further advance PNT2258 in clinical development, scale up manufacturing related to PNT2258, develop our DNAi technology platform, identify and develop additional product candidates, seek regulatory approvals for our product candidates, establish a commercial sales force and manufacture and market products, if any, that are approved for commercial sale. We also expect to incur significant additional compliance and administrative costs as a result of becoming and operating as a public company. While we believe that the net proceeds from this offering and our existing cash, cash equivalents and short-term investments will be sufficient to fund our operating plans for the next      months, which we expect will allow us to achieve clinical data read-outs for our Wolverine and Brighton Phase 2 trials, we anticipate that we will need additional funding for the completion of these and our other planned clinical trials.

 

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Our future capital requirements will depend on many factors, including:

 

    the progress and results of our current and planned clinical trials of PNT2258;

 

    the scope, progress, results and costs of product candidate discovery, preclinical development, laboratory testing and clinical trials for our other product candidates;

 

    the costs, timing and outcome of regulatory review of PNT2258 and any future product candidates;

 

    the costs of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval, to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of any collaborator;

 

    our ability to establish and maintain collaborations on favorable terms, if at all;

 

    the success of any collaborations that we may enter into with third parties;

 

    the extent to which we acquire or in-license other drugs and technologies;

 

    the timing and amount of milestone and royalty payments;

 

    the amount of revenue, if any, received from commercial sales of our product candidates, should any of our drug candidates receive marketing approval; and

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve drug sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of PNT2258, if approved, which we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of PNT2258 or other research and development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients depends on many factors, including:

 

    the number of clinical trials for other product candidates in the same therapeutic area that are currently in clinical development, and our ability to compete with such trials for patients and clinical trial sites;

 

    the patient eligibility criteria defined in the protocol;

 

    the size of the patient population, particularly in Richter’s CLL, which has a very small patient population;

 

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    the risk that disease progression will result in death before the patient can enroll in clinical trials or before the completion of any clinical trials in which the patient is enrolled;

 

    the proximity and availability of clinical trial sites for prospective patients;

 

    the design of the trial;

 

    our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

    our ability to obtain and maintain patient consents; and

 

    the risk that patients enrolled in clinical trials will drop out of the trials before completion.

Our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates. This competition will reduce the number and types of patients and qualified clinical investigators available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors or clinical trial sites may not allow us to conduct our clinical trial at such site if competing trials are already being conducted there. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. We may also encounter difficulties finding a clinical trial site at which to conduct our trials. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, radiation and monoclonal antibodies, rather than enroll patients in any one of our clinical trials.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of PNT2258 or any future product candidates we may develop.

The manufacture of our DNAi product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling up of our manufacturing capabilities. If our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

Our DNAi product candidates comprise formulations of DNAi oligonucleotides encapsulated in LNPs, and the process of manufacturing our products is complex, highly-regulated and subject to many risks. As a result of these complexities, the cost to manufacture oligonucleotides and LNPs, and our DNAi product candidates in particular, is generally higher than traditional small molecule chemical compounds. As product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.

Currently, our PNT2258 product candidate is manufactured using an unoptimized process by third-party manufacturers. Although we are working to develop a commercially viable manufacturing process, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale up, process reproducibility, stability issues, lot consistency and timely availability of reagents or raw materials.

We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or

 

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more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods and have an adverse effect on our business, financial condition, results of operations and growth prospects.

Our reliance on third-party manufacturing partners may cause our supply of research and development, preclinical and clinical development materials to become limited or interrupted or fail to be of satisfactory quantity or quality.

We do not have any manufacturing facilities or personnel. We currently rely, and expect to continue to rely, on third parties for the manufacture of PNT2258 and any future potential product candidates that we may develop for preclinical and clinical testing, as well as for commercial manufacture if our product candidates receive marketing approval. We have engaged third-party manufacturers to obtain lipids, PNT100 and other raw materials and consumables necessary for the manufacture of PNT2258.

We have a long-term supply arrangement in place with the manufacturer of two of the four lipids needed to manufacture PNT2258. The other two lipids and PNT100 are obtained from different manufacturers on a purchase order basis. Over time, we intend to enter into long-term supply and quality agreements with the manufacturers of these materials.

We may be unable to establish further agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

    reliance on the third party for sufficient quantity and quality;

 

    the possible breach of the manufacturing agreement by the third party;

 

    failure to manufacture our product according to our specifications;

 

    failure to manufacture our product according to our schedule or at all;

 

    misappropriation of our proprietary information, including our trade secrets and know-how;

 

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and

 

    reliance on the third party for regulatory compliance, quality assurance and safety reporting.

Third-party manufacturers may not be able to comply with current good manufacturing practices (cGMPs) regulations or similar regulatory requirements outside the United States, which are FDA requirements for ensuring product quality control. Our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, although we are not involved in the day-to-day operations of our contract manufacturers, we are ultimately responsible for ensuring that our products and product candidates are manufactured in accordance with cGMPs. Therefore, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, quality control and quality assurance. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or approved products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business and results of operations.

Any performance failure on the part of our existing or future manufacturers, or any interruption or poor yield or quality of manufactured materials, could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several

 

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potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages. Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

Thus, our current and anticipated future dependence upon others for the manufacture of our product candidates or medicines may adversely affect our clinical development timeline, our future profit margins or our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.

We have conducted two clinical trials with PNT2258 to date: a Phase 1 safety trial in patients with relapsed or refractory solid tumors and a Phase 2 trial in patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL). PNT2258 was considered to be well tolerated by the investigators in these trials, with most adverse events (AEs) of mild to moderate designation. However, we have not discussed with the FDA, and the FDA may not agree with, our current or any future assessment of the side-effect or safety profile of PNT2258 in these or other indications. In addition, because PNT2258 has been tested as monotherapy in relatively small patient populations and for limited durations to date, additional side effects may be observed as its development progresses, including in any combination trials that we may conduct in the future. Furthermore, given that some of the patients in our clinical trials may continue therapy until disease progression, we may observe additional side effects with extended dosing, and it may be difficult to distinguish such AEs from symptoms of disease progression. Given the similar chemistries underlying PNT2258 and our other potential DNAi product candidates, it is possible their observed safety profiles may be similar.

Undesirable side effects caused by any of our product candidates could cause us, IRBs, our CROs, the FDA or other regulatory authorities to interrupt, delay or discontinue clinical trials and could result in the denial of regulatory approval by the FDA or other non-U.S. regulatory authorities for any or all targeted indications. This, in turn, could prevent us from commercializing our product candidates and generating revenues from their sale. In addition, if any of our products cause serious or unexpected side effects or are associated with other safety risks after receiving marketing approval, a number of potential significant negative consequences could result, including:

 

    regulatory authorities may withdraw their approval of this product;

 

    we may be required to recall the product, change the way it is administered, conduct additional clinical trials or change the labeling of the product;

 

    the product may be rendered less competitive and sales may decrease;

 

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    our reputation may suffer generally both among clinicians and patients;

 

    regulatory authorities may require certain labeling statements, such as warnings or contraindications or limitations on the indications for use, or impose restrictions on distribution in the form of a Risk Evaluation and Mitigation Strategy (REMS) in connection with approval, if any; or

 

    we may be required to change the way the product is administered or conduct additional clinical trials.

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data demonstrate that our product candidates are unlikely to receive regulatory approval or unlikely to be successfully commercialized.

Any one or a combination of these events could prevent us from obtaining approval and achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.

The market may not be receptive to PNT2258 or any future product candidates that we may develop, which are based on a novel therapeutic modality, and we may not generate any future revenue from the sale or licensing of product candidates.

Even if approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due to factors such as whether the product can be sold at a competitive cost and otherwise accepted in the market. PNT2258 is based on new technologies and unproven therapeutic approaches. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt a treatment based on DNAi technology, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable reimbursement for, PNT2258 or any future product candidates developed by us. Market acceptance of our product candidates, if approved, will depend on, among other factors:

 

    the timing of our receipt of any marketing and commercialization approvals;

 

    the terms of any approvals and the countries in which approvals are obtained;

 

    the safety and efficacy of our product candidates;

 

    the prevalence and severity of any adverse side effects associated with our product candidates;

 

    limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;

 

    relative convenience and ease of administration of our product candidates;

 

    the success of our physician education programs;

 

    the availability of adequate government and third-party payor coverage and reimbursement;

 

    the pricing of our products, particularly as compared to alternative treatments; and

 

    availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments.

With our focus on emerging DNAi technology, these risks may increase to the extent the space becomes more competitive or less favored in the commercial marketplace.

Additional risks apply in relation to any disease indications we pursue that are classified as rare diseases and that may allow for orphan drug designation by regulatory agencies in major commercial markets. For example, we are developing PNT2258 for the treatment of DLBCL, an aggressive form of NHL, for which we may seek orphan drug designation from the FDA. Because of the small patient population for a rare disease, if pricing is not approved or

 

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accepted in the market at an appropriate level for an approved product with orphan drug designation, such drug may not generate enough revenue to offset costs of development, manufacturing, marketing and commercialization despite any benefits received from the orphan drug designation, such as market exclusivity, assistance in clinical trial design or a reduction in user fees or tax credits related to development expense.

Because our product candidates are based on new technology, we expect that they will require extensive research and development and have substantial manufacturing and processing costs. In addition, costs to treat patients with DLBCL and Richter’s CLL can be significant. Accordingly, our clinical trial costs are likely to be significantly higher than for more conventional therapeutic technologies or products. In addition, our proposed product candidates involve several complex and costly manufacturing and processing steps, the costs of which will be borne by us.

Market size is also a variable in disease indications not classified as rare. Our estimates regarding potential market size for any indication may be materially different from what we discover to exist at the time we commence commercialization, if any, for a product, which could result in significant changes in our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.

We rely and will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

We depend and will depend upon independent investigators and collaborators, such as universities, medical institutions, CROs and strategic partners to conduct our preclinical and clinical trials under agreements with us. We expect to have to negotiate budgets and contracts with CROs and trial sites, which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with current good clinical practices (cGCPs), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trials must be conducted with drug product produced under cGMPs. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting our clinical trials will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties 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 clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the

 

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commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.

Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Clinical trials must be conducted in accordance with cGCPs, or other applicable foreign government guidelines. Clinical trials are subject to oversight by the FDA, other foreign governmental agencies and IRBs at the study sites where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced in accordance with applicable cGMPs. Clinical trials may be suspended by the FDA, other foreign governmental agencies, or us for various reasons, including:

 

    deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;

 

    deficiencies in the clinical trial operations or trial sites;

 

    the product candidate may have unforeseen adverse side effects;

 

    deficiencies in the trial design necessary to demonstrate efficacy;

 

    fatalities or other AEs arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;

 

    the product candidate may not appear to be more effective than current therapies; or

 

    the quality or stability of the product candidate may fall below acceptable standards.

Although we have never been asked by a regulatory agency, IRB or data safety monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical trial of any other of our product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed or eliminated. Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.

We face significant competition from other oncology companies, and our operating results will suffer if we fail to compete effectively.

The oncology industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

If PNT2258 is approved for DLBCL or Richter’s CLL, as the case may be, it will compete with existing therapies and currently marketed drugs, including the following:

 

   

DLBCL . The initial therapy for DLBCL typically consists of multi-agent cytotoxic drugs in combination with the monoclonal antibody rituximab. In patients with DLBCL who are not elderly and who have good organ function, high dose chemotherapy with stem cell transplantation is often used. Newer targeted agents such as the BTK inhibitor ibrutinib and the immunomodulatory drug

 

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lenalidomide have shown activity in the ABC subtype of DLBCL. There are also a number of other widely used anti-cancer agents that have broad labels that include NHL, and some of these are being evaluated alone or in combination for the treatment of patients with DLBCL that have relapsed after several different types of chemotherapy. Certain monoclonal antibodies similar to rituximab are also being evaluated in relapsed DLBCL. Other oncology companies that have developed or are currently developing treatment for patients with DLBCL include Abbvie Inc., Bellicum Pharmaceuticals, Inc., Celgene Corporation, Epizyme, Inc., Juno Therapeutics, Inc., Karyopharm Therapeutics Inc., Kite Pharma, Inc., Novartis AG and Pharmacyclics, Inc.

 

    Richter’s CLL. Although there are no specific therapies approved to treat Richter’s CLL, multi-agent cytotoxic drugs in combination with rituximab is typically used as a first-line treatment. To our knowledge, Karyopharm Therapeutics Inc. is the only other company with an active trial focused specifically on Richter’s CLL.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial and other resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the oncology industry may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or that may be necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we may develop. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic drugs. If we fail to complete effectively, our business and operating results would be harmed.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.

We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. If one of our product candidates is approved for sale, we intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other oncology companies to recruit, hire, train and retain marketing and sales personnel.

If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.

We cannot assure you that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.

 

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We may seek orphan drug designation for the use of PNT2258 to treat DLBCL, Richter’s CLL and other rare indications. We may be unable to obtain such designations or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause our revenue, if any, to be reduced.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting a new drug application (NDA) and entitles the sponsor to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

If a product candidate that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same drug for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if one of our drug candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.

We may seek orphan drug designation for the use of PNT2258 to treat DLBCL, Richter’s CLL or other rare indications. We may never obtain orphan drug designation for any indications. Even if we obtain orphan drug designation, we will not obtain exclusive marketing rights in the United States if we are not the first sponsor to obtain approval for the candidate for the orphan designated indication. In addition, exclusive marketing rights in the United States may be limited or lost if we seek approval for an indication broader than the orphan designated indication, if the FDA later determines that the request for designation was materially defective, if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition, or if a second product containing the same active moiety for the same orphan condition is demonstrated to be clinically superior to our product.

A fast track designation by the FDA may not lead to faster development, regulatory review or approval process.

We may seek fast track designation for some applications of PNT2258. If a product candidate is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the product candidate sponsor may apply for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receipt of fast track designation does not assure ultimate marketing approval from the FDA. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

A breakthrough therapy designation by the FDA for any application of PNT2258 may not lead to faster development, regulatory review or approval process, and it does not increase the likelihood that PNT2258 will receive marketing approval.

We may seek a breakthrough therapy designation for some applications of PNT2258. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or

 

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life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor may help identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective or less effective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for accelerated approval if the relevant criteria are met.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe an application of PNT2258 meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures, and does not assure ultimate approval by the FDA. In addition, even if PNT2258 qualifies as a breakthrough therapy, the FDA may later decide that it no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We may be unable to identify the regulatory regions of other cancer and disease-related genes and may not develop additional product candidates.

One of our strategies is to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer and potentially genes implicated in other diseases. We may be unable to identify the regulatory regions of other cancer and disease genes, and if we do, we may be unsuccessful in developing a product candidate that inhibits transcription or effectively provides therapeutic treatment. Even if our research programs initially show promise in targeting other genes and identifying potential product candidates, they may ultimately fail to yield product candidates for clinical development. Developing, obtaining regulatory approval and commercializing additional product candidates will require substantial additional funding beyond the net proceeds of this offering and is prone to the risks of failure inherent in the development of therapeutic treatments. We cannot provide you any assurance that we will be able to successfully advance any potential future product candidates through the development process.

Our approach to the discovery and development of therapeutic treatments based on our DNAi technology platform is unproven and may not result in marketable products.

Our approach to the development of therapeutic treatments focuses on using our proprietary DNAi technology platform. This approach is unproven and may not result in marketable products. We plan to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer and potentially genes implicated in other diseases. While we believe that product candidates developed with our DNAi technology platform may offer potential improvements compared to other therapeutic approaches, the scientific research that forms the basis of our efforts to develop product candidates based on our DNAi technology platform is preliminary and limited.

We believe we are the first to develop DNAi as a therapeutic modality to be tested in humans. We may discover that our DNAi oligonucleotides do not possess the ability to hybridize to complementary regions of genomic DNA of an oncogenic target or our LNP delivery technology does not possess certain properties required for effective delivery, such as the ability to remain stable in the human body for the period of time required for the drug to reach the cell nucleus. We may spend substantial funds attempting to develop and refine these properties and may never succeed in doing so. In addition, product candidates based on our DNAi technology may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Even if product candidates that target a disease-related gene have successful results in preclinical studies in animals, they may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result, we may never succeed in developing a marketable product, we may not become profitable and the value of our common stock may decline.

 

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We are dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive oncology industry depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are dependent on our management, scientific and medical personnel, including Nick Glover, Ph.D., our President and Chief Executive Officer, Angie You, our Chief Business and Strategy Officer and Head of Commercial, and Sukhi Jagpal, our Chief Financial Officer. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business.

We conduct a portion of our operations in Vancouver, British Columbia. Many other oncology companies and many academic and research institutions have located their headquarters in this region. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees.

We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As of March 31, 2015, we had 27 employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

 

    identifying, recruiting, integrating, maintaining and motivating additional employees;

 

    managing our internal development efforts effectively, including the clinical, FDA and international regulatory review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and

 

    improving our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical management and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be

 

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able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

From time to time, we may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. These relationships also may result in a delay in the development of our product candidates if we become dependent upon the other party and such other party does not prioritize the development of our product candidates relative to its other development activities. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.

Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on other third parties for the manufacture of our product

 

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candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce and process our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Our corporate headquarters are in Vancouver, British Columbia near major earthquake faults. Our operations and financial condition could suffer in the event of a major earthquake or other natural disaster.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by such individuals could include intentional failures to comply with FDA or international regulations, provide accurate information to the FDA or other international regulatory bodies, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data timely, completely and 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. Misconduct by third parties could also involve the improper use of information obtained in the course of clinical trials.

In connection with this offering, we intend to adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct 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. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and 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 civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

 

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A variety of risks associated with marketing PNT2258 internationally could materially adversely affect our business.

We plan to seek regulatory approval of PNT2258 outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:

 

    differing regulatory requirements in foreign countries;

 

    unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

    difficulties staffing and managing foreign operations;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;

 

    potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;

 

    challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

    business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

    decreased demand for our product candidates;

 

    injury to our reputation;

 

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    withdrawal of clinical trial participants;

 

    initiation of investigations by regulators;

 

    costs to defend the related litigation;

 

    a diversion of management’s time and our resources;

 

    substantial monetary awards to trial participants or patients;

 

    product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

    loss of revenue;

 

    exhaustion of any available insurance and our capital resources;

 

    the inability to commercialize any product candidate; and

 

    a decline in our stock price.

We currently hold clinical trial liability insurance coverage, but that coverage may not be adequate to cover any and all liabilities that we may incur. We would need to increase our insurance coverage when we begin the commercialization of our product candidates, if ever. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2014, we had U.S. federal operating loss carryforwards of $24.1 million and state operating loss carryforwards of $18.4 million, expiring in years ranging from 2021 to 2034. We also had net tax credit carryforwards of $0.6 million available to reduce future tax liabilities, if any, for U.S. federal purposes. The net tax credit carryforwards begin to expire in 2031. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in our ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have experienced an ownership change in the past and may experience ownership changes in the future as a result of this offering or future transactions in our stock, some of which may be outside our control. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards, or other pre-change tax attributes, to offset U.S. federal and state taxable income and taxes may be subject to limitations.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

Global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. We cannot assure you that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy and stock price may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

 

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Our quarterly operating results may fluctuate significantly, which may cause our stock price to fluctuate or decline.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

 

    variations in the level of expense related to PNT2258 or future development programs;

 

    results of preclinical and clinical trials, or the addition or termination of clinical trials or funding support;

 

    the timing of the release of results from any clinical trials;

 

    the timing and amount of milestone and royalty payments to our licensor;

 

    our execution of any new collaboration, licensing or similar arrangement, and the timing of payments we may make or receive under such existing or future arrangements or the termination or modification of any such existing or future arrangements;

 

    any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved;

 

    additions and departures of key personnel;

 

    strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

    if any of our product candidates receives regulatory approval, market acceptance and demand for such product candidates;

 

    regulatory developments affecting our product candidates or those of our competitors; and

 

    changes in general market and economic conditions.

If our quarterly operating results or expected results from clinical trials fall outside the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

Risks Related to Government Regulation

We may be unable to obtain U.S. or foreign regulatory approval of PNT2258, and, as a result, we may be unable to commercialize our product candidates.

Our lead product candidate, PNT2258, is, and any future product candidates that we may develop will be, subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, import, export, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing, distribution, import and export of drugs. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed before a new drug can be marketed in the United States and in many foreign jurisdictions. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the product candidates we may develop will obtain the regulatory approvals necessary for us or our collaborators to begin selling them.

We have very limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA and, as a company, we have no experience in obtaining approval of any product candidates. The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the initiation of clinical trials, depending upon the type, complexity and novelty of the product candidate. We may encounter delays or rejections during any stage of the regulatory review and approval

 

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process based upon the failure of clinical or laboratory data to demonstrate compliance with, or upon the failure of the product candidates to meet, the FDA’s requirements for safety, efficacy and quality.

The standards that the FDA and its foreign counterparts use when regulating us are not always applied predictably or uniformly and can change. Because the drugs we are developing may represent a new class of drug, the FDA and its foreign counterparts have not yet established any definitive policies, practices or guidelines in relation to these drugs. The lack of policies, practices or guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining requirements we may not have anticipated. Such responses could lead to significant delays in the clinical development of our product candidates.

Any analysis we perform of data from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be.

In addition, the FDA may delay, limit, or deny approval of a product candidate for many reasons, including:

 

    disagreement with the design or implementation of our clinical trials;

 

    we may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for any indication;

 

    we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

    the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;

 

    the results of our clinical trials may not demonstrate the safety or efficacy required by the FDA for approval;

 

    the FDA may find deficiencies in our manufacturing processes or facilities; and

 

    the FDA’s approval policies or regulations may significantly change in a manner rendering our clinical data insufficient for approval.

We plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258. We have not, however, discussed the design of the Wolverine or Brighton clinical trials with the FDA and, thus, cannot assure you that the FDA will consider their design or results adequate for these purposes.

After submission of a NDA, the FDA may refuse to file the application, deny approval of the application, require additional testing or data or, if the NDA is filed and later approved, require post-marketing testing and surveillance to monitor the safety or efficacy of a product. Under the Prescription Drug User Fee Act (PDUFA), the FDA has agreed to certain performance goals in the review of NDAs. The FDA’s timelines are flexible and subject to change based on workload and other potential review issues and may delay the FDA’s review of an NDA. Further, the terms of approval of any NDA, including the product labeling, may be more restrictive than we desire and could affect the marketability of our products.

Even if we comply with all of the FDA regulatory requirements, we may not obtain regulatory approval for any of our product candidates in development. If we fail to obtain regulatory approval for any of our product candidates in development, we will have fewer commercialized products than we anticipate and correspondingly lower revenue.

 

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In addition, because there may be approved treatments for some of the diseases for which we may seek approval, in order to receive regulatory approval, we may need to demonstrate through clinical trials that the product candidates we develop to treat these diseases, if any, are not only safe and effective, but safer or more effective than existing products. Furthermore, in recent years, there has been increased public and political pressure on the FDA with respect to the approval process for new drugs, and the FDA’s standards, especially regarding drug safety, appear to have become more stringent.

Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from the particular product candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved uses for which we may market the product or the labeling or other restrictions. In addition, the FDA has the authority to require a REMS plan as part of or after approval, which may impose further requirements or restrictions on the distribution or use of an approved product, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-party payors.

We are also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and may include all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities outside the United States and vice versa.

If we or any collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include, among others:

 

    adverse regulatory inspection findings;

 

    warning letters;

 

    voluntary or mandatory product recalls or public notification or medical product safety alerts to healthcare professionals;

 

    restrictions on, or prohibitions against, marketing our products;

 

    restrictions on, or prohibitions against, importation or exportation of our products;

 

    suspension of review or refusal to approve pending applications or supplements to approved applications;

 

    exclusion from participation in government-funded healthcare programs;

 

    exclusion from eligibility for the award of government contracts for our products;

 

    suspension or withdrawal of product approvals;

 

    product seizures;

 

    injunctions; and

 

    civil and criminal penalties and fines.

 

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Even if we receive regulatory approval of PNT2258, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals that we receive for PNT2258 will require surveillance to monitor the safety and efficacy of the product candidate, and may require us to conduct post-approval clinical studies. The FDA may also require a REMS in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval.

Moreover, if we obtain regulatory approval for PNT2258 or any other product candidate, we will only be permitted to market our products for the indication approved by FDA, and such approval may involve limitations on the indicated uses or promotional claims we may make for our products, or otherwise not permit labeling that sufficiently differentiates our product candidates from competitive products with comparable therapeutic profiles. For example, we will not be able to claim that our products have fewer side effects, or improve compliance or efficacy unless we can demonstrate those attributes to FDA in comparative clinical trials.

Later discovery of previously unknown problems with our product candidates, including AEs of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

    restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

    fines, warning letters, or untitled letters;

 

    holds on clinical trials;

 

    refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;

 

    product seizure or detention, or refusal to permit the import or export of our product candidates; and

 

    injunctions, the imposition of civil penalties or criminal prosecution.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of 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. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

In addition, if we pursue, and ultimately obtain, accelerated approval of PNT2258 based on a surrogate endpoint, the FDA would require us to conduct a confirmatory trial to verify the predicted clinical benefit and additional safety studies. The results from the confirmatory trial may not support the clinical benefit, which would result in the approval being withdrawn.

 

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If we or any of our independent contractors, consultants, collaborators, manufacturers, vendors or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could result in penalties and affect our ability to develop, market and sell our product candidates and may harm our reputation.

We are subject to federal, state, and foreign healthcare laws and regulations pertaining to fraud and abuse and patients’ rights. These laws and regulations include:

 

    the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons and entities from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;

 

    the U.S. federal false claims and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;

 

    the U.S. federal Health Insurance Portability and Accountability Act (HIPAA), which prohibits, among other things, executing a scheme to defraud healthcare programs;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), imposes requirements relating to the privacy, security, and transmission of individually identifiable health information, and requires notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

 

    the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services (CMS) 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, which is published in a searchable form on an annual basis; and

 

    state laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws that may be broader in scope and also apply to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security.

If our operations are found to be in violation of any such health care laws and regulations, we may be subject to penalties, including administrative, civil and criminal penalties, monetary damages, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.

Any products we develop may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices or healthcare reform initiatives, thereby harming our business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is

 

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granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Although we intend to monitor these regulations, our programs are currently in the early stages of development and we will not be able to assess the impact of price regulations for a number of years. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other third-party payors. Even if we succeed in bringing one or more products to the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis. Because our programs are in the early stages of development, we are unable at this time to determine their cost effectiveness or the likely level or method of reimbursement. Increasingly, the third-party payors, such as government and private insurance plans, who reimburse patients or healthcare providers, are requiring that drug companies provide them with predetermined discounts from list prices, and are seeking to reduce the prices charged or the amounts reimbursed for pharmaceutical products. If the price we are able to charge for any products we develop, or the reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could be adversely affected.

Certain products we develop may need to be administered under the supervision of a physician on an outpatient basis. Under applicable U.S. law, certain drugs that are not usually self-administered (including certain injectable drugs) may be eligible for coverage under the Medicare Part B program if:

 

    they are incident to a physician’s services;

 

    they 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; and

 

    they have been approved by the FDA and meet other requirements of the statute.

There may be significant delays in obtaining coverage for newly-approved products, and coverage may be more limited than the purposes for which the drug is approved by the FDA. Moreover, eligibility for coverage does not imply that any drug will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent.

Reimbursement may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products 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. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for new drugs that we develop and for which we obtain regulatory approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our 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 oncology companies. A number of legislative and regulatory changes in the healthcare system in the United States and other major healthcare markets have been proposed in recent years, and such efforts have expanded substantially in recent years. These developments have included prescription drug benefit legislation that was enacted and took effect in January 2006, healthcare reform legislation enacted by certain

 

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states, and major healthcare reform legislation that was passed by Congress and enacted into law in the United States in 2010. These developments could, directly or indirectly, affect our ability to sell our products, if approved, at a favorable price.

For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act (PPACA), contains provisions that affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following.

 

    mandatory rebates for drugs sold into the Medicaid program were increased, and the rebate requirement was extended to drugs used in risk-based Medicaid managed care plans;

 

    the 340B Drug Pricing Program under the Public Health Services Act was extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities;

 

    pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “donut hole”; and

 

    pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense. Since we expect our branded pharmaceutical sales, if any of our products are approved, to constitute a small portion of the total federal health program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.

The full effect of the U.S. healthcare reform legislation on our business activities is unknown. The financial impact of the U.S. healthcare reform legislation will depend on a number of factors, including but not limited to, the policies reflected in implementing regulations and guidance and changes in sales volumes for products affected by the new system of rebates, discounts and fees. The legislation may also have a positive impact on our future net sales, if any, by increasing the aggregate number of persons with healthcare coverage in the United States. Further, new litigation is currently pending before the U.S. Supreme Court to invalidate certain provisions of the PPACA.

Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further federal and state legislative and regulatory developments are likely, and 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 that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Our ability to obtain services, reimbursement or funding from the federal government may be impacted by possible reductions in federal spending.

U.S. federal government agencies currently face potentially significant spending reductions. Under the Budget Control Act of 2011, the failure of Congress to enact deficit reduction measures of at least $1.2 trillion for the years 2013 through 2021 triggered automatic cuts to most federal programs. These cuts would include aggregate reductions to Medicare payments to providers of up to two percent per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2024 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, which was enacted on January 1, 2013, among other things, reduced Medicare payments to several providers, including hospitals and imaging centers. The full impact on our business of these automatic cuts is uncertain. If federal spending is reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These

 

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reductions may also impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop.

Obtaining and maintaining regulatory approval for our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of any of our product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval for PNT2258 in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval for PNT2258, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

If we or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by ourselves and our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States and abroad governing laboratory procedures and the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental, health and safety laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

Although 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 hazardous materials, this insurance may not provide adequate coverage against potential liabilities. 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.

 

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In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Our Intellectual Property

We depend on intellectual property licensed from Marina, and the termination of this license could result in the loss of significant rights, which would harm our business.

Pursuant to a license agreement with Marina, we hold an exclusive license from Marina to use certain patented delivery technology, including a particular form of liposomal delivery system, for unlimited use with our current or future DNAi products candidates directed against any gene target. Either party may terminate this license agreement in the event of a material breach that remains uncured following the date that is up to 120 days, depending on the type of breach, from the date that the breaching party is provided with written notice by the non-breaching party, or immediately upon certain insolvency events relating to the other party. See “Business—License and Payment Agreements” for additional information regarding this license agreement.

Disputes may arise between us and Marina regarding intellectual property subject to this license agreement, including with respect to:

 

    the scope of rights granted under the license agreement and other interpretation-related issues;

 

    whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

    the amount and timing of milestone and royalty payments;

 

    the rights of Marina under the license agreement;

 

    our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

    our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and

 

    the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Marina and us and our partners.

Any disputes with Marina over intellectual property that we have licensed from it may prevent or impair our ability to maintain our current licensing arrangement. We depend on these licensed technologies and products to develop PNT2258 and other product candidates developed from our DNAi technology platform. Termination of our license agreement could result in the loss of significant rights and could materially harm our ability to further develop and commercialize PNT2258 and any other product candidates. Additionally, our license extends to a particular form of liposomal delivery system for a product candidate that incorporates one of our DNAi oligonucleotides, and it does not prevent Marina from licensing a different form of liposomal delivery system to a different company, which it has done in the past and may continue to do in the future. If Marina licensed a form of liposomal delivery system to an oncology company developing DNAi technology, we would face increased competition.

Additionally, our success will depend in part on the ability of Marina to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Marina may not successfully prosecute the patent applications licensed to us. Even if patents issue or are granted, Marina 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.

 

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If we are not able to obtain and enforce patent protection for our technologies or product candidates, development and commercialization of our product candidates may be adversely affected.

Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, for our product candidates, methods used to manufacture our product candidates and methods for treating patients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary rights of others. As of March 31, 2015, we were the owner of seven U.S. patents, expiring between 2017 and 2028, absent any adjustments or extensions, comprising claims directed to the compositions of PNT2258, PNT100, oligonucleotides directed against the oncogenes CMYC and RAS, and methods of use of pharmaceutical compositions comprising PNT2258 and rituximab. As of March 31, 2015, we also owned two pending U.S. patent applications, one of which related to PNT2258 for the treatment of cancer indications and the other of which related to DNA oligonucleotides directed against various oncogenes, including RAS. Any patents issuing from these U.S. applications are expected to expire between 2024 and 2026, absent any adjustments or extensions. As of March 31, 2015, we also had 31 issued foreign patents and five pending foreign patent applications (including one allowed application) in 17 foreign jurisdictions, including Australia, Canada, China, Europe and Japan. These foreign patents, and any patents issuing from these pending foreign patent applications, are expected to expire between 2024 and 2026, absent any adjustments or extensions. These foreign patents and patent applications comprise claims that relate to the compositions of PNT2258, PNT100, oligonucleotides directed against the oncogenes CMYC, CHARAS, CKIRAS, HER2 and TGF a and methods of use of PNT2258 for cancer and in combination with rituximab. As of March 31, 2015, we also had three pending international applications filed under the Patent Cooperation Treaty (PCT), with claims directed to oligonucleotide design, use of biomarkers to determine BCL2 modulation for cancer treatment and treatment methods using PNT2258. The PCT is an international patent law treaty that provides a unified procedure for filing a single initial patent application and it allows the applicant to seek protection in any of the member states through national-phase applications. Any patents issuing from these PCT applications are expected to expire between 2033 and 2034, absent any adjustments or extensions.

We and our current or future licensors and licenses may not be able to apply for or prosecute patents on certain aspects of our product candidates or delivery technologies at a reasonable cost in a timely fashion or at all. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If our current licensors, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using, and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods, and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.

There is no guarantee that any of our pending patent applications will result in issued or granted patents, that any of our issued or granted patents will not later be found to be invalid or unenforceable or that any issued or granted patents will include claims that are sufficiently broad to cover our product candidates or delivery technologies or to provide meaningful protection from our competitors. Moreover, the patent position of oncology companies can be highly uncertain because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our current and future proprietary technology and product candidates are covered by valid and enforceable patents or are effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely impact our position in the market.

 

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The U.S. Patent and Trademark Office (USPTO) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in oncology patents. Moreover, changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. As such, we do not know the degree of future protection that we will have on our proprietary products and technology. While we will endeavor to try to protect our product candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and sometimes unpredictable.

Further, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed (or 20 years after the filing date of the first non-provisional US patent application to which it claims priority). Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from generic versions of our product candidates. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market a product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates.

If we are unable to protect the confidentiality of our trade secrets, in particular with respect to our DNAi technology platform, our business and competitive position would be harmed.

In addition to seeking patent protection for certain aspects of our product candidates and delivery technologies, we also consider trade secrets, including confidential and unpatented know-how important to the maintenance of our competitive position. With respect to our DNAi technology platform, we consider trade secrets and know-how to be our primary intellectual property. We protect trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us.

Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Additionally, we anticipate that with respect to our DNAi technology platform, these trade secrets and know-how may over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology and the movement of personnel skilled in the art from academic to industry scientific positions. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

Numerous recent changes to the patent laws and proposed changes to the rules of the USPTO may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act (AIA) enacted in 2011 involves significant changes in patent

 

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legislation. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.

Further, the Supreme Court has ruled on several patent cases in recent years, some of which cases either narrow the scope of patent protection available in certain circumstances or weaken the rights of patent owners in certain situations. These changes have led to increasing uncertainty with regard to the scope and value of our issued patents and to our ability to obtain patents in the future.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.

Recent court cases such as Association for Molecular Pathology v. Myriad Genetics, Inc. (Myriad); BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig. ; and Promega Corp. v. Life Technologies Corp. have added to the uncertainty surrounding patent claims directed to nucleic acid products and pharmaceutical compositions comprising such products. For example, the recent decision by the Supreme Court in Myriad precludes a claim to a nucleic acid having a stated nucleotide sequence which is identical to a sequence found in nature and unmodified. We are currently uncertain as to what, if any, immediate impact this decision may have on our patents or patent applications because the extent to which the Myriad decision impacts the validity of claims directed to pharmaceutical formulations that include unmodified nucleic acid molecules having sequences identical to those found in genomic DNA has yet to be clearly interpreted by courts and by the USPTO. We cannot assure you that the interpretations of this decision or subsequent rulings will not adversely impact our patents or patent applications. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification derivation and opposition proceedings in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such initial grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether.

 

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We, our licensors or any future strategic partners may become subject to third-party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights.

We, our licensors or any future strategic partners may be subject to third-party claims for infringement or misappropriation of patent or other proprietary rights. If we, our licensors or any future strategic partners are found to infringe a third-party patent or other intellectual property rights, we could be required to pay substantial damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed. In addition, we, our licensors or any future strategic partners may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we may be unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. Alternatively, we may need to redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. In addition, we may find it necessary to pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform technology. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.

In addition, in an infringement proceeding, a court may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.

Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable

 

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outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or interference proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Other companies or organizations may challenge our or our licensors’ patent rights or may assert patent rights that prevent us from developing and commercializing our products.

DNAi technology is a new scientific field. We have obtained grants and issuances of DNAi patents. The issued patents and pending patent applications in the United States and in key markets around the world that we own or license claim many different methods, compositions and processes relating to the discovery, development, manufacture and commercialization of DNAi technology.

As the field of DNAi technology matures, patent applications are being processed by national patent offices around the world. There is uncertainty about which patents will issue, and, if they do, as to when, to whom, and with what claims. It is likely that there will be significant litigation in the courts and other proceedings, such as interference, reexamination, post-grant review, inter partes review, derivation and opposition proceedings, in various patent offices relating to patent rights in the DNAi technology field. In many cases, the possibility of appeal or opposition exists for either us or our opponents, and it may be years before final, unappealable rulings are made with respect to these patents in certain jurisdictions. The timing and outcome of these and other proceedings is uncertain and may adversely affect our business if we are not successful in defending the patentability and scope of our pending and issued patent claims or if third parties are successful in obtaining claims that cover our DNAi technology platform or any of our product candidates. In addition, third parties may attempt to invalidate our intellectual property rights. Even if our rights are not directly challenged, disputes could lead to the weakening of our intellectual property rights. Our defense against any attempt by third parties to circumvent or invalidate our intellectual property rights could be costly to us, could require significant time and attention of our management and could have a material adverse effect on our business and our ability to successfully compete in the field of DNAi technology.

We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.

We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in

 

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jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from 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, trade secrets and other intellectual property protection, particularly those relating to oncology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

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 license imposes, 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. For example, we are required to pay Novosom a $3.0 million milestone payment upon regulatory approval of PNT2258 and low single-digit royalties on net sales of PNT2258, and we are required to pay Marina milestone payments of up to $14.5 million and low single-digit royalties on net sales of any DNAi product candidates other than PNT2258. 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, we may be required to pay significant milestone and royalty payments, depending 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.

If our trademarks are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

We have trademarked ProNAi and DNAi. Our trademarks may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks, we may not be able to compete effectively and our business may be adversely affected.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other oncology companies. We may be subject to claims that we or our

 

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employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

Risks Related to This Offering and Ownership of Our Common Stock

The market price of our common stock is likely to be highly volatile, and you may be unable to sell your shares at or above the offering price.

Prior to this offering, there has not been a public market for our common stock. It is possible that no active trading market for our common stock will develop following this offering. You may not be able to sell your shares of common stock quickly or at the market price if trading in our common stock is not active. The initial public offering price for our shares of common stock will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. In addition, the market price of our common stock may be subject to wide fluctuations. Factors affecting the market price of our common stock include:

 

    the commencement, enrollment or results of the planned clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;

 

    any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings;

 

    disputes with Marina regarding our licensed technology and products;

 

    adverse results or delays in clinical trials;

 

    changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;

 

    adverse developments concerning our manufacturers;

 

    our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices;

 

    our inability to establish collaborations if needed;

 

    our failure to commercialize our product candidates;

 

    additions or departures of key scientific or management personnel;

 

    unanticipated serious safety concerns related to the use of our product candidates;

 

    announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

 

    our ability to effectively manage our growth;

 

    the size and growth of our initial cancer target markets;

 

    our ability to successfully treat additional types of cancers or at different stages;

 

    actual or anticipated variations in quarterly operating results;

 

    our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;

 

    publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

    changes in the market valuations of similar companies;

 

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    overall performance of the equity markets;

 

    sales of our common stock by us or our stockholders in the future;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

    significant lawsuits, including patent or stockholder litigation;

 

    general political and economic conditions; and

 

    other events or factors, many of which are beyond our control.

In addition, the stock market in general, and oncology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.

We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government that may not generate a high yield to our stockholders.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

Our officers, directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of March 31, 2015, our officers, directors, five percent or greater stockholders and their respective affiliates directly or indirectly held in the aggregate approximately 52% of our outstanding voting stock and, upon completion of this offering, that same group will hold in the aggregate approximately     % of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares). Therefore, after this offering these stockholders will continue to have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you or other stockholders may feel are in your or their best interest as one of our stockholders.

 

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If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price is expected to be substantially higher than the net tangible book value (deficit) per share of our common stock. Investors purchasing common stock in this offering are expected to pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $         per share based on the initial public offering price of $         per share, which is the midpoint of the range set forth on the cover of this prospectus.

This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering and the exercise of stock options granted to our employees and warrants granted to investors. As a result of the dilution to investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation.

We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act) enacted in April 2012. 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 companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 (Section 404) of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. 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.

We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the stock exchange upon which our common stock is listed and other applicable securities rules and regulations impose

 

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various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors. However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are not currently required to comply with the rules of the Securities and Exchange Commission (SEC) that implement Section 404, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose until our annual report for the year ended December 31, 2016. Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

In connection with the preparation of our 2013 and 2014 financial statements, our independent registered public accounting firm identified a material weakness in internal control over financial reporting with respect to having sufficiently qualified accounting personnel to account for unusual and complex transactions in a timely manner, provide for the appropriate segregation of duties, review financial reporting data and account reconciliation and perform a formal risk assessment for our company. We have and will continue to hire key accounting personnel in order to remediate this material weakness and be able to implement the necessary internal control over financial reporting. Under standards established by the Public Company Accounting Oversight Board, a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. While we believe that we have remediated the material weakness identified by our independent registered public accounting firm, we cannot assure you that there will not be additional material weaknesses or significant deficiencies that our independent registered public accounting firm or we will identify. If we identify such issues or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with the Nasdaq Stock Market listing requirements.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

 

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Substantially all of our existing stockholders will be subject to lock-up agreements with the underwriters of this offering that restrict the stockholders’ ability to transfer shares of our common stock for 180 days from the date of this prospectus. The lock-up agreements limit the number of shares of common stock that may be sold immediately following the public offering. Subject to certain limitations, based on the outstanding capital stock as of March 31, 2015, approximately              shares will become eligible for sale beginning 181 days after the date of this prospectus. In addition, shares issued or issuable upon exercise of options or warrants vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of stock by these stockholders could have a material adverse effect on the trading price of our common stock.

Certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended (Securities Act), subject to the 180-day lock-up arrangement described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Provisions in our restated certificate of incorporation and restated bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.

Our restated certificate of incorporation and restated bylaws, as we expect they will be in effect upon completion of the offering, will contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:

 

    establish a classified board of directors so that not all members of our board are elected at one time;

 

    permit only the board of directors to establish the number of directors and fill vacancies on the board;

 

    provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;

 

    require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws;

 

    authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a “poison pill”);

 

    eliminate the ability of our stockholders to call special meetings of stockholders;

 

    prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

    prohibit cumulative voting; and

 

    establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our

 

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company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable evaluations of our company or our stock, the price of our stock could decline. If one or more of these analysts cease coverage of our company, our stock may lose visibility in the market, which in turn could cause our stock price to decline.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” contains forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue.” “anticipate,” “intend,” “could,” “would,” “project,” “plan” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC, as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

STATISTICAL DATA AND MARKET INFORMATION

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size, the incidence of certain medical conditions and other industry data. These data, to the extent they contain estimates or projections, involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates or projections. Industry publications and other reports we have obtained from independent parties generally state that the data contained in these publications or other reports have been obtained in good faith or from sources considered to be reliable, but they do not guarantee the accuracy or completeness of such data. The industry in which we operate is subject to risks and uncertainties due to a variety of factors, including those described in the “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications and reports.

 

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USE OF PROCEEDS

We estimate that 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 range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $         million, or $         million if the underwriters’ option to purchase additional shares is exercised in full. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $         million, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. Similarly, an increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by $         million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions.

We currently anticipate that we will use the net proceeds from this offering as follows:

 

    approximately $         million to $         million to fund our ongoing Wolverine Phase 2 trial and planned Brighton Phase 2 trial that we expect to initiate in mid-2015;

 

    approximately $         million to $         million to fund other planned future Phase 2 trials related to PNT2258;

 

    approximately $         million to $         million to support manufacturing activities, non-clinical activities and preclinical activities related to PNT2258, including activities related to its mechanism of action; and

 

    approximately $         million to $         million to further develop our DNAi technology platform and broaden our pipeline of DNAi-based product candidates.

The remainder of the net proceeds will be used for working capital and other general corporate purposes as well as to pay the accrued dividends to our Series B and Series B-1 redeemable convertible preferred stockholders as described in “Dividend Policy.” We may also use a portion of the net proceeds to acquire, license and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to do so.

The amount and timing of our actual expenditures will depend upon numerous factors, including the status and results of the Phase 2 Wolverine and Brighton clinical trials for PNT2258. Although it is difficult to predict additional capital requirements, we believe that the net proceeds from this offering and our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next      months, which we expect will allow us to achieve clinical data read-outs for our Wolverine and Brighton Phase 2 clinical trials. We anticipate that we will need additional funding to complete these and our other planned clinical trials.

This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, feedback from regulatory authorities, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our current and future product candidates, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash or stock dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock for the foreseeable future. Any future determination to declare dividends on common stock will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

Holders of our Series B, Series B-1, Series C and Series D redeemable convertible preferred stock are entitled to dividends upon the conversion of such shares of redeemable convertible preferred stock to common stock, which will automatically occur immediately prior to the completion of this offering. Each holder of Series B, Series B-1, Series C and Series D redeemable convertible preferred stock is entitled to receive a dividend equal to 50% of the cumulative accrued dividend calculated at a rate of 8% per annum of the original issue price of such series of redeemable convertible preferred stock, which is $1.00, $0.35, $0.70 and $0.70 for Series B, Series B-1, Series C and Series D redeemable convertible preferred stock, respectively. The remaining 50% of the accrued dividend will be forfeited by all series of preferred stock in accordance with the terms of our current certificate of incorporation. The holders of Series B and Series B-1 redeemable convertible preferred stock will receive a cash dividend equal to 50% of the accrued dividend, and the holders of the Series C and Series D redeemable convertible preferred stock will receive a dividend of shares of our common stock in an amount equal to 50% of the accrued dividend divided by the original issuance price of the respective series.

As of March 31, 2015, we had $             million of cumulative but unpaid accruing dividends to our Series B and Series B-1 redeemable convertible preferred stockholders and $         million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders. Dividends payable to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders have continued to accrue subsequent to March 31, 2015. Assuming this offering is completed on                 , 2015, immediately prior to the completion of this offering, we expect to pay $             million of cumulative accrued dividends in cash to our Series B and Series B-1 redeemable convertible preferred stockholders and issue                 shares of common stock in payment of $         million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. The cash dividend will be paid from the net proceeds of this offering, and neither the cash nor the stock dividends will be paid on any shares purchased in this offering.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, short-term investments and capitalization as of March 31, 2015 on:

 

    an actual basis;

 

    a pro forma basis, reflecting (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the accrual for the payment of $             million in cumulative but unpaid accruing dividends to our Series B and Series B-1 redeemable convertible preferred stockholders and the related reduction in additional paid-in capital; (iii) the issuance of                 shares of common stock in payment of $         million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders; (iv) the issuance of             shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering and the related reclassification of preferred stock warrant liabilities to additional paid-in capital; (v) a $             million increase in stock-based compensation associated with stock options that vest upon the achievement of a performance condition that will be achieved upon the completion of this offering and service-based criteria, and the related increase to additional paid-in capital and accumulated deficit; and (vi) the effectiveness of our restated certificate of incorporation; and

 

    a pro forma as adjusted basis, reflecting (i) the pro forma adjustments set forth above; (ii) the issuance and sale of             shares of common stock in this offering, at an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses; and (iii) the payment of the accrued dividend described above immediately prior to the completion of the offering. Dividends payable to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders have continued to accrue subsequent to March 31, 2015. Assuming this offering is completed on            , 2015, immediately prior to the completion of this offering, we expect to pay $             million of cumulative accrued dividends in cash to our Series B and Series B-1 redeemable convertible preferred stockholders and issue                 shares of common stock in payment of $         million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. See “Use of Proceeds” and “Dividend Policy.”

The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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     March 31, 2015  
     Actual     Pro Forma      Pro Forma
As Adjusted (1)
 
     (in thousands, except share and per share
data)
 

Cash and cash equivalents

   $ 24,054      $                     $                  
  

 

 

   

 

 

    

 

 

 

Short-term investments

$ 10,019    $      $     
  

 

 

   

 

 

    

 

 

 

Preferred stock warrant liabilities

  3,136      —        —     

Convertible preferred stock, $0.001 par value; 1,843,894 shares authorized, 1,673,171 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

  2,543      —        —     

Redeemable convertible preferred stock, $0.001 par value; 134,069,847 shares authorized, 126,964,351 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

  152,837      —        —     

Stockholders’ deficit:

Preferred stock, par value $0.001; no shares authorized, issued and outstanding, actual and pro forma; 10,000,000 shares authorized and no shares issued and outstanding, pro forma as adjusted

  —        —        —     

Common stock, $0.001 par value; 180,000,000 shares authorized, 12,043,369 shares issued and outstanding, actual; 180,000,000 shares authorized, 142,342,355 shares issued and outstanding, pro forma; 500,000,000 shares authorized,                  shares issued and outstanding, pro forma as adjusted

  12   

Additional paid-in capital

  —     

Accumulated other comprehensive loss

  —     

Accumulated deficit

  (126,675
  

 

 

   

 

 

    

 

 

 

Total stockholders’ deficit

  (126,663
  

 

 

   

 

 

    

 

 

 

Total capitalization

$ 28,717    $      $     
  

 

 

   

 

 

    

 

 

 

 

(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $             million, assuming that the number of shares offered by us, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions.

The table above excludes the following shares:

 

    18,346,606 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2015, with a weighted-average exercise price of $0.16 per share;

 

    5,475,000 shares of common stock issuable upon the exercise of options granted on June 11, 2015, with an exercise price of $0.90 per share; and

 

                     shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 8,923,249 shares of common stock reserved for future issuance under our 2008 Equity Incentive Plan as of March 31, 2015, which shares will be added to the shares to be reserved for issuance under our 2015 Equity Incentive Plan upon completion of this offering, (ii)                  additional shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii)                  shares of common stock reserved for future issuance under our 2015 Employee Stock Purchase Plan, which will become effective on the date of this prospectus.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma as adjusted net tangible book value (deficit) per share of our common stock immediately after this offering. Net tangible book value (deficit) dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value (deficit) per share of common stock.

Net tangible book value (deficit) per share is determined by dividing our total tangible assets less our total liabilities and convertible and redeemable convertible preferred stock by the number of shares of common stock outstanding. Our pro forma net tangible book value (deficit) as of March 31, 2015 was $            million, or $            per share, based on the total number of shares of common stock outstanding as of March 31, 2015, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the accrual for the payment of $             million in cumulative but unpaid accruing dividends to our Series B and Series B-1 redeemable convertible preferred stockholders; (iii) the issuance of              shares of common stock in payment of $         million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders; and (iv) the issuance of              shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering.

After giving effect to (i) the pro forma adjustments set forth above; (ii) the issuance and sale of             shares of common stock in this offering, at an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses; and (iii) the payment of the accrued dividend described above immediately prior to the completion of the offering, our pro forma net tangible book value (deficit) as of March 31, 2015 would have been approximately $             million, or $             per share of our common stock. This represents an immediate increase in pro forma net tangible book value (deficit) of $             per share to our existing stockholders and an immediate dilution of $             per share to investors purchasing shares in this offering.

The following table illustrates this dilution:

 

Assumed initial public offering price per share

$                

Pro forma net tangible book value (deficit) per share as of March 31, 2015, before giving effect to this offering

$                

Increase in pro forma net tangible book value (deficit) per share attributable to new investors in this offering

  

 

 

    

Pro forma net tangible book value (deficit) as adjusted to give effect to this offering

     

 

 

 

Dilution in pro forma as adjusted net tangible book value (deficit) per share to new investors in this offering

$     
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, would increase (decrease) our pro forma net tangible book value (deficit), as adjusted to give effect to this offering, by $             per share, the increase (decrease) attributable to this offering by $             per share, and the dilution in pro forma as adjusted net tangible book value (deficit) per share to new investors in this offering by $             per share, assuming the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions. Similarly, an increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) our pro forma net tangible book value (deficit), as adjusted to give effect to this offering, by $             per share, the increase

 

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(decrease) attributable to this offering by $             per share, and the dilution in pro forma as adjusted net tangible book value (deficit) per share to new investors in this offering by $             per share, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions.

If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value (deficit) per share of our common stock after giving effect to this offering would be $         per share, and the dilution in net tangible book value (deficit) per share to investors in this offering would be $             per share.

Dividends payable to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders have continued to accrue subsequent to March 31, 2015. Assuming this offering is completed on             , 2015, immediately prior to the completion of this offering, we expect to pay $            million of cumulative accrued dividends in cash to our Series B and Series B-1 redeemable convertible preferred stockholders and issue              shares of common stock in payment of $             million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. See “Use of Proceeds” and “Dividend Policy.”

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2015 after giving effect to (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the issuance of             shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering; (iii) the issuance of              shares of common stock in payment of $              million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders (assuming this offering is completed on                     , 2015); and (iv) the issuance and sale of             shares of common stock in this offering, at an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, the difference between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid, before deducting estimated underwriting discounts and commissions and estimated offering expenses:

 

     Shares Purchased     Total Consideration     Average
Price

Per Share
 
     Number    Percent     Amount      Percent    

Existing stockholders

                         $                                       $                

New public investors

             $     
  

 

  

 

 

   

 

 

    

 

 

   

Total

  100 $        100
  

 

  

 

 

   

 

 

    

 

 

   

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, would increase (decrease) each of total consideration paid by new investors and total consideration paid by all stockholders by approximately $             million, assuming that the number of shares offered by us remains the same and after deducting estimated underwriting discounts and commissions.

To the extent that any outstanding options are exercised, investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of common stock outstanding as of March 31, 2015 excludes:

 

    18,346,606 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2015, with a weighted-average exercise price of $0.16 per share;

 

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    5,475,000 shares of common stock issuable upon the exercise of options granted on June 11, 2015, with an exercise price of $0.90 per share; and

 

                     shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of (i) 8,923,249 shares of common stock reserved for future issuance under our 2008 Equity Incentive Plan as of March 31, 2015, which shares will be added to the shares to be reserved for issuance under our 2015 Equity Incentive Plan upon completion of this offering, (ii)                  additional shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii)                  shares of common stock reserved for future issuance under our 2015 Employee Stock Purchase Plan, which will become effective on the date of this prospectus.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the following selected consolidated statements of operations data for the years ended December 31, 2013 and 2014 and the selected consolidated balance sheet data as of December 31, 2013 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2014 and 2015 and the selected consolidated balance sheet data as of March 31, 2015 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for a fair presentation of our financial position and results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results should not necessarily be considered indicative of results that may be expected for the full year or any other period. You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended,
December 31,
     Three Months Ended
March 31,
 
     2013      2014      2014      2015  
     (in thousands, except share and per share amounts)  

Consolidated Statements of Operations Data:

           

Operating expenses (1) :

           

Research and development

   $ 2,843       $ 19,078       $ 1,827       $        5,296   

General and administrative

     1,162         3,500         493         1,441   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

  4,005      22,578      2,320      6,737   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

  (4,005   (22,578   (2,320   (6,737

Other income (expense), net:

Interest expense

  (2,719   —        —        —     

Change in fair value of preferred stock warrants

  (202   (1,380   (149   (1,326

Other income (expense)

  94      87      2      25   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other income (expense), net

  (2,827   (1,293   (147   (1,301
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

  (6,832   (23,871   (2,467   (8,038

Provision for income taxes

  —        2      —        10   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

  (6,832   (23,873   (2,467   (8,048

Adjustment to redemption value on redeemable convertible preferred stock

  (5,713   (49,849   (2,442   (11,005
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to common stockholders

$ (12,545 $ (73,722 $ (4,909 $ (19,053
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (2)

$ (2.57 $ (9.27 $ (0.77 $ (1.72
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (2)

  4,871,851      7,951,340      6,339,566      11,068,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (3)

$      $     
     

 

 

       

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (3)

     

 

 

       

 

 

 

 

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(1) Includes the following stock-based compensation:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2013      2014      2014      2015  
     (in thousands)  

Stock-based compensation:

           

Research and development

   $ 5       $ 65       $ 9       $ 74   

General and administrative

     17         237         13         106   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $   22       $ 302       $   22       $ 180   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) Basic and diluted net loss per share attributable to common stockholders is computed based on the weighted-average number of shares of common stock outstanding during each period. For additional information, see Note 3 to our consolidated financial statements included elsewhere in this prospectus.
(3) Pro forma basic and diluted net loss per share attributable to common stockholders and pro forma weighted-average number of shares used in computing pro forma basic and diluted net loss per share attributable to common stockholders reflect (i) automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of common stock immediately prior to the completion of this offering; (ii) the issuance              of shares, based upon an assumed initial public offering price of $         per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at December 31, 2014 and March 31, 2015 that would otherwise expire upon completion of this offering; (iii) the vesting of stock options upon the achievement of a performance condition that will be achieved upon the completion of this offering and service-based criteria; and (iv) the issuance of              and              additional shares of common stock that would have been required to be issued, based on an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, to pay $7.2 million and $8.2 million in unpaid accruing dividends at December 31, 2014 and March 31, 2015, respectively, to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stockholders. We do not expect to issue these shares to the Series B and Series B-1 redeemable convertible preferred stockholders. Instead, immediately prior to the completion of this offering, assuming this offering is completed on                     , 2015, we expect to pay $             million in cumulative but unpaid accruing dividends in cash to the Series B and Series B-1 redeemable convertible preferred stockholders and issue              shares of common stock in payment of $             million of cumulative accrued dividends to our Series C and Series D redeemable convertible preferred stockholders. For additional information, see Notes 3 and 13 to our consolidated financial statements included elsewhere in this prospectus.

 

     December 31,     March 31,
2015
 
     2013     2014    
     (in thousands)  

Consolidated Balance Sheets Data:

      

Cash and cash equivalents

   $ 2,429      $ 29,154      $ 24,054   

Short-term investments

     —          10,010        10,019   

Working capital

     1,561        37,630        30,086   

Total assets

     2,460        40,565        36,311   

Long-term note payable and accrued interest

     433        —          —     

Preferred stock warrant liabilities

     430        1,810        3,136   

Total liabilities

     1,761        4,005        7,594   

Convertible preferred stock

     2,543        2,543        2,543   

Redeemable convertible preferred stock

     34,005        141,832        152,837   

Accumulated deficit

     (34,696     (107,816     (126,675

Total stockholders’ deficit

     (34,690     (107,815     (126,663

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this prospectus.

Overview

We are a clinical-stage oncology company pioneering a novel class of therapeutics based on our proprietary DNA interference (DNAi) technology platform. Our vision is to be the leader in developing and commercializing a portfolio of DNAi-based therapies to deliver extraordinary therapeutic outcomes that dramatically change patients’ lives. The core of our scientific expertise is our understanding of DNAi oligonucleotides, which are rationally designed DNA sequences that modulate the transcription of oncogenes known to be involved in cancer cell survival and proliferation. Our lead DNAi product candidate, PNT2258, targets BCL2, a widely overexpressed oncogene that is an important gatekeeper of the programmed cell death process known as apoptosis and has been linked to many forms of cancer. We are pursuing a multi-faceted clinical development strategy that is designed to efficiently achieve regulatory approval and maximize the commercial opportunity of PNT2258.

We have conducted two clinical trials with PNT2258 to date: a Phase 1 safety trial in patients with relapsed or refractory solid tumors and a Phase 2 trial in patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL). Having observed preliminary evidence of efficacy and tolerability, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258. In December 2014, we initiated “Wolverine,” an open-label 60 patient Phase 2 trial evaluating PNT2258 for the treatment of third-line relapsed or refractory diffuse large B-cell lymphoma (DLBCL). By mid-2015, we plan to initiate “Brighton,” an open-label 50 patient Phase 2 trial evaluating PNT2258 for the treatment of Richter’s transformed chronic lymphocytic leukemia (Richter’s CLL). Richter’s CLL is a rare and aggressive form of NHL with no currently approved therapies. We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as acute myeloid leukemia, acute lymphoblastic leukemia and multiple myeloma; and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.

Our DNAi platform technology is based on the breakthrough discovery at Wayne State University and Karmanos Cancer Institute that single-stranded DNA oligonucleotides can interact with genomic DNA in order to interfere with gene transcription. We acquired this technology and subsequently developed an algorithm that we employ for rationally designing our DNAi product candidates using bioinformatics and our understanding of gene regulatory domains. In March 2007, we entered into an exclusive license agreement with Novosom AG (Novosom) to use certain patented lipid nanoparticle (LNP) delivery technology used in PNT2258. In July 2010, the original Novosom license agreement was acquired by Marina Biotech, Inc. (Marina), but Novosom retained the right to receive all future payments related to PNT2258. In March 2012, we and Marina entered into another exclusive license agreement for the use of certain of Marina’s patented delivery technology, including LNP technology, for any of our current or future DNAi product candidates other than PNT2258. In exchange for this exclusive right, we paid Marina an upfront payment of $0.3 million and will also be required to pay Marina milestone payments of up to an aggregate of $14.5 million for each DNAi product candidate other than PNT2258

 

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as well as low single-digit royalties on net sales for DNAi product candidates other than PNT2258. In April 2014, we entered into a license payment agreement with Novosom, pursuant to which we made a one-time payment to Novosom of $11.0 million in April 2014 and terminated the other payment obligations owed to Novosom for PNT2258 except for one remaining $3.0 million payment due upon regulatory approval of PNT2258 and a low single-digit royalty on net sales of PNT2258.

Since inception, we have devoted substantially all of our resources to research and development activities, including the clinical development of our lead product candidate, PNT2258, and providing general and administrative support for these operations. We have never generated revenue and have incurred significant net losses since inception. Our net losses were $6.8 million and $23.9 million for the years ended December 31, 2013 and 2014, respectively, and $2.5 million and $8.0 million for the three months ended March 31, 2014 and 2015, respectively. As of March 31, 2015, we had an accumulated deficit of $126.7 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

 

    invest significantly to further develop, and seek regulatory approval for, our lead product candidate, PNT2258;

 

    invest in scaling our manufacturing capacity to support development and our global commercialization strategy;

 

    continue to develop our DNAi technology platform;

 

    identify and develop additional product candidates;

 

    hire additional clinical, scientific and management personnel;

 

    seek regulatory and marketing approvals for any product candidates that we may develop;

 

    ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    acquire or in-license other drugs and technologies; and

 

    add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to a public company.

We have funded our operations to date primarily from the issuance and sale of our convertible and redeemable convertible preferred stock and to a lesser extent, through debt financings. As of March 31, 2015, we had cash and cash equivalents of $24.1 million and short-term investments of $10.0 million. To fund our current operating plans, we will need to raise additional capital. The expected net proceeds from this offering, together with our existing cash and cash equivalents and short-term investments, will not be sufficient for us to complete development of our lead product candidate and, if applicable, to prepare for commercializing any product candidate that may receive approval. Accordingly, we will continue to require substantial additional capital beyond the expected proceeds from this offering to continue our clinical development and potential commercialization activities; however, we believe that the net proceeds from this offering and our existing cash and cash equivalents and short-term investments will be sufficient to fund our current operating plans through at least the next 12 months. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

 

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Components of Statements of Operations

Operating Expenses

Research and Development

Research and development expenses consist primarily of the following:

 

    fees or milestone payments incurred in connection with license agreements;

 

    personnel-related costs, which include salaries, benefits, stock-based compensation, recruitment fees and travel costs;

 

    costs associated with preclinical studies and clinical trials, regulatory activities and manufacturing activities to support clinical activities;

 

    fees paid to external service providers that conduct certain research and development, clinical and manufacturing activities on our behalf; and

 

    facility-related costs, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.

The largest recurring component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidate. We expect our research and development expenses will increase over the next few years as we advance our development programs, pursue regulatory approval of our product candidate in the United States and other jurisdictions and prepare for potential commercialization, which will require a significant investment in costs related to contract manufacturing and inventory buildup.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for PNT2258 or any future product candidates. The probability of success of our product candidate may be affected by numerous factors, including clinical data, regulatory developments, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization of PNT2258 or any future product candidates.

General and Administrative

General and administrative expenses consist of personnel-related costs, facility-related costs, allocated expenses and professional fees for services, including legal, human resources, audit and accounting services. Personnel-related costs consist of salaries, benefits, stock-based compensation, recruitment fees and travel costs.

We expect to incur additional expenses associated with supporting our growing research and development activities, operating as a public company and other administration and professional services.

Other Income (Expense), net

Interest Expense

Interest expense consists of interest expense on our historical debt obligations as well as amortization of financing costs. We may incur additional interest expense in the future if we enter into debt arrangements.

Change in Fair Value of Preferred Stock Warrants

Our outstanding preferred stock warrants are classified as a liability on our consolidated balance sheets and, as such, are re-measured to fair value at each balance sheet date, with the corresponding gain or loss from the

 

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adjustment recorded in the consolidated statement of operations. Upon the completion of this offering, the liability on the preferred stock warrants will be reclassified to additional paid-in capital in stockholders’ deficit. For additional information, see “—Critical Accounting Policies and Estimates—Preferred Stock Warrant Liabilities.”

Other Income (Expense)

Other income (expense) primarily consists of interest earned on our cash and cash equivalents and short-term investments, as well as foreign currency exchange gains and losses. Foreign currency exchange gains and losses relate to transactions and monetary asset and liability balances denominated in currencies other than the U.S. dollar. Foreign currency gains and losses may continue to fluctuate in the future due to changes in foreign currency exchange rates.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and federal and provincial income taxes in Canada, as well as deferred income taxes and changes in related valuation allowance reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of December 31, 2014, we had not generated any taxable income for U.S. federal income tax purposes. Our tax expense to date relates to federal and provincial income taxes in Canada. As of December 31, 2014, we had U.S. federal operating loss carryforwards of $24.1 million and state operating loss carryforwards of $18.4 million, expiring in years ranging from 2021 to 2034. We also had net tax credit carryforwards of $0.6 million available to reduce future tax liabilities, if any, for U.S. federal purposes. The net tax carryforwards begin to expire in 2031. Based upon our historical operating performance and the recorded cumulative net losses in prior fiscal periods, we have recorded a full valuation allowance against the net U.S. deferred tax assets as of December 31, 2014 and March 31, 2015.

Results of Operations

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2015

 

     Three Months Ended
March 31,
     Change  
     2014      2015     
     (in thousands)  

Operating expenses:

        

Research and development

   $ 1,827       $ 5,296       $ 3,469   

General and administrative

     493         1,441         948   
  

 

 

    

 

 

    

 

 

 

Total operating expenses

  2,320      6,737      4,417   
  

 

 

    

 

 

    

 

 

 

Loss from operations

  (2,320   (6,737   (4,417

Other income (expense), net:

Interest expense

  —        —        —     

Change in fair value of preferred stock warrants

  (149   (1,326   (1,177

Other income (expense)

  2      25      23   
  

 

 

    

 

 

    

 

 

 

Total other income (expense), net

  (147   (1,301   (1,154
  

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

  (2,467   (8,038   (5,571

Provision for income taxes

  —        10      10   
  

 

 

    

 

 

    

 

 

 

Net loss

$ (2,467)    $ (8,048 $ (5,581
  

 

 

    

 

 

    

 

 

 

 

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Research and Development

Research and development expenses increased $3.5 million, from $1.8 million for the three months ended March 31, 2014 to $5.3 million for the three months ended March 31, 2015. The increase was primarily due to a $1.5 million increase in third-party manufacturing costs for the manufacture of PNT2258. The remaining change was primarily attributable to a $0.9 million increase in personnel-related costs due mainly to increased headcount, a $0.8 million increase in clinical trial costs relating to the continuation of our PNT2258 clinical trials and a $0.2 million increase in consulting and professional fees, primarily attributable to the clinical and regulatory development of PNT2258.

General and Administrative

General and administrative expenses increased $0.9 million, from $0.5 million for the three months ended March 31, 2014 to $1.4 million for the three months ended March 31, 2015. The change was primarily due to a $0.7 million increase in personnel-related costs associated mainly with increased headcount and a $0.2 million increase in accounting, consulting, legal and other professional fees incurred in connection with our preparation to become a public company.

Change in Fair Value of Preferred Stock Warrants

The change in the fair value of our preferred stock warrants increased $1.2 million, from $0.1 million for the three months ended March 31, 2014 to $1.3 million for the three months ended March 31, 2015. The increase in the fair value of our preferred stock warrants was primarily due to the change in fair value of the underlying stock.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2014

 

     Year Ended
December 31,
     Change  
     2013      2014     
     (in thousands)  

Operating expenses:

        

Research and development

   $ 2,843       $ 19,078       $ 16,235   

General and administrative

     1,162         3,500         2,338   
  

 

 

    

 

 

    

 

 

 

Total operating expenses

  4,005      22,578      18,573   
  

 

 

    

 

 

    

 

 

 

Loss from operations

  (4,005   (22,578   (18,573

Other income (expense), net:

Interest expense

  (2,719   —        2,719   

Change in fair value of preferred stock warrants

  (202   (1,380   (1,178

Other income (expense)

  94      87      (7
  

 

 

    

 

 

    

 

 

 

Total other income (expense), net

  (2,827   (1,293   1,534   
  

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

  (6,832   (23,871   (17,039

Provision for income taxes

  —        2      2   
  

 

 

    

 

 

    

 

 

 

Net loss

$   (6,832 $ (23,873 $ (17,041
  

 

 

    

 

 

    

 

 

 

Research and Development

Research and development expenses increased $16.2 million, from $2.8 million in 2013 to $19.1 million in 2014. The increase was primarily due to an $11.0 million milestone payment made to Novosom in 2014. The remaining change was primarily attributable to a $3.1 million increase in third-party manufacturing costs, a $1.3 million increase in personnel-related costs due mainly to increased headcount and a $0.7 million increase in clinical trial costs relating to the continuation of our PNT2258 clinical trials.

 

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General and Administrative

General and administrative expenses increased $2.3 million, from $1.2 million in 2013 to $3.5 million in 2014. The change was primarily due to a $1.5 million increase in personnel-related costs associated mainly with increased headcount. The remaining change was primarily the result of a $0.7 million increase in professional service costs, consisting of accounting, consulting, legal and other professional fees incurred in connection with our preparation to become a public company.

Interest Expense

We had $2.7 million of interest expense in 2013 related to outstanding convertible promissory notes, all of which converted to redeemable convertible preferred stock in December 2013 and January 2014. We had immaterial interest expense in 2014.

Change in Fair Value of Preferred Stock Warrants

The change in the fair value of our preferred stock warrants increased $1.2 million, from $0.2 million in 2013 to $1.4 million in 2014. The increase in the fair value of our preferred stock warrants was primarily due to the change in fair value of the underlying stock.

Liquidity and Capital Resources

Capital Resources

We have never generated revenue and have incurred significant net losses since inception. Our net losses were $6.8 million and $23.9 million for the years ended December 31, 2013 and 2014, respectively, and $2.5 million and $8.0 million for the three months ended March 31, 2014 and 2015, respectively. As of March 31, 2015, we had an accumulated deficit of $126.7 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

 

    invest significantly to further develop, and seek regulatory approval for, our lead product candidate, PNT2258;

 

    invest in scaling our manufacturing capacity to support development and our global commercialization strategy;

 

    continue to develop our DNAi technology platform;

 

    identify and develop additional product candidates;

 

    hire additional clinical, scientific and management personnel;

 

    seek regulatory and marketing approvals for any product candidates that we may develop;

 

    ultimately establish a sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval;

 

    maintain, expand and protect our intellectual property portfolio;

 

    acquire or in-license other drugs and technologies; and

 

    add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to a public company.

Historical Capital Sources

We have funded our operations to date primarily from the issuance and sale of our convertible and redeemable convertible preferred stock and to a lesser extent, through debt financings. In 2014, we received net proceeds of $57.5 million from the issuance of our redeemable convertible preferred stock. As of March 31, 2015, we had cash and cash equivalents of $24.1 million and short-term investments of $10.0 million.

 

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As of March 31, 2015, we did not have any outstanding borrowings or any debt arrangements.

Future Capital Requirements

Our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2014, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management’s review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient existing working capital to sustain operations through December 31, 2015. We believe that we will be able to obtain additional working capital through equity financings or other arrangements, including this offering, to fund our operating plans for at least the next      months, which we expect will allow us to achieve clinical data read-outs for our Wolverine and Brighton Phase 2 trials. To the extent that we raise additional capital through future equity financings, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. There can be no assurance that such additional financing, if available, can be obtained on terms acceptable to us. If we are unable to obtain such additional financing, we would need to reevaluate our future operating plans.

The following table summarizes our cash flows for the periods indicated:

 

     Year Ended
December 31,
     Three Months
Ended March 31,
 
     2013      2014      2014      2015  
     (in thousands)  

Cash used in operating activities

   $ (3,572    $ (21,786    $ (1,470    $ (4,986

Cash used in investing activities

     (2      (10,282      —           (71

Cash provided by (used in) financing activities

     4,689         58,793         2,548         (43
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) in cash

$    1,115    $ 26,725    $    1,078    $   (5,100
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows from Operating Activities

For the three months ended March 31, 2015, cash used in operating activities of $5.0 million was attributable to a net loss of $8.0 million, partially offset by $1.5 million in non-cash charges and a net change of $1.5 million in our net operating assets and liabilities. The non-cash charges consisted primarily of $1.3 million for the change in fair value of our preferred stock warrants and $0.2 million in stock-based compensation. The change in operating assets and liabilities was primarily attributable to a $1.3 million net increase in accounts payable and accrued liabilities due to an increase in manufacturing and clinical costs associated with our PNT2258 clinical trials and an increase in headcount.

For the three months ended March 31, 2014, cash used in operating activities of $1.5 million was attributable to a net loss of $2.5 million, partially offset by $0.2 million in non-cash charges and a net change of $0.8 million in our net operating assets and liabilities. The non-cash charges consisted primarily of $0.1 million in stock-based compensation. The change in operating assets and liabilities was primarily attributable to a $0.9 million net increase in accounts payable and accrued liabilities, primarily attributable to expenses related to the manufacturing of PNT2258.

In 2014, cash used in operating activities of $21.8 million was attributable to a net loss of $23.9 million (of which $11.0 million pertained to a milestone payment to Novosom) partially offset by $1.7 million in non-cash charges and a net change of $0.4 million in our net operating assets and liabilities. The non-cash charges consisted primarily of $1.4 million for the change in fair value of our preferred stock warrants and $0.3 million in stock-based compensation. The change in operating assets and liabilities was primarily attributable to a $0.5 million increase in prepaid expenses and other current assets related to our prepayment of manufacturing costs

 

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for clinical supply, offset by a $0.9 million increase in accounts payable and accrued liabilities due to an increase in headcount and accrued research and development costs driven by growth in our research and development activities.

In 2013, cash used in operating activities of $3.6 million was attributable to a net loss of $6.8 million partially offset by $3.0 million in non-cash charges and a net change of $0.2 million in our net operating assets and liabilities. Non-cash charges consisted primarily of $2.8 million in non-cash interest expense on our outstanding debt obligations attributable primarily to a beneficial conversion charge on our convertible promissory notes related to the premium conversion feature and a $0.2 million change in the fair value of our preferred stock warrants. The change in operating assets and liabilities was primarily attributable to a $0.3 million increase in our accounts payable and accrued liabilities due primarily to an increase in accrued employee related costs.

Cash Flows from Investing Activities

For the three months ended March 31, 2015, cash used in investing activities was $0.1 million, consisting primarily of $50,000 of cash transferred to a restricted cash account as collateral for our facility lease.

For the three months ended March 31, 2014, we had no investing activities.

In 2014, cash used in investing activities was $10.3 million consisting of $10.0 million in cash paid to purchase short-term investments, $0.2 million in capital expenditures related to purchases of property and equipment and $0.1 million of cash transferred to a restricted cash account.

In 2013, we had no significant investing activities.

Cash Flows from Financing Activities

For the three months ended March 31, 2015, cash used in financing activities was $43,000, consisting of the payment of $0.1 million in deferred offering costs, partially offset by proceeds received from the exercise of stock options.

For the three months ended March 31, 2014, cash provided by financing activities was $2.6 million consisting primarily of $1.4 million in proceeds received from the issuance of our Series C redeemable convertible preferred stock and $1.2 million on the repayment of the stock subscription receivable relating to our December 2013 closing of our Series C redeemable convertible preferred stock.

In 2014, cash provided by financing activities was $58.8 million consisting of $57.5 million in net proceeds received from the issuance of our Series C and Series D redeemable convertible preferred stock, $1.2 million on the repayment of the stock subscription receivable relating to our December 2013 closing of our Series C redeemable convertible preferred stock and $0.4 million in proceeds received from the exercise of stock options, partially offset by $0.3 million in deferred offering costs.

In 2013, cash provided by financing activities was $4.7 million consisting of $2.5 million in net proceeds received from the issuance of convertible promissory notes and $2.2 million in net proceeds received from the issuance of our Series C redeemable convertible preferred stock. The outstanding convertible promissory notes issued in 2013 were subsequently converted into shares of our Series C redeemable convertible preferred stock in December 2013.

 

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Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of December 31, 2014, which represent material expected or contractually committed future obligations.

 

     Payments Due By Period  
     Less Than
1 Year
     1 to 3 Years      3 to 5 Years      More Than
5 Years
     Total  
     (in thousands)  

Manufacturing obligations (1)

   $         1,174       $             —       $               —       $               —       $         1,174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations (2)

$ 1,174    $    $    $    $ 1,174   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Reflects payments we are required to make pursuant to a manufacturing agreement relating to the manufacturing process of PNT2258.
(2) We are required to pay cumulative unpaid accruing dividends to our Series B, Series B-1, Series C and Series D redeemable convertible preferred stock upon the earliest to occur of (i) the date determined by our board of directors; (ii) the liquidation of our company in a deemed liquidation event; or (iii) on the conversion or redemption of at least a majority of the outstanding shares of our Series B, Series B-1, Series C and Series D redeemable convertible preferred stock. As of December 31, 2014, cumulative but unpaid accruing dividends in arrears were $14.4 million. If an initial public offering had occurred as of December 31, 2014, we would have been required to pay $7.2 million in cumulative but unpaid accruing dividends in arrears to the holders of our Series B, Series B-1, Series C and Series D redeemable convertible preferred stock. As we were unable to reliably estimate the timing of the payment of these dividends to the holders of our Series B, Series B-1, Series C and Series D redeemable convertible preferred stock as of December 31, 2014, we excluded the cumulative but unpaid dividends from the preceding table. See “Dividend Policy.”

In the event we receive regulatory authority approval of PNT2258, we are required to pay Novosom a $3.0 million milestone payment. This milestone payment has been excluded from the table above as we are unable to reliably estimate the timing of the future payment.

In February 2015, we entered into an operating lease agreement to sublease office space in Vancouver, Canada. The operating lease agreement expires on February 27, 2018. Payments associated with this operating lease agreement, including executory costs, will result in operating lease obligations of $0.2 million in 2015, $0.3 million in 2016, $0.3 million in 2017 and $0.1 million in 2018 (utilizing an exchange rate for the conversion of Canadian dollars into U.S. dollars of $0.86, based on the daily average exchange rate on December 31, 2014 quoted by the Bank of Canada).

In December 2014, as amended in March 2015, we entered into an agreement with a contract research organization (CRO) that is estimated to be effective through 2017. Payments associated with this agreement will result in clinical obligations of $2.0 million in 2015, $2.0 million in 2016 and $1.6 million in 2017. In March 2015, we entered into another agreement with the same CRO that is estimated to be effective through 2017. Payments associated with this agreement will result in clinical obligations of $1.3 million in 2015, $3.1 million in 2016 and $3.1 million in 2017. In April 2015, we entered into another agreement with a CRO that is estimated to be effective through 2018. Payments associated with this agreement will result in clinical obligations of $0.3 million in 2015, $0.3 million in 2016, $0.3 million in 2017 and $0.1 million in 2018.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

 

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Stock-Based Compensation

Our stock-based compensation for stock-based awards is accounted for in accordance with authoritative guidance and is estimated at the grant date based on the fair value of the award and recognized as expense ratably over the requisite vesting period of the award, net of estimated forfeitures. Determining the appropriate fair value of stock-based awards requires judgment. We calculate the fair value of each award to employees on the date of grant based on the fair value of our common stock. See “—Valuation of Common Stock.”

We calculate the fair value of each stock option award to employees on the date of grant under the Black-Scholes option-pricing model using certain assumptions related to the fair value of our common stock, the option’s expected term, our expected stock price volatility, risk free interest rates and our expected dividend rate.

For options to purchase common stock issued to non-employees, including consultants, we record stock-based compensation based on the fair value of the options. We calculate the fair value of each stock-based award to non-employees on each measurement date based on the fair value of our common stock. The fair value of options granted to non-employees is remeasured as the options vest and is recognized in the consolidated statements of operations during the period the related services are rendered.

The fair value of each stock option grant was determined using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.

 

    Fair Value of Common Stock. As discussed below in “—Valuation of Common Stock,” because there is no public market for our common stock as we are a private company, our board of directors has determined the fair value of the common stock by considering a number of objective and subjective factors, including based on contemporaneous and retrospective valuations of our common stock performed by an unrelated valuation specialist. The fair value of our common stock will be determined by our board of directors until such time as our common stock is listed on an established stock exchange.

 

    Expected Term. The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards. The expected term for options issued to nonemployees is the contractual term.

 

    Expected Volatility. Since we do not have a trading history of our common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock-based awards.

 

    Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

 

    Expected Dividend Rate. The expected dividend is zero as we have not paid and do not anticipate paying any dividends on our common stock for the foreseeable future.

 

    Forfeiture Rate. The forfeiture rate is estimated based on an analysis of actual forfeitures. Management will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from management’s estimates, we might be required to record adjustments to stock-based compensation in future periods.

 

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The estimated grant-date fair value of our stock-based awards was calculated using Black-Scholes option-pricing model, based on the following assumptions for the following periods presented:

 

    

Year Ended December 31,

  

Three Months Ended March 31,

    

2013

  

2014

  

      2014      

  

      2015      

Expected term (in years)

   5.0 - 6.0    5.0 - 6.0    2.2    1.1

Expected volatility

   79% - 82%    81% - 83%    78%    81%

Risk-free interest rate

   0.7% - 1.6%    1.5% - 1.8%    0.4%    0.3%

Expected dividend rate

   —  %    —  %    —  %    —  %

If any of the assumptions used in the Black-Scholes option-pricing model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

For 2013 and 2014, stock-based compensation was $22,000 and $0.3 million, respectively. For the three months ended March 31, 2014 and 2015, stock based compensation expense was $22,000 and $0.2 million, respectively. As of March 31, 2015, we had unrecognized stock-based compensation of $0.4 million related to stock options that vest upon the satisfaction of a performance condition that will be achieved upon the completion of this offering.

Valuation of Common Stock

In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock in order to determine an exercise price for each stock-based award. We have determined the fair value of our common stock using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including having contemporaneous and retrospective valuations of our common stock performed by an unrelated valuation specialist, valuations of comparable securities transactions, sales of our redeemable convertible preferred stock to unrelated third parties, the rights preferences and privileges of our common stock versus our preferred stock, our operating and financial performance, our stage of development, current business conditions, our projections, business developments, the lack of liquidity of our capital stock and general and the industry specific economic outlook.

For our valuations performed from January 1, 2014 through June 30, 2014, the fair value of our common stock was estimated entirely using the market approach, specifically the Recent Securities Transaction – Backsolve method. This approach considers our implied equity value based on recent financings of our redeemable convertible preferred stock. For our valuations performed starting September 30, 2014, the fair value of our common stock was estimated using a hybrid of two market approaches, specifically the Recent Securities Transaction – Backsolve method and the Recent Securities Transaction – Recent IPO method. This later approach considers our implied equity value based on recent initial public offering results of comparable peer companies in similar industries and stage of development as us.

We considered the various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock at each valuation date. The methods we used consisted of the following:

 

    Option pricing method (OPM). Under the option pricing method, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.

 

    Probability-weighted expected return method (PWERM). The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

 

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Our per share common stock value was estimated by allocating the enterprise value using the OPM at each valuation date up until September 30, 2014. Starting with our September 30, 2014 contemporaneous valuation, we used a combination of the OPM and the PWERM to allocate the enterprise value to each element of our capital structure, including our common stock. For both approaches, we applied a discount to the valuations due to the lack of marketability of the ordinary shares. We calculated the discount for lack of marketability using a strike put option model and applied it as appropriate to each allocation.

The dates of our valuations did not always coincide with the dates of our stock based compensation grants. In such instances, management’s estimates were based on the most recent valuation of shares of our common stock. For grants occurring between valuation dates, for financial reporting purposes, we considered the preceding and subsequent valuations and our assessment of additional objective and subjective factors we believed were relevant as of the grant date to determine the fair value of our common stock.

Preferred Stock Warrant Liabilities

We classify warrants for the purchase of shares of our preferred stock issued in connection with our various financing transactions based upon the characteristics and provisions of the instruments. Our preferred stock warrants are classified as derivative liabilities on our consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other income (expense), net in our statements of operations.

We estimate the fair value of these liabilities using assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date. Through June 30, 2014, we used the OPM model to determine the fair value of these liabilities. Starting September 30, 2014, we used a combination of the OPM and PWERM models to determine the fair value of these liabilities. We estimate the volatility of our stock based on the historical volatility of comparable peer public companies. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond rate. The expected term applied in the OPM considers both the probabilities of our failure and success. Cumulative dividends associated with the redeemable convertible preferred stock are calculated as of the accrual start date of each security to the OPM maturity date. The assumptions used in calculating the estimated fair market value at each reporting period represent our best estimate; however, inherent uncertainties are involved. As a result, if factors or assumptions change the warrant liability, the estimated fair value could be materially different.

We had outstanding warrants to purchase shares of our Series B, Series B-1 and Series C redeemable convertible preferred stock with an aggregate fair value of $1.8 million and $3.1 million at December 31, 2014 and March 31, 2015, respectively. The change in the fair value of these warrants resulted in a loss of $0.2 million and $1.4 million for the years ended December 31, 2013 and 2014, respectively, and a loss of $0.1 million and $1.3 million for the three months ended March 31, 2014 and 2015, respectively.

We will continue to adjust the liability for changes in the fair value of these warrants until the earlier of the exercise of the warrants, the expiration of the warrants or until such time as the warrants are no longer to be considered derivative instruments. On the completion of this offering, the liability on the preferred stock warrants will be reclassified to additional paid-in capital in stockholders’ deficit.

Income Taxes

We are subject to income taxes in the United States and Canada. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

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

 

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expected to reverse. We make an assessment of the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to our historical operating performance and our recorded cumulative net losses in prior fiscal periods, our net deferred tax assets have been fully offset by a valuation allowance.

We recognize uncertain income tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties.

Off-Balance Sheet Arrangements

We do not currently engage in off-balance sheet financing arrangements. In addition, we do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structured finance entities.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities and foreign currency risk.

Interest Rate Sensitivity

We had cash and cash equivalents of $24.1 million as of March 31, 2015, which consisted primarily of bank deposits and money market funds. In addition, we also had short-term investments of $10.0 million as of March 31, 2015. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our consolidated financial condition or results of operations. We do not believe that our cash or cash equivalents or short-term investments have significant risk of default or illiquidity. While we believe our cash and cash equivalents and short-term investments do not contain excessive risk, we cannot provide absolute assurance that in the future our short-term investments will not be subject to adverse changes in market value.

Foreign Currency Risk

Our consolidated results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. A substantial majority of our expenses are denominated in U.S. Dollars, with the remainder in Canadian Dollars. Our consolidated results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative instruments. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our operating loss.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012 permits emerging growth companies such as us to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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BUSINESS

Overview

We are a clinical-stage oncology company pioneering a novel class of therapeutics based on our proprietary DNA interference (DNAi) technology platform. Our vision is to be the leader in developing and commercializing a portfolio of DNAi-based therapies to deliver extraordinary therapeutic outcomes that dramatically change patients’ lives. The core of our scientific expertise is our understanding of DNAi oligonucleotides, which are rationally designed DNA sequences that modulate the transcription of oncogenes known to be involved in cancer cell survival and proliferation. Our lead DNAi product candidate, PNT2258, targets BCL2, a widely overexpressed oncogene that is an important gatekeeper of the programmed cell death process known as apoptosis and has been linked to many forms of cancer. In a recent single-agent Phase 2 trial of 13 patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL), PNT2258 demonstrated evidence of anti-tumor activity, with 11 patients achieving a complete response (CR), partial response (PR) or stable disease (SD). Furthermore, all four of the diffuse large B-cell lymphoma (DLBCL) patients treated in this trial experienced a clinical response, including three CRs and one PR, with reported durations on study in the range of nine to more than 20 months. Although not statistically powered for a formal efficacy analysis, we believe the preliminary evidence of efficacy observed in this trial, coupled with safety and tolerability data collected to date, suggest that PNT2258 has the potential to change treatment paradigms across a wide range of oncology indications. Accordingly, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258.

Our DNAi technology platform is based on our scientific expertise in DNA, the basic genetic building block for human life. DNA is a double strand of nucleic acids that encodes the genetic instructions used in the development and function of all living organisms. The information stored in DNA encodes genes that are transcribed into messenger RNA (mRNA), which are then translated to produce specific proteins that regulate cell generation, proliferation, survival and death, and also play a critical role in many diseases, including cancer.

Cancer is the leading cause of death in the developed world and the second leading cause of death in the United States, and is characterized by the uncontrolled growth and survival of abnormal cells. Cancer cells may overexpress particular genes called oncogenes, which encode the proteins that promote growth and survival. While cancer research has made demonstrable progress in recent decades, significant unmet medical needs remain, reinforcing the necessity for continued innovation.

We believe that there is substantial opportunity for the next generation of cancer treatments to target DNA itself by directly interfering with the expression of the oncogenes responsible for cancer. The vast majority of cancer therapy today is targeted downstream at the protein level and, in some cases, at RNA. Our proprietary DNAi technology platform targets DNA, the upstream genetic material underlying the expression of proteins, and is therefore distinct from therapeutic approaches that target proteins or RNA. This difference may allow our DNAi technology to more profoundly impact oncogenic targets that may be difficult to effectively drug with these other approaches, and potentially result in enhanced efficacy, durability and safety outcomes. In addition, we believe that our unique mechanism for impacting downstream oncogenic proteins could also potentially amplify and be complementary to other therapeutic modalities.

Our proprietary platform consists of two components:

 

    Rationally-Designed DNAi Oligonucleotides . Our DNAi technology platform is a proprietary drug discovery engine that allows us to rationally design unique, single-stranded DNA sequences that hybridize to complementary regions of genomic DNA in order to interfere with the transcription of specific target genes. By affecting gene transcription, our DNAi product candidates are designed to reduce the downstream production of the corresponding proteins responsible for cancer and other diseases, resulting in a therapeutic benefit.

 

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    Lipid Nanoparticle (LNP) Delivery Technology . Our LNPs, which are licensed from Marina Biotech, Inc. (Marina) and also referred to as SMARTICLES, are protective amphoteric liposomes designed to encapsulate our DNAi oligonucleotides and provide enhanced serum stability and optimized pharmacokinetic properties. This facilitates the broad systemic distribution of our DNAi oligonucleotides after intravenous infusion. Within the acidic environment found in tumors, our LNPs become positively charged and therefore more amenable to cellular uptake and cytoplasmic release of their payloads, allowing the DNAi oligonucleotides to traffic into the cells’ nuclei, where they modulate gene transcription.

Our lead DNAi product candidate, PNT2258, is a proprietary formulation of our single-stranded 24-base DNAi oligonucleotide, known as PNT100, encapsulated in the SMARTICLES LNP. PNT100 DNAi targets and interferes with BCL2, an important and validated oncogene known to be dysregulated in many types of cancer. This dysregulation, which is manifested in the excess production of BCL2 protein, is believed to provide certain cancer cells with the ability to resist naturally occurring apoptosis, which is a primary mechanism for the removal of aged, damaged or unnecessary cells. PNT100 targets a specific regulatory region associated with the BCL2 oncogene, interfering with its transcription. This affects downstream BCL2 protein production, resulting in a restoration of apoptotic processes leading to the death of cancer cells. Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we believe there is a significant opportunity to develop PNT2258 across many oncology indications.

We are pursuing a multi-faceted clinical development strategy that is designed to efficiently achieve regulatory approval and maximize the commercial opportunity of PNT2258. We have conducted two clinical trials with PNT2258 to date: a Phase 1 safety trial in patients with relapsed or refractory solid tumors and a Phase 2 trial in patients with relapsed or refractory NHL. Having observed preliminary evidence of efficacy and tolerability, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258.

In December 2014, we initiated “Wolverine,” an open-label 60 patient Phase 2 trial evaluating PNT2258 for the treatment of third-line relapsed or refractory DLBCL. DLBCL is the most prevalent form of NHL, comprising approximately 30% of the annual NHL diagnoses in the United States according to a 2013 report by the Leukemia & Lymphoma Society. By mid-2015, we plan to initiate “Brighton,” an open-label 50 patient Phase 2 trial evaluating PNT2258 for the treatment of Richter’s transformed chronic lymphocytic leukemia (Richter’s CLL). Richter’s CLL is a rare and aggressive form of NHL with no currently approved therapies. We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as acute myeloid leukemia (AML), acute lymphoblastic leukemia (ALL) and multiple myeloma (MM); and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies. As appropriate, we may apply for orphan drug, breakthrough therapy, fast track or other regulatory designations.

The table below summarizes the current development of our programs and anticipated milestones.

 

Trial

 

Regimen

 

Indication

 

Status/Milestones

Wolverine

  PNT2258   R/R* Third-Line DLBCL   Phase 2 Trial Ongoing (First Patient Enrolled Dec 2014)

Brighton

  PNT2258   Richter’s CLL   Initiate Phase 2 Trial Mid-2015

Combination Trial #1

  PNT2258 + Other Anti-cancer Drug(s)   R/R* Second-Line DLBCL   Initiate Phase 2 Trial First Quarter of 2016

Single-Agent Trial

  PNT2258  

Hematologic Malignancies

  Initiate Phase 2 Trial Second Quarter of 2016

Combination Trial #2

  PNT2258 + Other Anti-cancer Drug(s)   Other DLBCL   Initiate Phase 2 Trial Third Quarter of 2016

*R/R denotes relapsed or refractory.

 

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Our vision is to be the leader in developing and commercializing a portfolio of DNAi-based therapies to deliver extraordinary therapeutic outcomes that dramatically change patients’ lives. We are at the forefront of DNAi-based therapies, as we believe that PNT2258 is the only product candidate in clinical testing using this novel approach. In the near term, we plan to broadly develop and commercialize PNT2258 in oncology indications with high unmet medical needs. In the long term, we aspire to commercialize additional DNAi-based therapies with the potential to impact medical paradigms in oncology and other major diseases. Our DNAi platform technology was invented at Wayne State University and Karmanos Cancer Institute. We acquired this technology and subsequently developed the algorithm that we employ for rationally designing our DNAi product candidates using bioinformatics and our understanding of gene regulatory domains.

We have assembled an experienced and talented group of stakeholders to execute on our vision. Our management team is led by Dr. Nick Glover, President and Chief Executive Officer, and Dr. Angie You, Chief Business and Strategy Officer and Head of Commercial. Dr. Glover, the former President and Chief Executive Officer of YM Biosciences Inc., and Dr. You, the former Chief Business Officer of Aragon Pharmaceuticals, Inc. joined our company in the third quarter of 2014. We completed a $59.5 million private financing in April 2014 led by a well-established group of institutional healthcare investors, including Vivo Capital, Frazier Healthcare Ventures, OrbiMed Advisors, RA Capital, Caxton Alternative Management, Sectoral Asset Management, Janus Capital Management, Adams Street Partners and Hopen Life Science Ventures. Existing investors also include Apjohn Ventures Fund and Capital Midwest Fund.

Our Strategy

Key elements of our business strategy are to:

 

    Expedite the Clinical Development and Regulatory Approval of PNT2258 . We plan to advance our lead product candidate, PNT2258, for the treatment of several hematologic malignancies, initially focusing on indications where we believe PNT2258 has demonstrated anti-tumor activity and where there are significant unmet medical needs. The first two indications we plan to pursue are in DLBCL and Richter’s CLL. In December 2014, we initiated Wolverine, a Phase 2 trial for the treatment of third-line relapsed or refractory DLBCL, and by mid-2015, we plan to initiate Brighton, a Phase 2 trial for the treatment of Richter’s CLL. If the data obtained in either of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.

 

    Pursue a Multi-Faceted Development Strategy for PNT2258 Across Many Oncology Indications . In addition to Wolverine and Brighton, we intend to expand the commercial market opportunity for PNT2258 by developing it for the treatment of a wide variety of BCL2-driven tumors, including other hematologic malignancies, such as leukemias and myelomas, as monotherapy and in combination with other therapeutic agents or treatment regimens. BCL2 overexpression has also been implicated as a driver of a wide variety of solid tumors, including breast, prostate and lung, which could provide additional future development opportunities for PNT2258.

 

    Maximize the Global Commercial Value of PNT2258 . We have retained all commercial rights to PNT2258 and future DNAi product candidates. As we further develop PNT2258, we plan to build a commercial infrastructure with the capability to directly market our products to oncologists in North America, and possibly other major geographies that are core to our commercial strategy. We plan to enter into collaborations for the development, marketing and commercialization of PNT2258 in additional geographies at an appropriate time. We also plan to invest in scaling our manufacturing capacity to support our global commercial strategy.

 

   

Maintain our Competitive Advantage by Continuing to Invest in our Proprietary DNAi Technology Platform . We plan to continue to conduct research in the field of DNAi to further our understanding of the role this technology plays in modulating gene transcription. We also plan to continue fostering

 

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relationships with leading scientific advisers and physicians to support these efforts. We believe that investing in the recruitment of exceptional advisers, employees and management is critical to our continued leadership in the field of DNAi.

 

    Broaden our Pipeline of Novel Product Candidates by Leveraging our Proprietary DNAi Technology Platform . We believe DNAi technology may be applicable to additional high value genetic targets beyond BCL2 that are also challenging to effectively drug by conventional means. We plan to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer and potentially genes implicated in other diseases.

Background on DNA and its Role in Cancer

Cancer is a leading cause of death in the developed world and the second leading cause of death in the United States, with 589,000 deaths and 1.7 million new cases estimated to occur in the United States in 2015, according to the American Cancer Society (ACS). The International Agency for Research on Cancer projects that in 2030, 21.7 million people will be diagnosed with cancer and 13 million will die of cancer in that year worldwide.

Cancer typically develops when DNA in normal cells begins to fail and genes that regulate the cell become disrupted, leading to uncontrolled growth and survival. These cancer-causing oncogenes may be triggered by external factors, such as chemicals, radiation and viruses, or internal factors, such as hormones, immune conditions and inherited mutations.

The most common methods of treating patients with cancer are surgery, radiation and drug therapy. A cancer patient often receives treatment with a combination of these methods. Surgery and radiation therapy are particularly effective for patients in whom the disease is localized. Physicians generally use systemic drug therapies in situations where the cancer has spread beyond the primary site or cannot otherwise be treated through surgery or radiation. The goal of drug therapy is to kill cancer cells or to damage cellular components required for the rapid growth and survival of cancer cells. In many cases, drug therapy entails the administration of several different drugs in combination. Over the past several decades, drug therapy has evolved from non-specific drugs that kill both healthy and cancerous cells, to drugs that target specific molecular pathways to selectively kill only cancer cells. While heightened vigilance, new diagnostic tests, combination regimens and targeted therapies have resulted in improvements in overall survival for some cancer patients, we believe that there is still a necessity for continued innovation in the treatment of cancer.

Much of cancer drug discovery has focused on therapeutic intervention at the protein level through conventional approaches, including small molecules and antibodies. However, many proteins are not “druggable” by small molecules or antibodies. Small molecule drugs can target proteins inside the cell, but are often limited to proteins with accessible functional domains. Antibodies are limited to targeting circulating proteins or those expressed on the cell surface. More recently, there has been broad interest in potentially drugging mRNA as a way of impacting proteins that were otherwise intractable to small molecules or antibodies, but development has been challenged by issues of delivery, toxicity and potency. We believe that there is substantial opportunity for the next-generation of cancer treatments to target DNA itself, directly interfering with the expression of the oncogenes responsible for cancer. This difference may allow our DNAi to have a more profound impact on oncogenic targets that may be difficult to drug effectively with these other approaches, and, therefore, potentially result in enhanced efficacy, durability and safety outcomes. In addition, we believe that our unique mechanism for impacting downstream oncogenic proteins could also potentially amplify and be complementary to other therapeutic modalities.

With the vast trove of data about human DNA generated by the Human Genome Project and other genomic research, scientists and clinicians have more powerful tools to study the role that genetic factors play in complex diseases such as cancer. By leveraging this robust dataset, we can deploy our DNAi technology platform to identify oncogenes suitable for transcriptional interference. We identified the BCL2 oncogene as a compelling oncogenic target for developing our first DNAi-based therapeutic.

 

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Our Initial Target Oncogene – BCL2, a Key Regulator of Apoptosis

Apoptosis, or naturally occurring programmed cell death, is a primary mechanism for the removal of aged, damaged and unnecessary cells. BCL2 was the first apoptotic regulator identified. The discovery that the BCL2 protein was found to inhibit cell death supported the notion that cancer is not only enabled by unlimited proliferation, but also by impaired apoptosis.

In cancer patients, higher levels of BCL2 expression are generally correlated with poor prognoses and resistance to chemotherapies. By promoting cancer cell survival, BCL2 overexpression contributes to tumor formation and growth, as well as the subsequent development of chemo-resistance as observed in a broad variety of tumors. Given its central role in cancer cell survival, BCL2 is an important and validated oncogenic target for therapeutic development.

BCL2 plays a critical role in regulating apoptosis through multiple mechanisms. In the mitochondria, apoptosis is regulated by the balance of pro-death proteins and pro-survival proteins. The binding interactions between pro-death and pro-survival proteins control a cell’s commitment to apoptosis or cell survival. Altering the balance between these opposing factors provides a way for tumors to escape the natural apoptotic process, and thus promotes tumor cell survival. BCL2 is a pro-survival protein that binds to and sequesters pro-death proteins via its BH3 domain, thus inhibiting cell death. Small molecule drug discovery efforts have focused on disrupting this interaction.

In addition to its role in the mitochondria mainly via its BH3 domain, BCL2 is also located in the endoplasmic reticulum, where it modulates calcium signaling via its BH4 domain. The dysregulation of calcium signaling also contributes to the proliferation and survival of cancer cells through an alternative apoptotic mechanism. Therefore, by interfering with BCL2 oncogene transcription, and consequently lowering global levels of BCL2 protein, PNT2258 has the potential to impact two distinct apoptotic processes regulated via BCL2’s BH3 and BH4 domains, as depicted in the image below. This is a key differentiator over small molecules in development that are only designed to disrupt the mitochondrial BH3 interactions of BCL2.

BCL2 Regulates Two Distinct Apoptotic Processes

 

LOGO

Aberrant BCL2 control mechanisms are a defining characteristic of a variety of cancers. BCL2 overexpression is found not only in NHL, but also in other hematologic malignancies and solid tumors.

We estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States.

 

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Our Approach – DNAi

Our DNAi technology platform is based on the breakthrough discovery at Wayne State University and Karmanos Cancer Institute that single-stranded DNA oligonucleotides can interact with genomic DNA in order to interfere with gene transcription. We acquired this technology and subsequently developed an algorithm for identifying DNAi product candidates using bioinformatics and our understanding of gene regulatory regions. In particular, understanding which specific sequences of DNA are critical for regulating gene transcription, as well as identifying which regions reside in an accessible open DNA conformation, are important components of our know-how in designing DNAi oligonucleotides.

Our DNAi oligonucleotides are designed to target specific DNA regions referred to as CpG islands, which contribute to gene regulation. As depicted below, these regions can transiently unwind and form single-stranded DNA conformations, which enable our DNAi oligonucleotides to hybridize with their target complementary sequences. These hybridization events can interfere with the transcriptional machinery and decrease mRNA production. A high degree of specificity can be built into our DNAi by selecting particular sequences and lengths of oligonucleotides.

DNAi Interferes with Oncogene Transcription

LOGO

The ability to leverage DNAi as a broadly applicable therapeutic modality requires an effective delivery vehicle. Our approach uses pH-responsive LNPs designed to protect our DNAi oligonucleotides and deliver them to cancer cells, enabling broad systemic distribution after intravenous infusion. Specifically, our LNPs are composed of a proprietary liposomal formulation of four lipids selected to impart stability, enhance pharmacokinetics and facilitate systemic exposure of the drug payload. In particular, our LNPs have been engineered to avoid sequestration in the liver, and, unlike other technologies, our LNPs can dynamically change their surface electrical charge. They are negatively charged at physiological pH levels, and do not employ PEG stabilizers and therefore do not interact with the patient’s immune system and other biological factors that can result in toxicities. Within the acidic environment found in tumors, our LNPs become positively charged and therefore more amenable to cellular uptake and cytoplasmic release of their payloads, allowing the DNAi oligonucleotides to traffic into the cells’ nuclei, where they modulate gene transcription.

In general, the effective systemic delivery of oligonucleotides has been a profound challenge to their deployment as therapeutics. We believe the favorable properties of our LNPs may offer advantages over certain other nanoparticle delivery systems, underscoring our decision to exclusively license the SMARTICLES LNP technology for the field of DNAi.

 

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In order to maintain our competitive position in the field of DNAi, we plan to continue conducting research to further our understanding of the role this technology plays in modulating gene transcription. We also plan to continue fostering relationships with leading scientific advisers and physicians, and investing in the recruitment of exceptional advisers, employees and management who can apply their expertise to strengthen our DNAi technology platform.

We believe that DNAi technology may be applicable to additional high value genetic targets beyond BCL2 that are also challenging to drug by conventional means. We plan to leverage our DNAi technology platform to generate a pipeline of product candidates that modulate the transcription of oncogenes known to be involved in cancer, and potentially genes implicated in other diseases.

Our Lead DNAi Product Candidate – PNT2258

Overview

Our lead DNAi product candidate, PNT2258, is a proprietary formulation of our single-stranded 24-base DNAi oligonucleotide, known as PNT100, encapsulated in our LNP. After intravenous infusion, PNT2258 achieves broad systemic distribution and is taken up by cancer cells, where PNT100 DNAi oligonucleotides traffic to the nuclei of cells. We believe that our preclinical and clinical data support our BCL2-targeted mechanism of action.

Design and Mechanism of Action

The design of PNT2258 comprises two components, which are depicted below:

 

    PNT100 DNAi Oligonucleotide . The active ingredient of PNT2258 is our PNT100 DNAi, a single-stranded 24-base oligonucleotide. PNT100 DNAi oligonucleotides are designed to target a specific regulatory region of the BCL2 oncogene, modulating its transcription.

 

    LNP Delivery Technology . In PNT2258, protective amphoteric liposomes encapsulate PNT100 DNAi, providing enhanced serum stability and optimized pharmacokinetic properties to facilitate their broad systemic distribution after intravenous infusion. Within the acidic environment found in tumors, our LNPs become positively charged and therefore more amenable to cellular uptake and cytoplasmic release of their payloads, allowing the DNAi oligonucleotides to traffic into the cells’ nuclei, where they modulate gene transcription.

The Design of PNT2258 Comprises Two Components

 

LOGO

PNT2258 is designed to interfere with the transcription of the BCL2 oncogene through the hybridization of PNT100 to its complementary sequence within the BCL2 regulatory region, leading to the reduction of BCL2 mRNA and protein. This results in reduced inhibition of apoptosis leading to cancer cell death.

 

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Preclinical Studies

We have conducted in vitro and in vivo preclinical studies on PNT2258 and its PNT100 payload that reinforce our DNA-mediated mechanism of action. Preclinical studies demonstrated that exposure to PNT2258 interferes with BCL2 transcription, as evidenced by reductions in the transcription of BCL2 mRNA and BCL2 protein expression. The figure below depicts transcribed mRNA levels of BCL2 in prostate cancer cells that are reduced following incubation with a DNAi sequence that specifically targets the regulatory region of the BCL2 oncogene as compared to an oligonucleotide control that has a non-specific DNAi sequence.

BCL2 mRNA Levels in Cell Lines Treated with PNT100 vs. Scrambled Oligonucleotides

 

LOGO

To further validate PNT2258’s mechanism of action, we evaluated the efficacy of PNT2258 in an established DLBCL mouse model of cancer. In this experiment, the LNP containing PNT100 was compared to controls, which included both empty LNPs and LNPs containing non-specific DNAi. Only the administration of the LNP containing PNT100 resulted in a reduction in tumor volume and an associated reduction in BCL2 protein expression, as shown in the figure below.

BCL2 Protein Expression and Tumor Volume in Mouse Models Treated with LNP-Encapsulated PNT100

 

LOGO

 

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Since overexpression of BCL2 has been correlated with chemo-resistance in a number of tumor types, we studied PNT2258 in combination with docetaxel in prostate and melanoma mouse models of cancer and observed additive effects on the reduction in tumor burden as well as improvement in survival, as shown in the figure below for melanoma.

Combination Therapy in a Melanoma Mouse Model

 

LOGO

Our Initial Focus in Lymphoma and Leukemia

Lymphoma is the most common blood cancer, with an estimated 81,000 new cases of lymphoma expected to be diagnosed in 2015, according to the ACS. Lymphoma occurs when cells of the immune system, or lymphocytes, grow and multiply uncontrollably. The two main types of lymphocytes that can develop into lymphomas are B-lymphocytes (B-cells) and T-lymphocytes (T-cells). Lymphoma is further classified as either Hodgkin’s or non-Hodgkin’s. NHL, a type of B-cell lymphoma, describes a diverse group of blood cancers that arise from the damaged DNA of a lymphocyte parent cell. NHL, which comprises more than 60 subtypes, is the most common form of lymphoma and is expected to account for approximately 70,000 new cases in the United States in 2015, according to the ACS. NHL carries a much poorer prognosis than Hodgkin’s lymphoma, and is expected to account for approximately 19,800 of 21,000 total annual deaths caused by lymphoma in the United States in 2015, according to the ACS. Additionally, while incidence rates for Hodgkin’s lymphoma have recently remained stable, the incidence of NHL has increased over time.

One NHL subtype where BCL2 overexpression is thought to be a key driver of disease is DLBCL. This aggressive form of cancer is the most prevalent form of NHL, comprising approximately 30% of the annual NHL diagnoses in the United States according to a 2013 report by the Leukemia & Lymphoma Society. DLBCL affects mostly middle aged and older adults and is aggressive but potentially curable. First-line treatment of intensive combination chemotherapy involving rituximab may cure approximately 67% of patients. If this fails, second-line treatment is typically platinum-based chemotherapy along with continued rituximab. In the event that a response is achieved with second-line treatment, patients may be given a hematopoietic stem cell transplant. If second-line treatment or the transplant fails, patients are left with few options and little hope of a curative therapy. The median survival for third-line DLBCL patients is approximately six months.

Leukemia is cancer of the body’s blood-forming tissues, including the bone marrow and the lymphatic system. According to the ACS, an estimated 54,000 new cases of leukemia are expected to be diagnosed in 2015. One of the main types of leukemia is chronic lymphocytic leukemia (CLL), a type of blood cancer that begins in the bone marrow. According to the ACS, approximately 15,000 individuals in the United States are expected to be diagnosed with CLL in 2015. High level BCL2 expression is seen in most patients with CLL. Though typically classified as a low-grade lymphoproliferative disorder, 3% to 11% of CLL patients will experience transformation to Richter’s CLL, a fast-growing variant of DLBCL, during the course of their disease. Richter’s

 

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CLL is a highly proliferative, rapidly progressing disease affecting mostly older adults with a median survival of approximately one year, and represents a significant unmet medical need with no currently approved therapies.

Status of Our Clinical Development Program

In February 2008, we submitted an investigational new drug (IND) application for PNT2258 as an anticancer agent. The IND is currently active and all completed and currently planned clinical trials for PNT2258 are covered by this IND. We have conducted two clinical trials with single-agent PNT2258 to date: a Phase 1 safety trial in 22 patients with relapsed or refractory solid tumors and a Phase 2 trial in 13 patients with relapsed or refractory NHL. Having observed preliminary evidence of efficacy and tolerability, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258. In December 2014, we initiated Wolverine, an open-label 60 patient Phase 2 trial evaluating single-agent PNT2258 for the treatment of third-line relapsed or refractory DLBCL. By mid-2015, we plan to initiate Brighton, an open-label 50 patient Phase 2 trial evaluating single-agent PNT2258 for the treatment of Richter’s CLL.

We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as AML, ALL and MM; and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.

In order to obtain regulatory approval and potentially commercialize PNT2258, we will need to complete the Phase 2 clinical trials described above and possibly Phase 3 registration-oriented clinical trials in order to properly evaluate the safety and efficacy of PNT2258. Upon completion of these clinical trials, a new drug application (NDA) is required to be filed with, and approved by, the FDA prior to the initiation of commercial activities. Additionally during this time, we will need to complete manufacturing validation runs and commercial manufacturing facility readiness for prior approval inspections in preparation for the NDA and product launch. All of our clinical trials were or are currently being conducted in the United States.

The amount and timing of our expenditures on these trials will depend upon numerous factors, including the ongoing status and results. Although it is difficult to predict additional capital requirements, we believe that the net proceeds from this offering and our existing cash, cash equivalents and short-term investments will be sufficient to allow us to achieve clinical data read-outs for the Wolverine and Brighton trials. We anticipate that we will need additional funding to complete these and our other planned clinical trials.

PNT2258-01: Phase 1 Trial in Advanced or Metastatic Solid Tumor Malignancies

Trial Overview

We initiated our Phase 1 dose escalation clinical trial with PNT2258 in 2010 to determine the safety and tolerability of PNT2258 administered by intravenous infusion. This Phase 1 trial involved 22 patients with relapsed or refractory solid tumor malignancies, including patients diagnosed with non-small cell lung cancer, squamous cell cancer of the head and neck, colorectal cancer, breast cancer, endometrial cancer, liver cancer, pancreatic cancer and prostate cancer. As this trial was safety oriented, patients were not chosen for participation on the basis of their BCL2 status and, thus, overt evidence of anti-tumor effect was not expected. Data from the trial were also used to determine an appropriate dose and schedule for subsequent trials and to evaluate any preliminary anti-cancer activity of PNT2258.

Safety Results

PNT2258 was administered on days one through five of a 21-day schedule at doses ranging from 1 to 150 mg/m 2 over a two to four hour intravenous infusion. At all dose levels, patients received a range of zero to eight cycles with a median of two cycles. PNT2258 was considered to be well tolerated at all doses by the investigators in this trial.

 

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Across all dose levels, and regardless of attribution, a total of 79 adverse events (AEs) and six serious AEs were reported. There were 16 drug-related AEs, of which 15 were assessed as grade 1 or 2 in severity. None of the serious AEs were attributed by the investigators to the drug. The most common drug-related AEs were infusion reaction manifested as back or flank pain (six events; grade range 1/2) and nausea (four events; grade range 1/2). An increase in aspartate aminotransferase at the 150 mg/m 2 dose level was observed in a patient with metastatic disease to the liver and resolved spontaneously within 48 hours, and one patient developed a grade 4 thrombocytopenia within 30 days of study participation at the 150 mg/m 2 dose level. One patient died as a result of disease progression within 30 days of trial participation.

Of the 335 planned doses of PNT2258, 314 were administered as scheduled and no patients were dose-reduced for toxicity. The most common reasons for trial discontinuation were progressive disease or symptomatic deterioration (19 patients). Two patients discontinued therapy due to an AE and one patient withdrew informed consent.

In addition, there was no evidence of a systemic immune response to the LNP or PNT100; no significant changes in immune-stimulatory cytokines or clinical signs of anaphylaxis following dosing of PNT2258 were observed, which supports the lack of a non-specific immune response.

Efficacy Results

Patients were not enrolled in this trial on the basis of their BCL2 expression status; thus, overt evidence of anti-tumor effect was not expected. Of the 22 patients participating in the Phase 1 trial, six had SD at the time of the end-of-cycle two CT scan and none achieved a CR or PR. Four patients remained in the trial for greater than four cycles (range 5-8 cycles).

Pharmacokinetic Profile

An increase in serum half-life was noted on day five of dosing compared to day one, and ranged from 8.7 to 58.5 hours. We believe the long half-life achieved on day five reinforces the appropriateness of the chosen dose schedule. Similarly, as shown in the figure below, a dose-dependent increase in the area under the drug concentration-time curve (AUC) was noted with exposure levels in patients. The exposure levels in patients dosed at or above 32 mg/m 2 exceeded levels at which preclinical anti-tumor effects on tumor burden were observed in our mouse model studies.

Pharmacokinetic Profile of PNT2258 in the Phase 1 Trial

 

LOGO

 

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PNT2258-02: Phase 2 Trial in Relapsed or Refractory NHL

Trial Overview

In December 2012, we initiated a single arm, open-label Phase 2 trial in patients with relapsed or refractory NHL, defined as patients who are no longer or were never responsive to treatment with approved or experimental therapies. The primary objective was to determine PNT2258’s anti-tumor activity across several hematological malignancies and to collect safety data.

The trial enrolled 13 patients with a median age of 63 who had been previously treated with one to four prior regimens; six of these patients were refractory to prior treatment. Of these 13 patients, four patients were diagnosed with DLBCL, five with follicular non-Hodgkin’s lymphoma (FL), two with mantle cell lymphoma (MCL) and two with CLL/small lymphocytic lymphoma (SLL).

Phase 2 Trial Dosing Regimen in Relapsed or Refractory NHL

 

LOGO

As shown in the figure above, in the induction phase, patients received 120 mg/m 2 of PNT2258 over a three to five hour intravenous infusion on days one through five of a 21-day cycle for six to eight cycles. In the continuation phase, patients who achieved stable disease or better received 100 mg/m 2 over a two hour intravenous infusion on days one and two of a 28-day cycle, until disease progression.

Efficacy Results

In November 2014, we reported that 11 of the 13 (85%) patients achieved CR, PR or SD. In accordance with the International Working Group response criteria for each indication, potential responses include: CR, which for CLL means complete remission and for the other indications listed means complete response; PR, which for CLL means partial remission and for the other indications listed means partial response; SD which means stable disease for all indications listed; and PD, which means progressive disease for all indications listed.

 

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Of the four DLBCL patients, three achieved CRs and one achieved a PR, with reported durations on study ranging from nine to over 20 months. Of the five FL patients, one achieved a CR, one achieved a PR and three responded with SDs, with reported durations on study ranging from four months to over 23 months. Of the two patients with CLL, one responded with SD and the other responded with PD. Of the two MCL patients, one responded with SD and other responded with PD. The table below summarizes the duration on study in the 13 patients as of each patient’s last reported scan:

Duration on Study with PNT2258 in Phase 2 Trial

 

LOGO

A notable durable CR was achieved in a 79-year-old male with Richter’s CLL. The patient presented with aggressive disease at baseline and was refractory to two prior chemotherapy-containing regimens for Richter’s CLL. After six cycles of treatment with single-agent PNT2258, the patient experienced a complete metabolic response and resolution of his tumor that was defined as a CR and maintained for 10 months.

 

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Safety Results

As shown in the table below, the majority of drug-related AEs were assessed as grade 1 or 2 in severity. Drug-related AEs included chills, low-grade fever, transient nausea and tumor or back pain, which resolved completely before the next infusion. The most frequent grade 3 drug-related AEs were diarrhea (in three patients), nausea and back and flank pain (each in two patients). There were no occurrences of grade 4 AEs and no drug-related discontinuations or deaths.

Common Systemic Drug-Related Adverse Events

 

Adverse Event
(n=13 patients)

   All Grades
(n)
   Grade 1
(n)
   Grade 2
(n)
   Grade 3
(n)
   Grade 4
(n)

Nausea

   11    5    4    2    —  

Pain (flank)

   9    4    3    2    —  

Chills

   7    5    1    1    —  

Diarrhea

   7    2    2    3    —  

Vomiting

   7    3    3    1    —  

Fatigue

   6    2    3    1    —  

Fever

   6    2    3    1    —  

Headache

   6    2    3    1    —  

Dyspnea

   5    4    1    —      —  

Generalized aching

   4    1    3    —      —  

Anorexia

   4    3    1    —      —  

Back pain

   4    —      2    2    —  

Sensory neuropathy

   4    4    —      —      —  

As shown in the table below, hematologic and metabolic drug-related AEs were minimal and most often occurred in patients with pre-disposing conditions such as transfusion dependent anemia and thrombocytopenia. PNT2258 did not precipitate tumor lysis syndrome and there were very few metabolic drug-related AEs even in patients with high-volume disease that achieved durable clinical responses to treatment.

Most Common Hematologic and Metabolic Drug-Related Adverse Events

 

Adverse Event
(n=13 patients)

   All Grades
(n)
   Grade 1
(n)
   Grade 2
(n)
   Grade 3
(n)
   Grade 4
(n)

Hypophosphatemia

   4    —      2    2    —  

Anemia

   3    1    2    —      —  

Hypokalemia

   3    —      3    —      —  

Hyperuricemia

   2    2    —      —      —  

Neutropenia

   2    —      1    1    —  

Thrombocytopenia

   2    —      —      2    —  

Elevated liver enzymes (AST/ALT)

   1    —      —      1    —  

Clinical Development Strategy

Having observed preliminary evidence of efficacy and tolerability in clinical trials to date, and given our belief that PNT2258 has the potential to be efficacious across a wide range of oncology indications, we plan to pursue a broad registration-oriented clinical development program, initially in hematologic malignancies, that we anticipate will provide the foundation of a global registration strategy for PNT2258. In particular, in December 2014, we initiated Wolverine, a Phase 2 trial for the treatment of third-line relapsed or refractory DLBCL, and by mid-2015, we plan to initiate Brighton, a Phase 2 trial evaluating PNT2258 for the treatment of Richter’s CLL.

 

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We plan to initiate three additional trials in 2016: in the first quarter, a Phase 2 trial of PNT2258 in combination with a therapeutic agent or treatment regimen; in the second quarter, a single-agent Phase 2 trial evaluating PNT2258’s potential in other hematological malignancies, such as AML, ALL and MM; and in the third quarter, a second Phase 2 combination trial. If the efficacy data obtained in some or all of these trials are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies. As appropriate, we may apply for orphan drug, breakthrough therapy, fast track or other regulatory designations.

PNT2258-03 Wolverine Trial in Relapsed or Refractory DLBCL

In December 2014, the first patient was enrolled in our Phase 2 Wolverine trial in third-line relapsed or refractory DLBCL. Wolverine is a multi-center, open-label Phase 2 trial of single-agent PNT2258 that will characterize anti-tumor activity and collect safety data on approximately 60 patients with relapsed or refractory DLBCL. As of June 2015, the enrollment pattern in the Wolverine trial remains consistent with the number we estimate will be necessary to report safety and efficacy data by mid-2016, with eight of the 13 clinical trial sites currently enrolling patients.

The primary endpoint is overall response rate (defined as the proportion of patients achieving CR or PR) and secondary endpoints include duration of response, disease control rate, progression-free survival, overall survival and exploratory predictors of outcome based on biomarker assessments as described below. As this trial is open label, we anticipate multiple clinical data read-outs over the next 12 to 24 months. We expect that the results of this trial will ultimately be used to design a subsequent registration trial. However, if the data obtained are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.

The Wolverine trial employs a two-phase dosing regimen. In the induction phase, patients will receive 120 mg/m 2 of PNT2258 intravenously on days one through five of a 21-day cycle. Treatment in the induction phase may continue for a total of eight cycles, unless there is disease progression or the occurrence of unacceptable toxicity. In the continuation phase, patients who achieve stable disease or better will receive 100 mg/m 2 intravenously on days one through four of a 28-day cycle, until disease progression.

Biomarker Assessments

The Wolverine trial has been designed to identify and characterize patients who respond to PNT2258 on the basis of their genetics and disease characteristics. In particular, BCL2 protein levels can be measured from tumor biopsies, and we plan to correlate clinical responses with BCL2 overexpression in these patients.

Other exploratory predictors of outcome will be assessed by biomarker sample analysis. In particular, the “double hit” lymphoma population, representing approximately 30% of the total DLBCL population, has higher risk disease with a poorer prognosis than other DLBCL patients, and do not respond as well to standard treatment. These patients can be identified because they overexpress proteins from both the BCL2 and CMYC oncogenes. If PNT2258 shows efficacy in this population, it may represent an opportunity for future development in an area of high unmet medical need.

Wolverine has also been designed to identify patient responders according to their DLBCL genetics, specifically their cell-of-origin sub-type (germinal center B-cell (GCB) vs. activated B-cell (ABC)), as these patients tend to differ in their prognoses and response to medical treatment. Since BCL2 is overexpressed in both sub-types, PNT2258 may be active in both types of disease, which could potentially differentiate our drug versus certain other therapeutics in common use or in development that only demonstrate activity in one sub-type.

 

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PNT2258-04 Brighton Trial in Richter’s CLL

In mid-2015, we expect to initiate a Phase 2 trial for PNT2258 for the treatment of Richter’s CLL. Brighton is a multi-center, open-label, Phase 2 investigation of single-agent PNT2258 to characterize anti-tumor activity and collect safety data on approximately 50 patients with Richter’s CLL.

The primary endpoint is overall response rate (defined as the proportion of patients achieving CR or PR) and secondary endpoints include duration of response, disease control rate, progression-free survival, overall survival and exploratory predictors of outcome. As this trial is open label, we anticipate multiple clinical data read-outs over the next 18 to 24 months. If the data obtained in this trial are highly compelling, we plan to discuss accelerated registration paths and other regulatory designations with regulatory agencies.

The Brighton trial employs a two-phase dosing regimen. In the induction phase, patients will receive 120 mg/m 2 of PNT2258 intravenously on days one through five of a 21-day cycle. Treatment in the induction phase may continue for a total of eight cycles, unless disease progression or the occurrence of unacceptable toxicity. In the continuation phase, patients who achieve stable disease or better will receive 100 mg/m 2 intravenously on days one through four of a 28-day cycle, until disease progression.

Combination and Monotherapy Trials

Given that BCL2 overexpression has been implicated as a fundamental driver in a wide variety of cancers, a primary goal of our clinical development strategy is to exploit the full commercial potential of PNT2258 by developing the product candidate in earlier lines of therapy in DLBCL and additional indications, either as monotherapy or in combination with other therapeutic agents or treatment regimens. Specifically, we believe that PNT2258’s unique mechanism for impacting downstream BCL2 protein levels could also potentially amplify and be complementary to other therapeutic modalities.

A standard treatment practice in oncology is the use of multiple agents in combination regimens to improve patient outcomes. Recent literature provides the scientific rationale for PNT2258 combination strategies as follows:

 

    A number of targeted cancer therapeutics modulate critical signaling pathways, such as CD20, BTK and PI3K, that signal the apoptotic process and cause death of cancer cells. Since BCL2 resides at a key node of the apoptotic pathway, there is a scientific rationale to enhance the apoptotic signal with the addition of PNT2258 to these targeted therapies.

 

    The BCL2 oncogene is upregulated as a cancer cell survival mechanism following chemotherapy, and is therefore an important contributor to the development of chemo-resistance. We believe that reducing BCL2 protein levels may re-sensitize cancer cells to chemotherapy.

 

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For example, DLBCL patients are typically treated with multi-drug regimens combining rituximab and various chemotherapeutic agents. We believe there is a strong scientific rationale to suggest that modulating BCL2 overexpression could be clinically beneficial in combination with rituximab or chemotherapy. We have demonstrated in preclinical mouse models of NHL that LNP-encapsulated PNT100 and rituximab in combination show highly synergistic effects on tumor volume compared to either agent alone, as shown in the figure below.

Mouse Models Treated with LNP-Encapsulated PNT100 Combination Therapy

 

LOGO

We plan to initiate our first combination trial in the first quarter of 2016 and a second combination trial in the third quarter of 2016. These two combination studies may provide opportunities to develop PNT2258 in earlier lines of therapy in DLBCL and could provide a pathway to designing a Phase 3 trial that could serve as a confirmatory trial to support full approval of PNT2258, if PNT2258 is approved initially based on a surrogate endpoint under accelerated approval.

Since we estimate that BCL2 is expressed in more than 60% of all new cases across the top 10 most commonly diagnosed cancers in the United States, we are also interested in developing PNT2258 for indications beyond DLBCL. Specifically, BCL2 is highly overexpressed in various other hemotologic malignancies. We plan to initiate a trial in the second quarter of 2016 to test the potential efficacy of PNT2258 as a single agent in the treatment of late stage AML, ALL and MM. If initial results are promising, this trial may provide a basis for subsequent clinical development, facilitating PNT2258’s entry into additional cancer indications to further broaden its commercial potential. BCL2 overexpression has also been implicated as a driver of a wide variety of solid tumors, including breast, prostate and lung, which could provide additional future development opportunities for PNT2258.

License and Payment Agreements

Marina License Agreement

In March 2007, we entered into an exclusive license agreement with Novosom AG (Novosom) to use certain patented LNP delivery technology (SMARTICLES) for any of our DNAi drug candidates that target a region of the BCL2 gene. In July 2010, the original Novosom license agreement was acquired by Marina, but Novosom retained the right to receive all payments due from us under the original Novosom license agreement.

 

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In March 2012, we and Marina entered into another exclusive license agreement, which we refer to as the Marina license agreement, for the use of certain of Marina’s patented delivery technology, including LNP technology, for any of our current or future DNAi product candidates that target any gene. In exchange for this exclusive right, we paid Marina an upfront payment of $0.3 million in 2012. We will also be required to pay Marina milestone payments of up to an aggregate of $14.5 million for each DNAi product candidate other than PNT2258 upon successful completion of certain clinical and regulatory milestone events relating to each DNAi product candidate. In addition, for DNAi product candidates other than PNT2258, we are required to pay Marina a low single-digit royalty on net sales of all licensed products by us, our affiliates or sublicensees.

The Marina license agreement expires, on a licensed product-by-licensed product and country-by-country basis, on the earlier of (i) the end of the calendar quarter in which sales in such country of generic products for the licensed product exceed 25% of the sales of such licensed product in such country; or (ii) the later of (A) the date of expiration of the last to expire patent having a valid claim relating to such licensed product in a particular county or (B) 10 years after the first commercial sale of a licensed product in such country. Either party may terminate the Marina license agreement in the event of a material breach that remains uncured following the date that is up to 120 days, depending on the type of breach, from the date that the breaching party is provided with written notice by the non-breaching party, or upon certain insolvency events relating to the other party. We may terminate the Marina license agreement at our sole discretion at any time upon 90 days written notice to Marina.

Novosom Payment Agreement

In connection with an amendment to the Marina license agreement in April 2014, the rights from Marina under the Marina license agreement were amended to expressly include PNT2258, and we terminated the prior license agreements with Novosom and entered into a license payment agreement with Novosom to restructure the payments owing for PNT2258. Pursuant to the license payment agreement, by making a one-time payment to Novosom of $11.0 million in April 2014, we terminated the other payment obligations owing to Novosom for PNT2258 except for one remaining $3.0 million milestone equivalent payment due upon regulatory authority approval of PNT2258, and a low single-digit royalty payment to Novosom on net sales of PNT2258.

The license payment agreement expires on a country-by-country basis on the later of (i) the expiry, invalidation or abandonment of the last valid claim of a licensed patent right relating to the licensed product in such country; (ii) the licensed product becomes uncompetitive or unprofitable in such country or (iii) the expiration or termination of our remaining payment obligations to Novosom. In the license payment agreement, we and Marina further agreed not to terminate the Marina license agreement with respect to the use of the LNP delivery technology for PNT2258 or otherwise amend the that agreement in a manner that would reduce or be likely to reduce the payments due to Novosom under the license payment agreement, without the prior consent of Novosom.

Research and Development

Since commencing operations, we have dedicated a significant portion of our resources to research and development activities, including the clinical development of our product candidate. We incurred research and development expenses of $2.8 million and $19.0 million during the years ended December 31, 2013 and 2014, respectively, and $1.8 million and $5.3 million during the three months ended March 31, 2014 and 2015, respectively. We anticipate that a significant portion of our operating expenses will continue to be related to research and development as we continue to advance PNT2258.

Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for PNT2258 and future product candidates, our DNAi technology and other know-how, to operate

 

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without infringing on the proprietary rights of others and to prevent others from infringing our proprietary or intellectual property rights. Our strategy is to seek to protect our proprietary position and intellectual property position by, among other methods, filing patent applications related to our proprietary technology and product candidates in the United States and in foreign jurisdictions. We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position.

We have filed and will continue to file patent applications directed to the compositions of matter and methods of use related to various aspects of PNT2258 and our DNAi technology. As of March 31, 2015, we were the owner of seven U.S. patents, expiring between 2017 and 2028, absent any adjustments or extensions, comprising claims directed to the compositions of PNT2258, PNT100, oligonucleotides directed against the oncogenes CMYC and RAS, and methods of use of pharmaceutical compositions comprising PNT2258 and rituximab. As of March 31, 2015, we also owned two pending U.S. patent applications, one of which related to PNT2258 for the treatment of cancer indications and the other of which related to DNA oligonucleotides directed against various oncogenes, including RAS. Any patents issuing from these U.S. applications are expected to expire between 2024 and 2026, absent any adjustments or extensions. As of March 31, 2015, we also had 31 issued foreign patents and five pending foreign patent applications (including one allowed application) in 17 foreign jurisdictions, including Australia, Canada, China, Europe and Japan. These foreign patents, and any patents issuing from these pending foreign patent applications, are expected to expire between 2024 and 2026, absent any adjustments or extensions. These foreign patents and patent applications comprise claims that relate to the compositions of PNT2258, PNT100, oligonucleotides directed against the oncogenes CMYC, CHARAS, CKIRAS, HER2 and TGF a and methods of use of PNT2258 for cancer and in combination with rituximab. As of March 31, 2015, we also had three pending international applications filed under the Patent Cooperation Treaty (PCT), with claims directed to oligonucleotide design, use of biomarkers to determine BCL2 modulation for cancer treatment and treatment methods using PNT2258. The PCT is an international patent law treaty that provides a unified procedure for filing a single initial patent application and it allows the applicant to seek protection in any of the member states through national-phase applications. Any patents issuing from these PCT applications are expected to expire between 2033 and 2034, absent any adjustments or extensions.

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those drugs, depending upon the length of the clinical trials for each product candidate and other factors. There can be no assurance that any of our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.

As with other oncology companies, our ability to maintain and solidify our proprietary and intellectual property position for our product candidates and technologies will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, patent applications that we may file or license from third parties may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Our issued patents and any issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of the priority of inventions covered by pending third-party patent applications. If third parties prepare and file patent applications that also claim technology or therapeutics to which we have rights, we may have to participate in interference proceedings to determine priority of invention, which could result in substantial costs to us, even if the eventual outcome is favorable to us. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before PNT2258 or any of our product

 

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candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.

In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our scientific advisors and consultants, and invention assignment agreements with our employees. The confidentiality agreements are designed to protect our proprietary information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through our relationship with a third party.

With respect to our DNAi technology platform, we consider trade secrets and know-how to be our primary intellectual property. Trade secrets and know-how can be difficult to protect. We anticipate that with respect to this DNAi technology platform, these trade secrets and know-how may over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel skilled in the art from academic to industry scientific positions.

Competition

The oncology industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. To our knowledge, no other company has a DNAi-based product candidate in clinical development at the present time.

If PNT2258 is approved for DLBCL or Richter’s CLL, as the case may be, it will compete with existing therapies and currently marketed drugs, including the following:

 

    DLBCL . The initial therapy for DLBCL typically consists of multi-agent cytotoxic drugs in combination with the monoclonal antibody rituximab. In patients with DLBCL who are not elderly and who have good organ function, high dose chemotherapy with stem cell transplantation is often used. Newer targeted agents such as the BTK inhibitor ibrutinib and the immunomodulatory drug lenalidomide have shown activity in the ABC subtype of DLBCL. There are also a number of other widely used anti-cancer agents that have broad labels that include NHL, and some of these are being evaluated alone or in combination for the treatment of patients with DLBCL that have relapsed after several different types of chemotherapy. Certain monoclonal antibodies similar to rituximab are also being evaluated in relapsed DLBCL. Other oncology companies that have developed or are currently developing treatment for patients with DLBCL include Abbvie Inc., Bellicum Pharmaceuticals, Inc., Celgene Corporation, Epizyme, Inc., Juno Therapeutics, Inc., Karyopharm Therapeutics Inc., Kite Pharma, Inc., Novartis AG and Pharmacyclics, Inc.

 

    Richte r’s CLL . Although there are no specific therapies approved to treat Richter’s CLL, multi-agent cytotoxic drugs in combination with rituximab is typically used as a first-line treatment. To our knowledge, Karyopharm Therapeutics Inc. is the only other company with an active trial focused specifically on Richter’s CLL.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial and other resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products

 

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than we do. Mergers and acquisitions in the oncology industry may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or that may be necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we may develop. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic drugs.

Manufacturing

We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for the manufacture of PNT2258 and other potential product candidates for preclinical and clinical testing, as well as for commercial manufacture if our product candidates receive marketing approval. We have engaged third-party manufacturers to manufacture PNT100 and to obtain lipids and other raw materials and consumables necessary for the manufacture of PNT2258. In addition, we continue to invest in process development and scale up activities relating to PNT100 and PNT2258 with a view to establishing robust, commercial scale manufacturing processes for both.

We have a long-term supply arrangement in place with the manufacturer of two of the four lipids needed to manufacture PNT2258. The other two lipids are obtained from and PNT100 is manufactured by different manufacturers on a purchase order basis. Over time, we intend to enter into long-term supply and quality agreements with the manufacturers of these materials. We do not currently have arrangements in place for redundant supply. We believe that our manufacturers have sufficient capacity to meet our current demand and, in the event they fail to meet our demand, that adequate alternative sources for such materials exist. However, there is a risk that if supplies are interrupted or result in poor yield or quality, it would materially harm our business. For PNT2258, we intend to identify and qualify additional manufacturers to provide the active pharmaceutical ingredient and fill-and-finish services prior to seeking regulatory approval.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Our contract manufacturing organizations are required to comply with current good manufacturing practice (cGMP) regulations, which are regulatory requirements for the production of pharmaceuticals that will be used in humans.

Government Regulation

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FDC Act) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

 

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Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.

Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (GCP), an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board (IRB) for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include

 

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the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the applicant under an approved NDA is also subject to annual product and establishment user fees. These fees are typically increased annually.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with cGMPs is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require Risk Evaluation and Mitigation Strategies (REMS) to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use (ETASU). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Changes to some of the conditions established in an approved application, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

 

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Pediatric Information

Under the Pediatric Research Equity Act (PREA), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. The Best Pharmaceuticals for Children Act (BPCA) provides NDA holders a six-month extension of any exclusivity—patent or non-patent—for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition – generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

Fast Track Designation and Accelerated Approval

FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.

Under the fast track program and FDA’s accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.

In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by FDA.

 

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In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with FDA, FDA may initiate review of sections of a fast track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Breakthrough Therapy Designation

FDA is also required to expedite the development and review of the application for approval of drugs that are intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the sponsor of a new drug candidate may request that FDA designate the drug candidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the drug candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.

Post-Approval Requirements

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

AE reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

 

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The Hatch-Waxman Act

Orange Book Listing

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (ANDA). An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

Exclusivity

Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which FDA cannot approval an ANDA for a generic drug that includes the change. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period.

Patent Term Extension

After NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval up to a maximum of five years). The time can be shortened if FDA determines that the applicant did not pursue

 

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approval with due diligence. The total patent term after the extension may not exceed 14 years. For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

Anti-Kickback, False Claims Laws

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims statutes and other statutes pertaining to healthcare fraud and abuse. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act (PPACA) amended the intent element of the federal statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Additionally, PPACA amended the federal healthcare anti-kickback statute such that a violation of that statute can serve as a basis for liability under the federal false claims law. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offerer or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the healthcare fraud statute, which prohibits knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services.

Other Federal and State Regulatory Requirements

Pursuant to PPACA, the Centers for Medicare & Medicaid Services (CMS) has issued a final rule that requires manufacturers of prescription drugs to collect and report information on payments or transfers of value to

 

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physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family members. The first reports were due in 2014 and must be submitted on an annual basis. The reported data were posted in searchable form on a public website on September 30, 2014, and will be posted on an annual basis. Failure to submit required information may result in civil monetary penalties.

In addition, several states now require prescription drug companies to report expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual physicians in these states. Other states prohibit various other marketing-related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In addition, California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs or marketing codes. Several additional states are considering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology and Clinical Health Act (HITECH), and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified 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,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or 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.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Also, the US Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

Coverage and Reimbursement

Sales of pharmaceutical products depend significantly on the availability of third-party coverage and reimbursement. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. Although we currently believe that third-party payors will provide coverage and reimbursement for our product candidates, if approved, these third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct expensive clinical studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered cost-effective. It is time consuming and expensive for us to seek coverage and reimbursement from third-party payors. Moreover, a payor’s decision to

 

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provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

By way of example, in March 2010, the PPACA was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the PPACA of importance to our potential drug candidates are:

 

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

 

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;

 

    a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

 

    a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

    extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and

 

    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.

 

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We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.

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 to the extent we choose to develop or sell any products outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

In the European Union (EU), member states require both regulatory clearances by the national competent authority and a favorable ethics committee opinion prior to the commencement of a clinical trial. Under the EU regulatory systems, marketing authorization applications may be submitted under either a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU member states. It is compulsory for medicines produced by certain biotechnological processes. Because our products are produced in that way, we would be subject to the centralized process. Under the centralized procedure, pharmaceutical companies submit a single marketing authorization application to the European Medicines Agency. Once granted by the European Commission, a centralized marketing authorization is valid in all EU member states, as well as the EEA countries Iceland, Liechtenstein and Norway. By law, a company can only start to market a medicine once it has received a marketing authorization.

Employees

As of March 31, 2015, we had 27 full-time employees, of which 8 had M.D. or Ph.D. degrees. Of our full-time employees, 18 employees are engaged in research and development activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Facilities

Our corporate headquarters is located in Vancouver, British Columbia, where we occupy approximately 8,300 square feet of office space under a lease that expires in February 2018. We also occupy approximately 4,300 square feet of office and laboratory space in Plymouth, Michigan, which is under a lease that expires at various times between September 2015 and November 2015. We believe that our facilities are sufficient to meet our current needs.

Legal Proceedings

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

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MANAGEMENT

Executive Officers and Directors

The following table provides information regarding our executive officers and directors as of June 12, 2015:

 

Name

  

Age

  

Position(s)

Nick Glover, Ph.D.    46    President, Chief Executive Officer and Director
Angie You, Ph.D.    42    Chief Business & Strategy Officer and Head of Commercial
Sukhi Jagpal    41    Chief Financial Officer
Barbara Klencke, M.D.   

58

   Chief Development Officer
Richard Messmann, M.D.    59    Chief Medical Officer
Wendi Rodrigueza, Ph.D.    49    Chief Scientific Officer
Wendy Chapman    49    Senior Vice President, Clinical Operations
Chandra Lovejoy    44    Senior Vice President, Global Regulatory Affairs and Head of Quality
Donald Parfet (1)(2)    62    Chairman of the Board
Albert Cha, M.D., Ph.D. (1)    43    Director
Nicole Onetto, M.D. (2)    62    Director
Robert Pelzer (3)(1)    61    Director
Peter Thompson, M.D. (3)    55    Director
James Topper, M.D., Ph.D. (2)    53    Director
Alvin Vitangcol (3)    40    Director

 

(1) Member of our compensation committee
(2) Member of our nominating and corporate governance committee
(3) Member of our audit committee

Executive Officers

Nick Glover, Ph.D. , has served as our President and Chief Executive Officer and as a member of our board of directors since September 2014, and provided consulting services to us from July 2014 through August 2014. Previously, Dr. Glover served as the President and Chief Executive Officer at YM BioSciences Inc., an oncology drug development company, from November 2010 until it was acquired by Gilead Sciences Inc. in February 2013. Prior to that, Dr. Glover served as the President and Chief Executive Officer of Viventia Bio Inc., a biopharmaceutical company. Dr. Glover also previously served as an investment manager for MDS Capital, a life sciences venture capital firm. Dr. Glover has also served as a consultant in the biotechnology and life sciences industries at various times since 2008. Since June 2013, Dr. Glover has served on the board of directors of MEI Pharma Inc. Dr. Glover holds a B.Sc. (Hons) in chemistry from the University of East Anglia, a M.Sc. in chemistry from the University of British Columbia and a Ph.D. in chemistry from Simon Fraser University. Our board of directors believes that Dr. Glover should serve as a director based upon his depth and expertise in the biopharmaceutical and venture capital industries and his extensive experience developing and managing biopharmaceutical companies.

Angie You, Ph.D. , has served as our Chief Business and Strategy Officer and Head of Commercial since October 2014. Previously, Dr. You served as the Chief Business Officer at Aragon Pharmaceuticals Inc, an oncology drug discovery and development company, from August 2010 to August 2013, and as the Senior Director of Lifecycle Management at Orexigen Therapeutics Inc., a biotechnology company, from November 2009 to July 2010. Prior to that, Dr. You served as the Chief Business Officer at a number of life science companies, including Exelixis, Inc., Synosia Therapeutics AG and Ren-Pharm International, Ltd. She also previously served as Vice President at Venrock, a venture capital firm, and as a consultant at McKinsey Consulting. Dr. You holds an A.B. and Ph.D. from Harvard University.

Sukhi Jagpal has served as our Chief Financial Officer since February 2015. Previously, Mr. Jagpal served as the Chief Financial Officer of QLT Inc., a biotechnology company, from February 2013 to February 2015, where he

 

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also served as the Corporate Controller from January 2006 to December 2008, the Director, Finance and Corporate Controller from January 2009 to December 2010, the Senior Director, Finance and Corporate Controller from January 2011 to June 2012 and interim Chief Financial Officer in July 2012 to February 2013. Prior to that, Mr. Jagpal held finance and accounting positions with Pivotal Corporation, 360networks inc. and KPMG LLP. Mr. Jagpal is a Chartered Accountant, a Chartered Business Valuator and holds an M.B.A. from Cornell University – S.C. Johnson Graduate School of Management and an M.B.A. from Queens University.

Barbara Klencke, M.D. , has served as our Chief Development Officer since June 2015. Previously, Dr. Klencke served as the Senior Vice President, Development at Onyx Pharmaceuticals, a biopharmaceutical company and a subsidiary of Amgen Inc., from January 2011 to June 2015, and as the Group Medical Director in Product Development, Oncology at Genentech, Inc., a biotechnology company, from July 2003 to January 2011. Prior to that, Dr. Klencke served as the Medical Director at Chiron Corporation, a biotechnology company later acquired by Novartis International AG, and as a professor of medicine at the University of California, San Francisco Medical Center. Dr. Klencke holds a B.S. from Indiana University and an M.D. from the University of California, Davis.

Richard Messmann, M.D. , has served as our Chief Medical Officer since May 2012. Previously, Dr. Messmann served as the Vice President of Medical Affairs at Endocyte, Inc., a biopharmaceutical company, from July 2005 to June 2011. Prior to that, Dr. Messmann served as the Director of Cancer Research at the Great Lakes Cancer Institute, the Deputy Associate Director at the National Cancer Institute and as a clinical research physician at Eli Lilly & Co. Dr. Messmann holds a B.S. from Oakland University, an M. Sc. from Wayne State University, an M.D. from Wayne State University School of Medicine and an M.H.S. from Duke University.

Wendi V. Rodrigueza, Ph.D. , has served as our Chief Scientific Officer since February 2012, and previously served as our Vice President of Product Development from September 2006 to January 2012. Previously, Dr. Rodrigueza served the Director, Project Management of Novartis Institutes of Biomedical Research, Inc., as the Senior Program Manager at CuraGen Corporation and as the Director, Product Development at Esperion Therapeutics, Inc. Dr. Rodrigueza also serves as a member of the board of directors of Pacific Therapeutics, Inc. Dr. Rodrigueza holds a B. Sc. and Ph.D. from the University of British Columbia.

Wendy Chapman has served as our Senior Vice President, Clinical Operations since September 2014. Previously, Ms. Chapman served as the Senior Portfolio Director at PAREXEL International Corporation, a biopharmaceutical services company, from June 2013 to September 2014, and as the Vice President, Clinical Operations at YM BioSciences Inc., an oncology drug development company, from September 2010 to June 2013. Ms. Chapman also previously served as the Chief Operating Officer and Vice President, Clinical Operations at Viventia Bio Inc., a biopharmaceutical company, from March 2006 to September 2010, and in various other senior positions at several pharmaceutical and CROs, including AAIPharma Services Corp., Bayer Inc., AstraZeneca and MDS Pharma Services.

Chandra Lovejoy has served as our Senior Vice President, Global Regulatory Affairs and Head of Quality since September 2014. Previously, Ms. Lovejoy served as the Vice President of Global Regulatory Affairs at Endocyte, Inc., a biopharmaceutical company, from December 2007 to September 2014. Prior to that, Ms. Lovejoy served as the Manager, Regulatory Affairs at Genentech, Inc, a biotechnology company, from April 2005 to November 2007. Ms. Lovejoy holds a B.S. from the University of San Francisco and an M.S. from San Diego State University.

Non-Employee Directors

Donald Parfet has served as the chairman of our board of directors since our inception in 2003 and served as our interim Chief Executive Officer from May 2014 to August 2014. Since 2001, Mr. Parfet has served as the managing director of the Apjohn Group, LLC, a business development group. Additionally, since 2003, he has served as a general partner of Apjohn Ventures Fund, a venture capital firm. Prior to founding the Apjohn Group, Mr. Parfet served as the Senior Vice President at Pharmacia & Upjohn.

 

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Mr. Parfet serves on the boards of directors of Kelly Services, Inc., Rockwell Automation, Inc. and Masco Corporation, and serves as a director or trustee of a number of business, civic and charitable organizations. Mr. Parfet holds a B.A. from the University of Arizona and an M.B.A. from the University of Michigan. Our board of directors believes that Mr. Parfet should serve as a director based upon his extensive financial and strategic business planning experience.

Albert Cha, M.D., Ph.D. , has served as a member of our board of directors since April 2014. Dr. Cha serves as the Managing Partner of Vivo Capital, a healthcare investment firm, where he has been since 2000. Prior to joining Vivo Capital, Dr. Cha served as a pharmaceutical consultant at Oracle Corporation and a biomedical engineer at the Palo Alto Veterans Administration Hospital. Dr. Cha has also served as co-founder of several portfolio companies. Dr. Cha currently serves on the board of directors of Ascendis Pharma A/S and several privately held biopharmaceutical and medical device companies. Dr. Cha holds a B.S. and M.S. from Stanford University and an M.D. and Ph.D. from the UCLA School of Medicine. Our board of directors believes that Dr. Cha should serve as a director based upon his extensive scientific, medical and operating experience.

Nicole Onetto, M.D. , has served as a member of our board of directors since May 2015. Dr. Onetto has served as the Deputy Director and Chief Scientific Officer at the Ontario Institute for Cancer Research since November 2009. Dr. Onetto previously served as the Senior Vice President and Chief Medical Officer at ZymoGenetics, Inc., a biotechnology company, from September 2005 until November 2009. Dr. Onetto also served as the Executive Vice President and Chief Medical Officer of OSI Pharmaceuticals, Inc., the Senior Vice President, Medical Affairs of Gilead Sciences, Inc. and as the Vice President, Medical Affairs of NeXstar. Dr. Onetto has also held positions at Bristol-Myers Squibb, Immunex and Hoechst Canada, Inc. Dr. Onetto currently serves on the board of directors of ImmunoGen, Inc. and previously served on the board of directors of YM BioSciences Inc. Dr. Onetto received a B.Sc. from the University of Paris, an M.Sc. in Pharmacology from the University of Montreal and an M.D. from the University of Paris. Our board of directors believes that Dr. Onetto should serve as a director based upon her extensive experience in the biotechnology and biopharmaceutical industry.

Robert Pelzer has served as a member of our board of directors since May 2015. From September 2008 to March 2013, Mr. Pelzer served as the President of Novartis Corporation, a pharmaceutical company. From 2002 to 2008, Mr. Pelzer served as General Counsel at Novartis Pharma AG. Prior to 2002, Mr. Pelzer held various positions at DuPont, including serving as General Counsel and Senior Vice President at DuPont Pharmaceuticals from 1998 to 2001. Mr. Pelzer currently serves on the board of directors of Aquinox Pharmaceuticals, Inc. and previously served on the board of directors of Idenix Pharmaceuticals, Inc. Mr. Pelzer holds a BCom and an LL.B. from the University of Alberta. Our board of directors believes that Mr. Pelzer should serve as a director based upon his extensive experience in the healthcare industry.

Peter Thompson, M.D. , has served as a member of our board of directors since April 2014. Since 2013, Dr. Thompson has served as a private equity partner of OrbiMed Advisors, a venture capital firm, where he was previously a venture partner since 2010. Dr. Thompson also co-founded Cleave Biosciences, Inc., a biotechnology company, where he has served as a director since 2010. Previously, Dr. Thompson co-founded and served as the Chief Executive Officer of Trubion Pharmaceuticals, Inc., a biotechnology company, from 2002 to 2009. Dr. Thompson also serves as a member of the board of directors of Response Biomedical Corp. and several privately held biotechnology companies. Dr. Thompson holds a B.S. and Sc. B. from Brown University and an M.D. from Brown University Medical School. Our board of directors believes that Dr. Thompson should serve as a director based upon his extensive managerial and operational experience in the biotechnology and biopharmaceutical industry and as an investor in biotechnology companies.

James Topper, M.D., Ph.D. , has served as a member of our board of directors since April 2014. Since 2003, Dr. Topper has served as a partner at Frazier Healthcare Ventures, a venture capital firm, where he has been a general partner since 2005. Prior to joining Frazier Healthcare Ventures, Dr. Topper served as head of the Cardiovascular Research and Development Division of Millennium Pharmaceuticals, Inc. and as the Vice President of Biology at COR Therapeutics, Inc. prior to its acquisition by Millennium Pharmaceuticals, Inc.

 

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Dr. Topper currently serves on the board of directors of Amicus Therapeutics, Inc. and several privately held biotechnology companies, and he previously served on the board of directors of La Jolla Pharmaceuticals Company and Portola Pharmaceuticals, Inc. Dr. Topper holds a B.S. from the University of Michigan and an M.D. and a Ph.D. from Stanford University School of Medicine. Our board of directors believes that Dr. Topper should serve as a director based upon his extensive medical background and experience as an investor in biotechnology companies.

Alvin Vitangcol has served as a member of our board of directors since December 2013. Mr. Vitangcol serves as a general partner of Capital Midwest Fund, a venture capital firm, where he has been since its launch in 2008. Additionally, Mr. Vitangcol has served in various positions, most recently as Vice President, at Einhorn Associates, a life sciences and technology advisory firm, since 1999. Mr. Vitangcol currently serves on the board of directors of several privately held technology companies. Mr. Vitangcol holds a B.S. from Andrews University and an M.S. in Management from the University of Wisconsin – Milwaukee. Our board of directors believes that Mr. Vitangcol should serve as a director based upon his extensive experience advising biotechnology companies.

Election of Officers

Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our directors or executive officers.

Codes of Business Conduct and Ethics

Our board of directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our code of conduct will be posted on the investor relations section of our website. The reference to our website address in this prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of conduct, or waivers of these provisions, on our website or in public filings.

Board Composition

Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of eight members. Seven of our directors are independent within the meaning of the independent director guidelines of the NASDAQ Stock Market. Our current voting agreement among certain investors provide for (i) one director to be a representative of our Series D redeemable convertible preferred stock designated by Vivo Capital, which is currently Dr. Cha; (ii) one director to be a representative of our Series D redeemable convertible preferred stock designated by the holders of a majority of our Series D redeemable convertible preferred stock, which is currently Dr. Thompson, (iii) one director to be a representative of our Series C redeemable convertible preferred stock designated by Capital Midwest Fund II, L.P., which is currently Mr. Vitangcol, (iv) one director to be a representative of our Series B redeemable convertible preferred stock designated by the holders of a majority of our Series B redeemable convertible preferred stock, which is currently Mr. Parfet, (v) three directors designated by a majority of our board of directors (including at least one of directors designated by our Series D redeemable convertible preferred stock), which are currently Dr. Onetto, Mr. Pelzer and Dr. Topper, and (vi) the individual which is serving as our Chief Executive Officer, which is currently Dr. Glover.

The voting agreement by which our directors were elected will terminate in connection with this offering and there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation or removal.

 

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Classified Board of Directors

Upon completion of this offering, our board of directors will be divided into three staggered classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:

 

    the Class I directors will be Dr. Cha and Mr. Vitangcol, and their terms will expire at the annual meeting of stockholders to be held in 2016;

 

    the Class II directors will be Dr. Onetto, Dr. Thompson and Dr. Topper, and their terms will expire at the annual meeting of stockholders to be held in 2017; and

 

    the Class III directors will be Dr. Glover, Mr. Parfet and Mr. Pelzer, and their terms will expire at the annual meeting of stockholders to be held in 2018.

Each director’s term continues until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Our restated certificate of incorporation and restated bylaws, as we expect they will be in effect upon the completion of this offering, will authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See “Description of Capital Stock—Anti-Takeover Provisions—Restated Certificate of Incorporation and Restated Bylaw Provisions.”

Director Independence

In connection with this offering, we have applied to list our common stock on the NASDAQ Global Market. Under the rules of the NASDAQ Stock Market, independent directors must comprise a majority of a listed company’s board of directors within a specified period of the completion of this offering. In addition, the rules of the NASDAQ Stock Market require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. 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. Additionally, compensation committee members must not have a relationship with us that is material to the director’s ability to be independent from management in connection with the duties of a compensation committee member.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended (Exchange Act). In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the completion of this offering.

Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that Mr. Parfet, Dr. Cha, Dr. Onetto, Mr. Pelzer, Dr. Thompson, Dr. Topper and Mr. Vitangcol, representing seven of our eight directors, are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the NASDAQ Stock Market.

 

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Committees of the Board of Directors

Our board of directors intends to establish an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below upon the completion of this offering. Members will serve on these committees until their resignation or until otherwise determined by our board of directors.

Our board of directors intends to establish corporate governance guidelines in connection with this offering, which will provide that when the Chairman and Chief Executive Officer positions are held by the same person, a lead independent director shall be designated. Because Dr. Glover is our Chief Executive Officer and Mr. Parfet is our Chairman, we do not have a lead independent director.

Audit Committee

Our audit committee is comprised of Mr. Pelzer, Dr. Thompson and Mr. Vitangcol. Mr. Pelzer is the chairman of our audit committee. The composition of our audit committee meets the requirements for independence under the current NASDAQ Stock Market and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Pelzer is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose on him any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:

 

    our accounting and financial reporting processes, including our financial statement audits and the integrity of our financial statements;

 

    our compliance with legal and regulatory requirements;

 

    the qualifications, independence and performance of our independent auditors; and

 

    the preparation of the audit committee report to be included in our annual proxy statement.

Compensation Committee

Our compensation committee is comprised of Dr. Cha, Mr. Parfet and Mr. Pelzer. Mr. Parfet is the chairman of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NASDAQ Stock Market and SEC rules and regulations. Each member of this committee is also an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1984, as amended (Code) and a non-employee director as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things:

 

    evaluating, recommending, approving and reviewing executive officer and director compensation arrangements, plans, policies and programs;

 

    administering our cash-based and equity-based compensation plans; and

 

    making recommendations to our board of directors regarding any other board of director responsibilities relating to executive compensation.

Nominating and Governance Committee

Our nominating and governance committee is comprised of Dr. Onetto, Mr. Parfet and Dr. Topper. Dr. Topper is the chairman of our nominating and governance committee. Our nominating and governance committee is responsible for, among other things:

 

    identifying, considering and recommending candidates for membership on our board of directors;

 

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    developing and recommending our corporate governance guidelines and policies;

 

    overseeing the process of evaluating the performance of our board of directors; and

 

    advising our board of directors on other corporate governance matters.

Compensation Committee Interlocks and Insider Participation

None of our current executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the fiscal year ended December 31, 2014. Mr. Parfet, a member of our compensation committee, served as our interim Chief Executive Officer from May 2014 to August 2014.

Non-Employee Director Compensation

In the year ended December 31, 2014, we did not pay any fees to, make any equity awards or non-equity awards to, or pay any other compensation to the non-employee members of our board of directors for their services as directors. Additionally, none of our non-employee directors held any outstanding equity awards as of December 31, 2014. Dr. Glover, our President and Chief Executive Officer, received no compensation for his service as a director.

Following the completion of this offering, we intend to adopt a policy for compensating our non-employee directors with a combination of cash and equity.

 

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EXECUTIVE COMPENSATION

The following tables and accompanying narrative disclosure set forth information about the compensation provided to certain of our executive officers during the fiscal year ended December 31, 2014. These executive officers, who include our current principal executive officer, our former principal executive officer and the two most highly-compensated executive officers (other than our principal executive officer) who were serving as executive officers at the end of the fiscal year ended December 31, 2014, were:

 

    Nick Glover, President, Chief Executive Officer and Director;

 

    Mina Sooch, former President and Chief Executive Officer;

 

    Richard Messmann, Chief Medical Officer; and

 

    Wendi Rodrigueza, Chief Scientific Officer.

We refer to these individuals as our “named executive officers.”

2014 Summary Compensation Table

The following table presents summary information regarding the total compensation for services rendered in all capacities that was earned by our named executive officer during the fiscal year ended December 31, 2014.

 

Name and Principal Position

   Salary     Bonus (1)     Option
Awards (2)
     All Other
Compensation
    Total  

Nick Glover (3)

   $ 131,570 (4)     $ 72,361 (4)     $ 723,657       $ 56,789 (5)     $ 984,377   

President and Chief Executive Officer

           

Mina Sooch (6)

     225,641        160,000 (7)       106,822         240,000 (8)       732,463   

Former President and Chief Executive Officer

           

Richard Messmann

     290,000        58,000        45,397         —          393,397   

Chief Medical Officer

           

Wendi Rodrigueza

     231,667        23,170        36,497         —          291,334   

Chief Scientific Officer

           

 

(1) Annual bonuses for our executive officers were awarded at the discretion of our compensation committee. In future periods, we intend to pay annual bonuses based on the level of achievement of strategic or other goals established by our compensation committee.
(2) The amounts reported in this column represent the aggregate grant date fair value of the stock options granted to our named executive officers during the year ended December 31, 2014 as computed in accordance with Accounting Standards Codification Topic 718. The assumptions used in calculating the aggregate grant date fair value of the stock options reported in this column are set forth in Note 11 to our consolidated financial statements included in this prospectus. The amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by our named executive officers from the stock options.
(3) Dr. Glover provided consulting services for us from July through August 2014. He began serving as our President and Chief Executive Officer in September 2014.
(4) The dollar amount reflects the U.S. dollar equivalent of the amount paid to Dr. Glover. The amount was converted to U.S. dollars from Canadian dollars using the average of the daily closing exchange rates for the 12 months ended December 31, 2014 as quoted by the Bank of Canada. Applying this formula to fiscal year ended December 31, 2014, Canadian $1.00 was equal to US$0.9053.
(5) Amount represents $53,666 paid to Dr. Glover for consulting services and $3,123 of reimbursed legal fees in connection with the commencement of his employment.
(6) Ms. Sooch served as our President and Chief Executive Officer until May 2014. From May 2014 until September 2014 she served as our Chief Business Officer and Vice President of Business Development. In September 2014, her employment with us terminated.
(7) Represents a one-time bonus paid to Ms. Sooch in connection with her transition as our President and Chief Executive Officer to our Chief Business Officer and Vice President of Business Development.
(8) Represents a severance payment equal to nine months of Ms. Sooch’s annual salary paid to her in connection with the termination of her employment in September 2014.

 

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Equity Awards

In July 2014, in connection with the commencement of Dr. Glover’s consulting services, our board of directors, in its discretion, granted Dr. Glover (i) an option to purchase 6,475,681 shares of our common stock with an exercise price of $0.13, of which 25% vests on July 14, 2015 and the remaining 75% vests in 36 equal monthly installments thereafter, and which option is immediately exercisable, and (ii) an option to purchase 1,618,920 shares of our common stock with an exercise price of $0.13 per share, which initially vested in 48 equal monthly installments beginning on the completion of an initial public offering, provided that the initial public offering price was at least $1.12, the gross proceeds from the offering were at least $50.0 million and the offering was completed by April 17, 2015, and which option is immediately exercisable. In January 2015, the board of directors amended the vesting terms of this award to extend the date by which the initial public offering must be completed to July 31, 2015.

In January, April and September of 2014, for services performed in 2014, our compensation committee, in its discretion, awarded Dr. Messmann options to purchase 518,381, 64,285 and 150,000 shares of common stock with an exercise price of $0.08, $0.08 and $0.13 per share, respectively, and awarded Dr. Rodrigueza options to purchase 518,381, 64,285 and 50,000 shares of common stock with an exercise price of $0.08, $0.08 and $0.13 per share, respectively. Approximately 3% of each of the January and April 2014 options vested commencing one month from the vesting commencement date, and 25% of each of the September 2014 options vest on the one-year anniversary of the vesting commencement date, with the remaining 75% vesting in 36 equal monthly installments thereafter, and which options are immediate exercisable.

In January and April of 2014, for services performed in 2014, our compensation committee, in its discretion, awarded Ms. Sooch options to purchase 1,727,935 and 214,285 shares of common stock, each with an exercise price of $0.08 per share. Approximately 3% of these options vested commencing one month from the vesting commencement date. Upon Ms. Sooch’s termination of employment in September 2014, each of these options became fully vested and was subsequently exercised.

2014 Outstanding Equity Awards at Fiscal Year-End Table

The following table presents, for each of our named executive officers, information regarding outstanding stock options held as of December 31, 2014. Ms. Sooch did not hold any outstanding stock options as of December 31, 2014.

 

      Option Awards  

Name

   Grant
Date (1)
    Number of
Securities
Underlying
Unexercised
Options
Exercisable
       Number of
Securities
Underlying
Unexercised
Options
Unexercisable
       Option
Exercise
Price
       Option
Expiration
Date
 

Nick Glover

     7/14/2014 (2)       6,475,681           —           $ 0.13           7/14/2024   
     7/14/2014 (3)       1,618,920           —             0.13           7/14/2024   

Richard Messmann

     7/17/2013 (4)       305,556           —             0.05           7/17/2023   
     1/28/2014 (5)       477,415           —             0.08           1/28/2024   
     4/14/2014 (6)       64,285           —             0.08           4/14/2024   
     9/23/2014 (7)       150,000           —             0.13           9/23/2024   

Wendi Rodrigueza

     8/26/2006 (8)       20,000           —             0.45           8/26/2016   
     7/17/2013 (4)       244,890           —             0.05           7/17/2023   
     1/28/2014 (5)       359,988           —             0.08           1/28/2024   
     4/14/2014 (6)(9)       50,000           —             0.08           4/14/2024   
     9/23/2014 (7)       50,000           —             0.13           9/23/2024   

 

(1) All of the outstanding equity awards were granted under our 2008 Stock Plan, except for the August 26, 2006 equity award to Dr. Rodrigueza, which was granted under our 2005 Stock Plan.

 

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(2) Twenty-five percent vests on July 14, 2015 and the remaining 75% vests in 36 equal monthly installments thereafter, which options are immediately exercisable.
(3) Vests in 48 equal monthly installments beginning on the completion of this offering, provided that the initial public offering price is at least $1.12, the gross proceeds from the offering are at least $50.0 million and the offering is completed by July 31, 2015, which options are immediately exercisable.
(4) Vests in 36 equal monthly installments beginning July 31, 2013, which options are immediately exercisable. Certain of the shares underlying the option were previously exercised.
(5) Vests in 36 equal monthly installments beginning January 31, 2014, which options are immediately exercisable. Certain of the shares underlying the option were previously exercised.
(6) Vests in 36 equal monthly installments beginning April 30, 2014, which options are immediately exercisable.
(7) Twenty-five percent vests on September 1, 2015 and the remaining 75% vests in 36 equal monthly installments thereafter, which options are immediately exercisable.
(8) This option was fully vested as of August 26, 2010.
(9) Certain of the shares underlying the option were previously exercised.

Employment Agreements

We intend to enter into new employment agreements with certain senior management personnel in connection with this offering. We expect that each of these agreements will provide for at-will employment and include each named executive officer’s base salary, a discretionary annual incentive bonus opportunity and standard employee benefit plan participation. We also expect these agreements to provide for severance benefits upon termination of employment or a change in control of our company. Each of our named executive officers has also executed our standard form of confidential information and invention assignment agreement.

Employee Benefit and Stock Plans

2008 Stock Plan

We previously adopted the 2008 Stock Plan. The 2008 Stock Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and non-statutory stock options, as well as for the issuance of stock purchase rights. We may grant incentive stock options only to our employees. We may grant non-statutory stock options and stock purchase rights to our employees, directors and consultants. The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The exercise price of non-statutory stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of the grant. The exercise price of non-statutory stock options granted to anyone that is not a 10% stockholder must be at least equal to 85% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under our 2008 Stock Plan is 10 years, except that the maximum permitted term of incentive stock options granted to 10% stockholders is five years. In the event of our merger or consolidation, the 2008 Stock Plan provides that, unless the applicable option agreement or stock purchase right agreement provides otherwise, options and stock purchase rights held by current employees, directors and consultants will vest in full if they are not assumed or substituted and all unexercised options and stock purchase rights shall expire within fifteen (15) days after notice has been provided to such holders that the applicable options and stock purchase rights will vest in full.

As of March 31, 2015, we had reserved 35,775,000 shares of our common stock for issuance under our 2008 Stock Plan, of which 8,923,249 were unissued and remained available for future grant. We will cease issuing awards under our 2008 Stock Plan upon the implementation of our 2015 Equity Incentive Plan. Our 2015 Equity Incentive Plan will be effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options or other awards under the 2008 Stock Plan following that date, and the 2008 Stock Plan will terminate at that time. However, any outstanding options and other awards granted under the 2008 Stock Plan will remain outstanding, subject to the terms of our 2008 Stock Plan, stock option agreements and other award agreements, until such outstanding options and other awards are exercised or until they terminate or expire by their terms. Options granted under the 2008 Stock Plan have terms similar to those described below with respect to options to be granted under our 2015 Equity Incentive Plan.

 

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All shares of our common stock reserved but not issued or subject to outstanding grants under our 2008 Stock Plan on the date of this prospectus will become available for grant and issuance under our 2015 Equity Incentive Plan. In addition, shares issued under the 2008 Stock Plan will become available for grant and issuance under our 2015 Equity Incentive Plan if they are (i) subject to stock options or other awards that cease to be subject to those options or other awards by forfeiture or otherwise, (ii) issued pursuant to the exercise of options or other awards that are forfeited after the date of this prospectus, (iii) repurchased by us at the original issue price or (iv) used to pay the exercise price of an option or other award or withheld to satisfy the tax withholding obligations related to any award.

2015 Equity Incentive Plan

We intend to adopt a 2015 Equity Incentive Plan that will become effective upon the date immediately prior to the date of this prospectus and will serve as the successor to our 2008 Stock Plan. We reserved             shares of our common stock to be issued under our 2015 Equity Incentive Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on January 1 of each of year through             by the number of shares equal to         % of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. In addition, the following shares will again be available for grant and issuance under our 2015 Equity Incentive Plan:

 

    shares subject to options or stock appreciation rights granted under our 2015 Equity Incentive Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option or stock appreciation right;

 

    shares subject to awards granted under our 2015 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original issue price;

 

    shares subject to awards granted under our 2015 Equity Incentive Plan that otherwise terminate without shares being issued;

 

    shares surrendered, cancelled, or exchanged for cash or a different award (or combination thereof);

 

    shares reserved but not issued or subject to outstanding grants under our 2008 Stock Plan on the effective date of our 2015 Equity Incentive Plan;

 

    shares issuable upon the exercise of options or subject to other awards under our 2008 Stock Plan prior to the effective date of our 2015 Equity Incentive Plan that cease to be subject to such options or other awards by forfeiture or otherwise after the effective date of our 2015 Equity Incentive Plan;

 

    shares issued under our 2008 Stock Plan that are forfeited or repurchased by us after the effective date of our 2015 Equity Incentive Plan; and

 

    shares subject to awards under our 2008 Stock Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.

Our 2015 Equity Incentive Plan will authorize the award of stock options, restricted stock awards (RSAs), stock appreciation rights (SARs), restricted stock units (RSUs), performance awards and stock bonuses. No person will be eligible to receive more than             shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than             shares under the plan in the calendar year in which the employee commences employment.

Our 2015 Equity Incentive Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2015 Equity Incentive Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

 

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Our 2015 Equity Incentive Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors, directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant.

We anticipate that in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2015 Equity Incentive Plan is ten years.

An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price (if any) of an RSA will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the participant no longer provides services to us and unvested shares will be forfeited to or repurchased by us.

SARs provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions.

RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the RSU whole shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash.

Performance shares are performance awards that cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement because of termination of employment or failure to achieve the performance conditions.

Stock bonuses may be granted as additional compensation for service or performance, and therefore, not be issued in exchange for cash.

In the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number of shares reserved under our 2015 Equity Incentive Plan, the maximum number of shares that can be granted in a calendar year and the number of shares and exercise price, if applicable, of all outstanding awards under our 2015 Equity Incentive Plan.

Awards granted under our 2015 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee’s guardian or legal representative. Options granted under our 2015 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee’s service to us, for a period of 12 months in the case of death or for a period of six months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of employment for cause.

If we are party to a merger or consolidation, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. In the alternative, outstanding awards may be cancelled in connection with a cash payment. Outstanding awards that are not assumed, substituted or cashed out will accelerate in full and expire upon the merger or consolidation.

 

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Our 2015 Equity Incentive Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate our 2015 Equity Incentive Plan at any time. If our board of directors amends our 2015 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.

2015 Employee Stock Purchase Plan

We intend to adopt a 2015 Employee Stock Purchase Plan in order to enable eligible employees to purchase shares of our common stock at a discount following the date of this offering. Purchases will be accomplished through participation in discrete offering periods. Our 2015 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We initially reserved             shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on January 1 of each of the first          fiscal years following the first offering date by the number of shares equal to the greater of     % of the total outstanding shares of our common stock as of the immediately preceding December 31 (rounded to the nearest whole share) or the actual number of shares purchased under the 2015 Employee Stock Purchase Plan in the immediately preceding fiscal year. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed             shares of our common stock.

Our compensation committee will administer our 2015 Employee Stock Purchase Plan. Our U.S.-based employees generally are eligible to participate in our 2015 Employee Stock Purchase Plan if they are employed by us for at least 20 hours per week and more than five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our 2015 Employee Stock Purchase Plan, are ineligible to participate in our 2015 Employee Stock Purchase Plan. We may impose additional restrictions on eligibility. Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees will be able to select a rate of payroll deduction between     % and     % of their base cash compensation. We will also have the right to amend or terminate our 2015 Employee Stock Purchase Plan at any time. Our 2015 Employee Stock Purchase Plan will terminate on the tenth anniversary of the last day of the first purchase period, unless it is terminated earlier by our board of directors.

When an initial purchase period commences, our employees who meet the eligibility requirements for participation in that purchase period will automatically be granted a nontransferable option to purchase shares in that purchase period. For subsequent purchase periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent purchase periods. Each purchase period will run for no more than six months. An employee’s participation automatically ends upon termination of employment for any reason.

Except for the first purchase period, each purchase period will be for six months (commencing each             and             ). The first purchase period will begin upon the effective date of this offering and will end on     , 2015.

No participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year(s), that has a fair market value of more than $             , determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than             shares during any one purchase period or such lesser amount determined by our compensation committee. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be     % of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period.

 

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If we experience a change in control transaction, each outstanding right to purchase shares under our 2015 Employee Stock Purchase Plan may be assumed or an equivalent option substituted by the successor corporation. In the event that the successor corporation refuses to assume or substitute the outstanding purchase rights, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and our 2015 Employee Stock Purchase Plan will then terminate on the closing of the proposed change in control.

Limitations on Liability and Indemnification Matters

Our restated certificate of incorporation, as we expect it will be in effect upon the completion of his offering, will contain provisions that will limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporation 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 restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of his offering, will require us to indemnify our directors and officers to the maximum extent not prohibited by the Delaware General Corporation Law and allow us to indemnify other employees and agents as set forth in the Delaware General Corporation Law. Subject to certain limitations, our restated bylaws will also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted, subject to very limited exceptions.

We also intend to enter into separate indemnification agreements with our directors and officers. These agreements, among other things, will require us to indemnify our directors and officers for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts actually incurred by such director or officer in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. Subject to certain limitations, our indemnification agreements will also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.

We believe that these charter provisions and indemnification agreements are necessary to attract and retain qualified persons such as directors and officers. We also intend to maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our restated certificate of incorporation 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 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.

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

We describe below transactions and series of similar transactions, since January 1, 2012, to which we were a party or will be a party, in which:

 

    the amounts involved exceeded or will exceed $120,000; and

 

    any of our directors, executive officers or beneficial holders of more than 5% of any class of our capital stock had or will have a direct or indirect material interest.

Other than as described below, there have not been, nor are there any currently proposed, transactions or series of similar transactions to which we have been or will be a party other than compensation arrangements, which are described where required under “Executive Compensation.”

Equity Financings

In December 2013 and January 2014, we issued an aggregate of 18,534,142 shares of our Series C redeemable convertible preferred stock at $0.70 per share for an aggregate financing total of approximately $13.0 million, which includes approximately $8.2 million related to the conversions of subordinated promissory notes (Series C Bridge Notes) described further in “—Debt Financings” and an outstanding promissory note. Each share of our Series C redeemable convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering. In connection with the Series C redeemable convertible preferred stock financing and the Series C Bridge Notes offering, we also issued (i) warrants to purchase 942,857 shares of Series C redeemable convertible preferred stock to Capital Midwest Fund II LP, of which Alvin Vitangcol, a member of our board of directors, is a managing member of its general partner, (ii) warrants to purchase 10,714 shares of Series C redeemable convertible preferred stock to affiliates of Apjohn Ventures and trusts, of which Donald Parfet, a member of our board of directors, is a managing director and trustee, respectively, and (iii) warrants to purchase 60,000 shares of Series C redeemable convertible preferred stock to the William D. Johnson Trust, a holder a more than 5% of our outstanding common stock. All warrants to purchase preferred stock will terminate upon completion of this offering.

In April 2014, we sold an aggregate of 84,999,981 shares of our Series D redeemable convertible preferred stock at a purchase price of $0.70 per share for an aggregate purchase price of approximately $59.5 million. Each share of our Series D redeemable convertible preferred stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.

The following table summarizes the Series C and Series D redeemable convertible preferred stock purchased by members of our board of directors, executive officers and entities who hold more than 5% of our outstanding capital stock.

 

Name of Stockholder

   Shares of
Series C
     Series C Total
Purchase Price
     Shares of
Series D
     Series D Total
Purchase Price
 

Affiliates of Adams Street

     —         $  —           8,214,285       $ 5,750,000   

Affiliates of Apjohn Ventures (1)

     613,030         429,121         85,714         60,000   

Capital Midwest Fund II, LP (2)

     2,857,142         1,999,999         2,142,857         1,500,000   

Frazier Healthcare VI, L.P. (3)

     —           —           13,928,571         9,750,000   

William D. Johnston Trust UA 6/3/88 FBO W. Johnston

     2,478,143         1,734,700         2,857,142         1,999,999   

OrbiMed Private Investments V, LP (4)

     —           —           12,857,142         8,999,999   

Affiliates of Donald R. Parfet (5)

     563,353         394,347         —           —     

Arvinder S. Sooch Trust, Dated 9/20/2006 (6)

     215,381         150,767         142,857         100,000   

Affiliates of Vivo Ventures (7)

     —           —           15,714,286         11,000,000   

 

(1) Donald R. Parfet, the chairman of our board of directors, is a general partner of Apjohn Ventures Fund.
(2) Alvin Vitangcol, a member of our board of directors, is a managing member of Capital Midwest Advisors II, LLC, which is the general partner of Capital Midwest Fund II, LP.

 

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(3) James Topper, a member of our board of directors, is a managing member of the general partner that is the general partner of Frazier Healthcare VI, L.P.
(4) Peter Thompson, a member of our board of directors, is a private equity partner of OrbiMed Private Investments V, LP.
(5) Excludes shares held by Apjohn Group, Apjohn Ventures Annex Fund, LP and Apjohn Ventures Fund LP.
(6) The spouse of Mina Sooch, our former President and Chief Executive Officer and a named executive officer for 2014, is the trustee of the Arvinder S. Sooch Trust, Dated 9/20/2006.
(7) Albert Cha, a member of our board of directors, is a managing member of Vivo Capital, LLC, which is the general partner of the affiliates of Vivo Ventures.

Debt Financings

Between March 2012 and September 2013, we sold an aggregate of $5.0 million in Series C Bridge Notes. In December 2013, the outstanding principal, accrued interest and beneficial conversion feature obligations outstanding on the Series C Bridge Notes were converted into Series C redeemable convertible preferred stock. In addition, certain noteholders received warrants to purchase up to an aggregate of 335,350 shares of Series C redeemable convertible preferred stock at an exercise price of $0.70 per share. These warrants will expire upon completion of this offering. As of March 31, 2015, there were no outstanding Series C Bridge Notes.

The following table summarizes the principal amount of the Series C Bridge Notes purchased by members of our board of directors, executive officers and entities who hold more than 5% of our outstanding capital stock. A portion of the Series C redeemable convertible preferred stock and warrants to purchase Series C redeemable convertible preferred stock described above under “—Equity Financings” were issued upon conversion of principal and accrued interest under these Series C Bridge Notes.

 

Name of Noteholder

   Series C Bridge Note  

Affiliates of Apjohn Ventures (1)

   $ 202,911   

William D. Johnston Trust UA 6/3/88

FBO W. Johnston

     767,716   

Affiliates of Donald R. Parfet

     243,124   

Arvinder S. Sooch Trust, Dated 9/20/2006 (2)

     49,007   

 

(1) Donald R. Parfet, the chairman of our board of directors, is a general partner of Apjohn Ventures Fund.
(2) The spouse of Mina Sooch, our former President and Chief Executive Officer and a named executive officer for 2014, is the trustee of the Arvinder S. Sooch Trust, Dated 9/20/2006.

Amended and Restated Investors’ Rights Agreement

We have entered into an amended and restated investors’ rights agreement with certain holders of our convertible and redeemable convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following our initial public offering under the Securities Act. For a description of these registration rights, see “Description of Capital Stock—Registration Rights.”

Indemnification Agreements

We intend to enter into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by Delaware law. Subject to certain very limited exceptions, our restated bylaws will also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see “Executive Compensation—Limitations on Liability and Indemnification Matters.”

 

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Policies and Procedures for Related-Party Transactions

In connection with this offering, we intend to adopt a written related-person transactions policy that provides that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of our common stock, and any members of the immediate family of the foregoing persons, are not permitted to enter into a material related-person transaction with us without the review and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. The policy provides that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our common stock or with any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 will be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of May 31, 2015, and as adjusted to reflect the sale of common stock in this offering, for:

 

    each of our directors;

 

    each of our named executive officers;

 

    all of our current directors and executive officers as a group; and

 

    each person, or group of affiliated persons, who beneficially owned more than 5% of our common stock.

We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.

Beneficial ownership prior to this offering is based on 142,342,355 shares of common stock outstanding as of May 31, 2015, assuming the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of our common stock. Beneficial ownership after this offering is based on             shares of common stock outstanding, assuming (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into common stock as described above, (ii) the issuance of             shares of common stock in this offering, (iii) the issuance of              shares of common stock in payment of $             million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders (assuming this offering is completed on                     , 2015); and (iv) the issuance of             shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently exercisable or that will become exercisable within 60 days of May 31, 2015. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o ProNAi Therapeutics, Inc., 2150 –885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3E8.

 

Name of Beneficial Owner

   Beneficial Ownership
Prior to this Offering
    Beneficial Ownership
After this Offering
   Number      Percent     Number    Percent

5% Stockholders :

          

Affiliates of Vivo Ventures (1)

     15,714,286         11.0     

Frazier Healthcare Vi. L.p. (2)

     13,928,571         9.8        

Orbimed Private Investments V, Lp (3)

     12,857,142         9.0        

Affiliates of Adams Street Partners (4)

     8,214,285         5.8        

William D. Johnston Trust Ua 6/3/88 Fbo W. Johnston (5)

     7,127,440         5.0        

Directors And Named Executive Officers:

          

Nick Glover (6)

     8,094,601         5.4        

Mina Sooch (7)

     12,761,767         8.8        

Richard Messmann (8)

     1,295,666         *        

Wendi Rodrigueza (9)

     1,804,323         1.3        

Donald Parfet (10)

     12,353,627         8.5        

Albert Cha (1)

     15,714,286         11.0        
Nicole Onetto      —                  
Robert Pelzer      —                  

Peter Thompson

     —                  

James Topper (2)

     13,928,571         9.8        

Alvin Vitangcol (11)

     5,942,856         4.2        

All executive officers and directors as a group (15 persons) (12)

     62,183,930         39.3        

(footnotes appear on following page)

 

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* Represents beneficial ownership of less than one percent.
(1) Represents (i) 15,379,101 shares of common stock held by Vivo Ventures Fund VII, L.P. (VVF) and (ii) 335,185 shares of common stock held by Vivo Ventures VII Affiliates Fund, L.P. (VVFA). The number of shares beneficially owned after this offering assumes the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). Albert Cha, a member of our board of directors, Frank Kung and Edgar Engleman are the managing partners of Vivo Ventures VII, LLC, which is the general partner of each of VVF and VVFA. Dr. Cha may be deemed to share voting and dispositive power over the shares held by each of VVF and VVFA. The address of Vivo Capital is 575 High Street, Suite 201, Palo Alto, California 94301.
(2) Represents shares of common stock held by Frazier Healthcare VI, L.P. (FHVI). The number of shares beneficially owned after this offering assumes the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). James Topper, a member of our board of directors, Alan Frazier, Nader Naini, Nathan Every and Patrick Heron are the managing members of FHM VI, LLC, which is the general partner of FHM VI, LP, which is the general partner of FHVI. Dr. Topper may be deemed to share voting and dispositive power over the shares held by FHVI. The address of Frazier Healthcare VI, L.P. is 601 Union, Two Union Square, Suite 3200, Seattle, Washington 98101.
(3) Represents shares of common stock held by OrbiMed Private Investments V, LP (OPI V). The number of shares beneficially owned after this offering assumes the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). Samuel D. Isaly is the managing member of OrbiMed Advisors LLC, which is the sole managing member of OrbiMed Capital GP V LLC, which is the sole general partner of OPI V. The address of OPI V is 601 Lexington Avenue, 54th floor, New York, New York 10022.
(4) Represents (i) 2,095,401 shares of common stock held by Adams Street 2010 Direct Fund, L.P. (AS 2010), (ii) 1,683,441 shares of common stock held by Adams Street 2011 Direct Fund, LP (AS 2011), (iii) 1,733,124 shares of common stock held by Adams Street 2012 Direct Fund, LP (AS 2012), (iv) 1,311,017 shares of common stock held by Adams Street 2013 Direct Fund, LP (AS 2013) and (v) 1,391,302 shares of common stock held by Adams Street 2014 Direct Fund, LP (AS 2014). The number of shares beneficially owned after this offering assumes the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). The shares owned by AS 2010, AS 2011, AS 2012, AS 2013 and AS 2014 may be deemed to be beneficially owned by Adams Street Partners LLC, the managing member of the general partner of AS 2010 and the managing member of the general partner of the general partner of AS 2011, AS 2012, AS 2013 and AS 2014. David Brett, Jeffrey T. Diehl, Elisha P. Gould III, Robin P. Murray, Sachin Tulyani, Craig D. Waslin and David S. Welsh each of whom is a partner of Adams Street Partners, LLC (or a subsidiary thereof) may be deemed to have shared voting and investment power over the shares owned by AS 2010, AS 2011, AS 2012, AS 2013 and AS 2014. The address of Adams Street Partners, LLC is One North Wacker Drive, Suite 2200, Chicago, Illinois 60606. The statements concerning voting and investment power included in this footnote shall not be construed admissions that such persons are beneficial owners of such shares of common stock.
(5) Represents (i) 6,649,894 shares of common stock held by the William D. Johnston Trust UA 8/3/88 (Johnston Trust) and (ii) a warrant to purchase up to 477,546 shares of common stock held by the Johnston Trust, which warrant expires upon the closing of this offering if not earlier exercised. The number of shares beneficially owned after this offering assumes (i) the issuance of              shares upon the net exercise of such warrant, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, and (ii) the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). William D. Johnston is the trustee of the Johnston Trust, and, as such, holds voting and investment control over the shares held by the Johnston Trust. The address of the Johnston Trust is 211 South Rose Street, Kalamazoo, Michigan 49007.
(6) Represents shares of underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015.
(7) Represents (i) 4,880,993 shares of common stock held by Mina Sooch, (ii) 139,860 shares of common stock held by Tara Ventures I, LLC, of which Ms. Sooch is the managing member, (iii) 566,121 shares held by the Arvinder S. Sooch Trust, dated 9/20/06, of which Ms. Sooch’s spouse is the trustee, in addition to a warrant to purchase up to 95,521 shares of common stock held by the trust, which warrant expires upon the closing of this offering if not earlier exercised, and (iv)(a) 1,021,585 shares of common stock held by Apjohn Ventures Annex Fund, LP (AVAF), in addition to a warrant to purchase up to 5,357 shares of common stock held AVAF, which warrant expires upon the closing of this offering if not otherwise exercised, and (b) 3,916,729 shares of common stock held by Apjohn Ventures Fund, LP (AVF and, together with AVAF, the Apjohn Entities), in addition to warrants to purchase up to 2,033,601 shares of common stock held by AVF, which warrants expire upon the closing of this offering if not otherwise exercised, and 102,000 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015. The number of shares beneficially owned after this offering assumes (i) the issuance of an aggregate of             shares upon the net exercise of the warrants described above, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, and (ii) the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). Ms. Sooch and Donald R. Parfet, a member of our board of directors, are the managing members of Apjohn Ventures, LLC, which is the general partner of each of the Apjohn Entities. Ms. Sooch is deemed to share voting and dispositive power over the shares held by the Apjohn Entities.
(8) Represents (i) 298,410 shares of common stock and (b) 997,256 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015.
(9) Represents (i) 1,172,011 shares of common stock and (ii) 617,655 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015.

 

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(10) Represents (i) 520,369 shares of common stock held by Mr. Parfet, (ii) 479,681 shares of common stock held by Palmero Group LLC, in addition to a warrant to purchase up to 4,285 shares of common stock held by the Palmero Group, which warrant expires upon the closing of this offering if not earlier exercised, of which Mr. Parfet is the managing member, (iii) 2,146,230 shares held by the Donald R. Parfet 2006 Trust, dated May 1, 2006, of which Mr. Parfet is the trustee, in addition to a warrant to purchase up to 489,644 shares of common stock held by the trust, which warrant expires upon the closing of this offering if not earlier exercised, (iv) 37,037 shares of common stock held by Mr. Parfet’s spouse, (v) 1,239,449 shares held by the Ann DeWater Parfet 2006 Revocable Trust, Dated May 5, 2006, of which Mr. Parfet’s spouse is the trustee, in addition to warrants to purchase up to 353,260 shares of common stock held by the trust, which warrants expire upon the closing of this offering if not earlier exercised and (vi)(a) 4,400 shares of common stock held by Apjohn Group, LLC, of which Mr. Parfet is the managing member (b) 1,021,585 shares of common stock held by AVAF, in addition to a warrants to purchase up to 5,357 shares of common stock held AVAF, which warrant expires upon the closing of this offering if not otherwise exercised and (c) 3,916,729 shares of common stock held by AVF, in addition to warrants to purchase up to 2,033,601 shares of common stock held by AVF, which warrants expire upon the closing of this offering if not otherwise exercised, and 102,000 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015. The number of shares beneficially owned after this offering assumes (i) the issuance of an aggregate of             shares upon the net exercise of the warrants described above, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, and (ii) the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). Mr. Parfet and Mina Sooch are the managing members of Apjohn Ventures, LLC, which is the general partner of each of the Apjohn Entities. Mr. Parfet may be deemed to share voting and dispositive power over the shares held by the Apjohn Entities and by Apjohn Group LLC.
(11) Represents 4,999,999 shares of common stock held by Capital Midwest Fund II, L.P., in addition to a warrant to purchase up to 942,857 shares of common stock, which warrant expires upon the closing of this offering if not earlier exercised. The number of shares beneficially owned after this offering assumes (i) the issuance of             shares upon the net exercise of such warrant, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, and (ii) the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015). Mr. Vitangcol, a member of our board of directors, is a managing member of Capital Midwest Advisors II, LLC, which is the general partner of Capital Midwest Fund II, L.P. Mr. Vitangcol may be deemed to share voting and dispositive power over such shares.
(12) Represents (i) 46,362,644 shares of common stock, (ii) warrants to purchase up to 3,829,004 shares of common stock, which warrants expire upon the closing of this offering if not earlier exercised, and (iii) 11,992,282 shares underlying options to purchase common stock that are exercisable within 60 days of May 31, 2015. Ms. Klencke joined our board of directors in June 2015 and did not beneficially own any shares of common stock as of May 31, 2015. The number of shares beneficially owned after this offering assumes (i) the issuance of an aggregate of             shares upon the net exercise of the warrants described above, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, and (ii) the issuance of an aggregate of              shares of common stock in payment of cumulative accrued dividends (assuming the offering is completed on                  , 2015).

 

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DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, our authorized capital stock will consist of 500,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part.

All of the outstanding convertible and redeemable convertible preferred stock will automatically convert into 130,298,986 shares of common stock immediately prior to the completion of this offering. Each series of convertible and redeemable convertible preferred stock will convert to common stock at a ratio of 1:1, except for Series A convertible preferred stock, which will convert at a ratio of 1:1.1259, and Series B redeemable convertible preferred stock, which will convert at a ratio of 1:1.1111. Assuming the conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into shares of our common stock, as of March 31, 2015, there were 142,342,355 shares of our common stock issued, held by approximately 173 stockholders of record, and no shares of our convertible and redeemable convertible preferred stock outstanding. Our board of directors will be authorized, without stockholder approval, to issue additional shares of our capital stock.

Common Stock

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See “Dividend Policy.”

Voting Rights

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.

No Preemptive or Similar Rights

Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Preferred Stock

All of our outstanding convertible and redeemable convertible preferred stock will automatically convert into common stock immediately prior to the completion of this offering. As a result, each currently outstanding share

 

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of convertible and redeemable convertible preferred stock will be converted into common stock at a ratio of 1:1, except for Series A convertible preferred stock, which will convert at a ratio of 1:1.1259, and Series B redeemable convertible preferred stock, which will convert at a ratio of 1:1.1111.

Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors may increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors 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. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.

Options

As of March 31, 2015, we had outstanding options to purchase an aggregate of 18,346,606 shares of our common stock, with a weighted-average exercise price of $0.16.

Warrants

As of March 31, 2015, we had warrants outstanding to purchase an aggregate of (i) 77,588 shares of our Series B redeemable convertible preferred stock with an exercise price of $1.00 per share, (ii) 5,559,902 shares of our Series B-1 redeemable convertible preferred stock with an exercise price of $0.35 per share, (iii) 350,505 shares of our Series B-1 redeemable preferred stock with an exercise price of $1.00 per share and (iv) 1,278,207 shares of our Series C redeemable convertible preferred stock with an exercise price of $0.70 per share. Each of these warrants has a net exercise provision under which the holder, in lieu of paying the exercise price in cash, can surrender the warrant and receive a net number of shares of preferred stock based on the fair market value of such stock at the time of exercise, after deducting the aggregate exercise price. All of these warrants will automatically terminate upon the completion of this offering if not earlier exercised.

Registration Rights

Upon the completion of this offering, holders of 137,573,808 shares of our common stock and shares issuable upon exercise of outstanding warrants, based on the number of shares and warrants outstanding as of March 31, 2015, will be entitled to certain registration rights with respect to the sale of such shares under the Securities Act. We refer to these shares as registrable securities. The holders of these registrable securities possess registration rights pursuant to the terms of our investor rights agreement.

Demand Registration Rights

Under our investor rights agreement, upon the written request of the holders of registrable securities that we file a registration statement under the Securities Act with an anticipated aggregate price to the public of at least $5.0 million, we will be obligated to notify all holders of registrable securities of the written request and use commercially reasonable efforts to effect the registration of all registrable securities that holders request to be registered. We are not required to effect a registration statement until 180 days after our initial public offering or April 17, 2017, whichever is earlier. We are required to effect no more than two registration statements that are declared or ordered effective, subject to certain exceptions. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if in the good-faith judgment of our board of directors

 

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such registration would be detrimental to us, and we are not required to effect the filing of a registration statement during the period beginning on the date of the filing of, and ending on a date 180 days following the effective date of, a registration related to an initial public offering initiated by us.

Piggyback Registration Rights

If we register any of our securities for public sale, we are required to afford each holder of registrable securities an opportunity to include in the registration statement all or part of the holder’s registrable securities. Each holder desiring to include all or any part of the registrable securities held by it in any such registration statement is required to notify us within 10 business days of being notified by us in writing of the registration. This right does not apply to registration statements relating to demand registrations, for Form S-3 registrations, employee benefit plans, a corporate reorganization or other transaction under Rule 145 of the Securities Act, or stock issued upon conversion of debt securities. The underwriter of any underwritten offering will have the right to limit, due to marketing factors, the number of shares registered by these holders to 30% of the total shares covered by the registration statement, unless the offering is our initial public offering, in which case, any or all of the registrable securities of the holders may be excluded by the underwriter. In no event will shares of any other selling stockholder be included in such registration that would reduce the number of shares which may be included by these holders without the consent of the holders of at least 66 2/3% of the registrable securities proposed to be sold in the offering.

Form S-3 Registration Rights

The holders of registrable securities can request that we register all or a portion of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and the aggregate price to the public of the shares offered is at least $5.0 million. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if in the good-faith judgment of our board of directors such registration would be detrimental to us or if we notify holders within 30 days of making the Form S-3 registration request that we intend to make a public offering within 90 days.

Registration Expenses

Subject to certain exceptions, we will pay all expenses incurred in connection with each of the registrations described above, including but not limited to all registration and filing fees, printing expense, fees and disbursements for our counsel, reasonable fees and disbursements up to $30,000 for a single special counsel for the holders of registration rights and other expense, except for underwriting discounts and commissions.

Expiration of Registration Rights

The registration rights described above will survive our initial public offering and will terminate after our initial public offering on the earlier of (i) the five-year anniversary of our initial public offering, (ii) liquidation of our company or (iii) as to each holder of registrable securities, at the time all of such holder’s registrable securities may be sold in a single transaction pursuant to Rule 144 under the Securities Act.

Anti-Takeover Provisions

The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They 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 because negotiation of these proposals could result in an improvement of their terms.

 

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Delaware Law

We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:

 

    prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

    the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who are directors and also officers and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

    at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

Restated Certificate of Incorporation and Restated Bylaw Provisions

Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:

 

    Board of Directors Vacancies . Our restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.

 

    Classified Board . Our restated certificate of incorporation and restated bylaws will provide that our board of directors will be classified into three classes of directors, each with staggered three-year terms. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See “Management—Board Composition.”

 

   

Stockholder Action; Special Meetings of Stockholders . Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Further, our restated bylaws

 

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and restated certificate of incorporation will provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

 

    Advance Notice Requirements for Stockholder Proposals and Director Nominations . Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also will specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

    No Cumulative Voting . The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our restated certificate of incorporation will not provide for cumulative voting.

 

    Directors Removed Only for Cause . Our restated certificate of incorporation will provide that stockholders may remove directors only for cause and only by the affirmative vote of the holders of at least two-thirds of our outstanding common stock.

 

    Amendment of Charter Provisions . Any amendment of the above expected provisions in our restated certificate of incorporation would require approval by holders of at least two-thirds of our outstanding common stock.

 

    Issuance of Undesignated Preferred Stock . Our board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means.

 

    Choice of Forum . Our 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 asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our restated bylaws; any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation or our restated bylaws; or any action 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 find these types of provisions to be inapplicable or unenforceable.

Transfer Agent and Registrar

Upon the completion of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219, and its telephone number is (800) 937-5449.

Exchange Listing

We have applied to list our common stock on the NASDAQ Global Market under the symbol “DNAI.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

Upon the completion of this offering, we will have a total of             shares of our common stock outstanding, assuming (i) the automatic conversion of all outstanding shares of our convertible and redeemable convertible preferred stock into an aggregate of 130,298,986 shares of our common stock, (ii) the issuance of             shares of common stock in this offering, (iii) the issuance of              shares of common stock in payment of $             million of cumulative but unpaid accruing dividends to our Series C and Series D redeemable convertible preferred stockholders (assuming this offering is completed on                     , 2015); and (iv) the issuance of             shares, based upon an assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover of this prospectus, upon the expected net exercise of warrants outstanding at March 31, 2015 that would otherwise expire upon the completion of this offering. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, substantially all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our amended and restated investors’ rights agreement described under “Description of Capital Stock—Registration Rights,” subject to the provisions of Rule 144 or Rule 701 and any applicable vesting conditions, based on an assumed offering date of             , shares will be available for sale in the public market as follows:

 

    beginning on the date of this prospectus, all of the shares sold in this offering will be immediately available for sale in the public market; and

 

    beginning 181 days after the date of this prospectus,             additional shares will become eligible for sale in the public market, of which             shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below, and             shares of restricted stock will be subject to certain vesting conditions.

Market Standoff Agreements

All of our directors and officers and substantially all of our security holders are subject to lock-up agreements or market standoff provisions that, subject to specified exceptions, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options to acquire shares of our common stock or any security or instrument related to this common stock, option or warrant, or entering into any swap, hedge or other arrangement that transfers to another any of the economic consequences of ownership of the common stock, for a period of 180 days following the date of this prospectus without the prior written consent of Jefferies LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. See “Underwriting.”

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of

 

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the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144 and the lock-up and market standoff agreements described above. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144, subject to the lock-up and market standoff agreements described above.

In general, under Rule 144, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

 

    1% of the number of shares of our common stock then outstanding, which will equal approximately             shares immediately after this offering; or

 

    the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701 and are subject to the lock-up and market standoff agreements described above.

Stock Options

As soon as practicable after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject. Of the 18,346,606 shares of our common stock that were subject to stock options outstanding as of March 31, 2015, options to purchase 1,575,257 shares of common stock were vested as of March 31, 2015 and will be eligible for sale 181 days following the effective date of the prospectus.

Registration Rights

We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see “Description of Capital Stock—Registration Rights.”

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

This section summarizes the material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of our common stock by “non-U.S. holders” (as defined below) pursuant to this offering. This summary does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. The information provided below is based upon provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions currently in effect. These authorities may change at any time, possibly retroactively, or the Internal Revenue Service (IRS), might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of our common stock could differ from those described below. As a result, we cannot assure you that the tax consequences described in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.

This summary does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent provided below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

 

    banks, insurance companies or other financial institutions;

 

    partnerships or entities or arrangements treated as partnerships or other pass-through entities for U.S. federal tax purposes (or investors in such entities);

 

    corporations that accumulate earnings to avoid U.S. federal income tax;

 

    persons subject to the alternative minimum tax or the Medicare contribution tax on net investment income;

 

    tax-exempt organizations or tax-qualified retirement plans;

 

    real estate investment trusts or regulated investment companies;

 

    controlled foreign corporations or passive foreign investment companies;

 

    persons who acquired our common stock as compensation for services;

 

    dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    persons that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below);

 

    certain former citizens or long-term residents of the United States;

 

    persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;

 

    persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or

 

    persons deemed to sell our common stock under the constructive sale provisions of the Code.

In addition, if a partnership or entity classified as a partnership or other pass-through entity for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. Accordingly, this summary does not address tax considerations applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.

 

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INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE OR LOCAL LAWS, AND TAX TREATIES.

Non-U.S. Holder Defined

For purposes of this summary, a “non-U.S. holder” is any holder of our common stock, other than a partnership, that is not:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state therein or the District of Columbia;

 

    a trust if it (i) is subject to the primary supervision of a U.S. court and one of more U.S. persons have authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person; or

 

    an estate whose income is subject to U.S. income tax regardless of source.

If you are a non-U.S. citizen who is an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.

Dividends

We do not expect to declare or make any distributions on our common stock for the foreseeable future. If we do pay dividends on shares of our common stock, however, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holder’s adjusted tax basis in shares of our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock. See “—Sale of Common Stock.”

Any dividend paid to a non-U.S. holder on our common stock that is not effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States will generally be subject to U.S. withholding tax at a 30% rate. The withholding tax might apply at a reduced rate, however, under the terms of an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. You should consult your tax advisors regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN or Form W-8BEN-E (or any successor of such forms) or appropriate substitute form to us or our paying agent. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS in a timely manner.

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, and if required by an applicable income tax treaty between the United States and the

 

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non-U.S. holder’s country of residence, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are not subject to U.S. withholding tax. To obtain this exemption, a non-U.S. holder must provide us or our paying agent with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to being taxed at graduated tax rates, 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 also 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.

Sale of Common Stock

Subject to the discussions below regarding Backup Withholding and Information Reporting and the Foreign Account Tax Compliance Act, non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange or other disposition of our common stock unless:

 

    the gain (i) is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and (ii) if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States (in which case the special rules described below apply);

 

    the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition of our common stock, and certain other requirements are met (in which case the gain would be subject to a flat 30% tax, or such reduced rate as may be specified by an applicable income tax treaty, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States); or

 

    the rules of the Foreign Investment in Real Property Tax Act (FIRPTA) treat the gain as effectively connected with a U.S. trade or business.

The FIRPTA rules may apply to a sale, exchange or other disposition of our common stock if we are, or were within the shorter of the five-year period preceding the disposition and the non-U.S. holder’s holding period, a “U.S. real property holding corporation,” or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of the value of our business assets. We do not believe that we are a USRPHC and we do not anticipate becoming one in the future. Even if we become a USRPHC, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if beneficially owned by a non-U.S. holder that actually or constructively owned more than 5% of our outstanding common stock at some time within the five-year period preceding the disposition.

If any gain from the sale, exchange or other disposition of our common stock, (i) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (ii) if required by an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence, is attributable to a permanent establishment maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would be subject also to a “branch profits tax.” The branch profits tax rate is 30%, although an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence might provide for a lower rate.

U.S. Federal Estate Tax

The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of residence provides otherwise.

 

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Backup Withholding and Information Reporting

The Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28%. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign, provided they establish such exemption.

Payments to non-U.S. holders of dividends on common stock generally will not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status (and we or our paying agent do not have actual knowledge or reason to know the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied) or otherwise establishes an exemption. The certification procedures to claim treaty benefits described under “Dividends” will generally satisfy the certification requirements necessary to avoid the backup withholding tax. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to these dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides

Under the Treasury regulations, the payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless the beneficial owner certifies, under penalties of perjury, among other things, its status as a non-U.S. holder (and the broker does not have actual knowledge or reason to know the holder is a U.S. person) or otherwise establishes an exemption. The payment of proceeds from the disposition of shares of our common stock by a non-U.S. holder made to or through a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. Information reporting, but not backup withholding, will apply to a payment of proceeds, even if that payment is made outside of the United States, if you sell our common stock through a non-U.S. office of a broker that is:

 

    a U.S. person (including a foreign branch or office of such person);

 

    a “controlled foreign corporation” for U.S. federal income tax purposes;

 

    a foreign person 50% or more of whose gross income from certain periods is effectively connected with a U.S. trade or business; or

 

    a foreign partnership if at any time during its tax year (a) one or more of its partners are U.S. persons who, in the aggregate, hold more than 50% of the income or capital interests of the partnership or (b) the foreign partnership is engaged in a U.S. trade or business;

unless the broker has documentary evidence that the beneficial owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no actual knowledge or reason to know to the contrary).

Backup withholding is not an additional tax. Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS in a timely manner.

 

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Foreign Account Tax Compliance Act

A U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a disposition of our Class A common stock paid to a foreign financial institution (as specifically defined by the applicable rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). This U.S. federal withholding tax of 30% will also apply to dividends and the gross proceeds of a disposition of our common stock paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The 30% federal withholding tax described in this paragraph cannot be reduced under an income tax treaty with the United States or by providing an IRS Form W-8BEN or similar documentation. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from the rules. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Holders should consult with their own tax advisors regarding the possible implications of the withholding described herein.

The withholding provisions described above generally apply to proceeds from a sale or other disposition of common stock if such sale or other disposition occurs on or after January 1, 2017 and to payments of dividends on 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

Subject to the terms and conditions set forth in the underwriting agreement, dated             , 2015, between us and Jefferies LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the representatives of the underwriters named below and the joint book-running managers of this offering, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the respective number of shares of common stock shown opposite its name below:

 

Underwriter

   Number
of Shares

Jefferies LLC

  

Merrill Lynch, Pierce, Fenner & Smith

                      Incorporated

  

Wedbush Securities Inc.

  

SunTrust Robinson Humphrey, Inc.

  
  

 

Total

  

 

The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the underwriters of officers’ certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the shares of common stock if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.

The underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the common stock as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when you sell will be favorable.

The underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as our strategic IPO advisor in connection with this offering.

Commission and Expenses

The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $         per share of common stock. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $         per share of common stock to certain brokers and dealers. After the offering, the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.

 

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The following table shows the public offering price, the estimated underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

 

     Per Share      Total  
     Without
Option to
Purchase
Additional
Shares
     With
Option to
Purchase
Additional
Shares
     Without
Option to
Purchase
Additional
Shares
     With
Option to
Purchase
Additional
Shares
 

Public offering price

   $                $                $                $            

Underwriting discounts and commissions paid by us

           

Proceeds to us, before expenses

           

We estimate expenses in connection with this offering, other than the estimated underwriting discounts and commissions referred to above, will be approximately $            . We have also agreed to reimburse the underwriters for up to $             for their Financial Industry Regulatory Authority, Inc. (FINRA) counsel fee. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.

Determination of Offering Price

Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.

We offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to the offering or that an active trading market for the common stock will develop and continue after the offering.

Listing

We have applied to list our common stock on the NASDAQ Global Market under the symbol “DNAI.”

Option to Purchase Additional Shares

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of                  shares from us at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional shares proportionate to that underwriter’s initial purchase commitment as indicated in the table above. This option may be exercised only if the underwriters sell more shares than the total number set forth on the cover page of this prospectus.

No Sales of Similar Securities

We, our officers, directors and holders of all or substantially all our outstanding capital stock and other securities have agreed, subject to specified exceptions, not to directly or indirectly:

 

    sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Exchange Act,

 

    otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock currently or hereafter owned either of record or beneficially,

 

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    enter into any swap, hedge or similar arrangement or agreement that transfers, in whole or in part, the economic risk of ownership of shares of our common stock, or of options or warrants to shares of our common stock, or securities or rights exchangeable or exercisable for or convertible into shares of our common stock,

 

    make any demand for, or exercise any right with respect to, the registration under the Securities Act of the offer and sale of any shares of our common stock, or of options or warrants to shares of our common stock, or securities or rights exchangeable or exercisable for or convertible into shares of our common stock, or cause to be filed a registration statement, prospectus or prospectus supplement (or an amendment or supplement thereto) with respect to any such registration, or

 

    publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of Jefferies LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

This restriction terminates after the close of trading of the common stock on and including the 180th day after the date of this prospectus.

Jefferies LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated may, in their sole discretion and at any time or from time to time before the termination of the 180-day period, release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and any of our shareholders who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration of the lock-up period.

Stabilization

The underwriters have advised us that they, pursuant to Regulation M under the Exchange Act, certain persons participating in the offering may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either “covered” short sales or “naked” short sales.

“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of our common stock in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of shares to close out the covered short position, the underwriters 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 the option to purchase additional shares.

“Naked” short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering.

A stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales 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 our common stock. As a result, the price of our

 

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common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.

Neither we nor any of the underwriters 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. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.

The underwriters may also engage in passive market making transactions in our common stock on the NASDAQ Global Market in accordance with Rule 103 of Regulation M during a period before the commencement of offers or sales of shares of our common stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.

Electronic Distribution

A prospectus in electronic format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ web sites and any information contained in any other web site maintained by any of the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.

Other Activities and Relationships

The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

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Selling Restrictions

Australia

This prospectus is not a disclosure document for the purposes of Australia’s Corporations Act 2001 (Cth) of Australia (Corporations Act), has not been lodged with the Australian Securities & Investments Commission and is only directed to the categories of exempt persons set out below. Accordingly, if you receive this prospectus in Australia:

You confirm and warrant that you are either:

 

    a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;

 

    a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to the company 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; or

 

    a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act.

To the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor or professional investor under the Corporations Act any offer made to you under this prospectus is void and incapable of acceptance.

You warrant and agree that you will not offer any of the shares issued to you pursuant to this prospectus for resale in Australia within 12 months of those shares being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.

European Economic Area

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive, each referred to herein as a Relevant Member State, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, referred to herein as the Relevant Implementation Date, no offer of any securities which are the subject of the offering contemplated by this prospectus has been or will be made to the public in that Relevant Member State other than any offer where a prospectus has been or will be published in relation to such 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 relevant competent authority in that Relevant Member State in accordance with the Prospectus Directive, except that with effect from and including the Relevant Implementation Date, an offer of such securities may be made to the public in that Relevant Member State:

 

    to any legal entity which 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, 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 representatives of the underwriters for any such offer; or

 

    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of securities shall require us or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any securities 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 securities to be offered so as to enable an investor to decide to purchase or subscribe

 

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the securities, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and 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 the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Hong Kong

No securities have been offered or sold, and no securities may be offered or sold, in Hong Kong, by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent; or to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32) of Hong Kong. No document, invitation or advertisement relating to the securities has been issued or 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 of Hong Kong (except if permitted under the securities 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” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.

This prospectus has not been registered with the Registrar of Companies in Hong Kong. Accordingly, this prospectus may not be issued, circulated or distributed in Hong Kong, and the securities may not be offered for subscription to members of the public in Hong Kong. Each person acquiring the securities will be required, and is deemed by the acquisition of the securities, to confirm that he is aware of the restriction on offers of the securities described in this prospectus and the relevant offering documents and that he is not acquiring, and has not been offered any securities in circumstances that contravene any such restrictions.

Japan

The offering has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948 of Japan, as amended) (FIEL), and the underwriters will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means, unless otherwise provided herein, any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and any other applicable laws, regulations and ministerial guidelines of Japan.

Singapore

This prospectus has not been and will not be lodged or registered with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or the invitation for subscription or purchase of the securities may not be issued, 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 the public or any member of the public in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (SFA), (ii) to a relevant person as defined under Section 275(2), or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of any other applicable provision of the SFA.

 

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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 under 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 is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Offer Shares under Section 275 of the SFA except:

 

    to an institutional investor 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 $0.2 million (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;

 

    where no consideration is given for the transfer; or

 

    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 (SIX), or on any other stock exchange or regulated trading facility in Switzerland. This prospectus 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 prospectus 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 prospectus 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 prospectus will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of securities.

United Kingdom

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, referred to herein as the Order, and/or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully be communicated. Each such person is referred to herein as a Relevant Person.

This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a Relevant Person should not act or rely on this document or any of its contents.

 

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United Arab Emirates

The offering contemplated hereunder has not been approved or licensed by the Central Bank of the United Arab Emirates, or UAE, the Securities and Commodities Authority of the UAE and/or any other relevant licensing authority in the UAE including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority, or DFSA, a regulatory authority of the Dubai International Financial Centre, or DIFC. This offering does not constitute a public offer of shares in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended), or the DFSA Markets Rules, accordingly, or otherwise. The shares of common stock may not be offered to the public in the UAE and/or any of the free zones.

The shares of common stock may be offered and issued only to a limited number of investors in the UAE or any of its free zones who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned. We represent and warrant that the shares will not be offered, sold, transferred or delivered to the public in the UAE or any of its free zones.

Dubai   International Financial Centre.  This document relates to an Exempt Offer in accordance with the Markets Rules of the Dubai Financial Services Authority. This document is intended for distribution only to Persons of a type specified in those rules to whom Exempt Offers can be made. It must not be delivered to, or relied on by, any other Person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The shares of common stock to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares of common stock offered should conduct their own due diligence on the shares. If you do not understand the contents of this document you should consult an authorized financial adviser.

 

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LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, Seattle, Washington. Certain legal matters relating to the offering will be passed upon for the underwriters by Cooley LLP, San Diego, California.

EXPERTS

The consolidated financial statements included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the consolidated financial statements and includes an explanatory paragraph referring to substantial doubt about the ability to continue as a going concern). Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon completion of this offering, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

PRONAI THERAPEUTICS, INC.

  

Report of Independent Registered Public Accounting Firm

     F-2   

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Comprehensive Loss

     F-5   

Consolidated Statements of Convertible and Redeemable Convertible Preferred Stock and Stockholders’ Deficit

     F-6   

Consolidated Statements of Cash Flows

     F-7   

Notes to Consolidated Financial Statements

     F-9   

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ProNAi Therapeutics, Inc.:

We have audited the accompanying consolidated balance sheets of ProNAi Therapeutics, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, convertible and redeemable convertible preferred stock and 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion . An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements for the year ended December 31, 2014 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s recurring losses raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning 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/ Deloitte & Touche LLP

Detroit, Michigan

April 8, 2015

 

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PRONAI THERAPEUTICS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

    December 31,     March 31,
2015
    Pro Forma
March 31,
2015
 
    2013     2014      
                (unaudited)     (unaudited)  

ASSETS

       

CURRENT ASSETS:

       

Cash and cash equivalents (Note 5)

  $ 2,429      $ 29,154      $ 24,054     

Short-term investments (Note 4)

    —          10,010        10,019     

Prepaid expenses and other current assets (Note 5)

    30        561        358     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

  2,459      39,725      34,431   

Property and equipment, net (Note 5)

  1      214      213   

Other assets (Note 5)

  —        626      1,667   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

$ 2,460    $ 40,565    $ 36,311    $     
 

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:

Accrued liabilities (Note 5)

$ 733    $ 1,473      2,015   

Accounts payable

  165      622      2,330   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

  898      2,095      4,345   

Preferred stock warrant liabilities (Note 10)

  430      1,810      3,136   

Long-term note payable (Note 6)

  412      —        —     

Accrued interest

  21      —        —     

Other liabilities

  —        100      113   
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES

  1,761      4,005      7,594   
 

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and Contingencies (Note 7)

Convertible preferred stock (Note 9) at liquidation preference, $0.001 par value; 5,000,000 shares authorized as of December 31, 2013 and 1,843,894 shares authorized as of December 31, 2014 and March 31, 2015, 1,673,171 shares issued and outstanding as of December 31, 2013 and 2014 and March 31, 2015 (unaudited), actual; aggregate liquidation preference of $2.5 million as of December 31, 2014 and March 31, 2015 (unaudited), actual; no shares authorized, issued and outstanding as of March 31, 2015, pro forma (unaudited)

  2,543      2,543      2,543   

Redeemable convertible preferred stock (Note 9) at redemption value, $0.001 par value; 67,000,000 shares authorized as of December 31, 2013 and 134,069,847 shares authorized as of December 31, 2014 and March 31, 2015, 39,396,563 shares issued and outstanding as of December 31, 2013 and 126,964,351 shares issued and outstanding as of December 31, 2014 and March 31, 2015 (unaudited), actual; aggregate liquidation preference of $103.5 million and $105.5 million as of December 31, 2014 and March 31, 2015 (unaudited), actual; no shares authorized, issued and outstanding as of March 31, 2015, pro forma (unaudited)

  34,005      141,832      152,837   

Stock subscription receivable

  (1,159   —        —     

STOCKHOLDERS’ DEFICIT:

Common stock, $0.001 par value; 97,000,000 shares authorized as of December 31, 2013 and 180,000,000 shares authorized as of December 31, 2014 and March 31, 2015, 6,228,431, 11,836,146 and 12,043,369 shares issued and outstanding as of December 31, 2013 and 2014 and March 31, 2015 (unaudited), actual;                      shares issued and outstanding as of March 31, 2015, pro forma (unaudited)

  6      11      12   

Additional paid-in capital

  —        —        —     

Accumulated other comprehensive loss

  —        (10   —     

Accumulated deficit

  (34,696   (107,816   (126,675
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ DEFICIT

  (34,690   (107,815   (126,663
 

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

$ 2,460    $ 40,565    $ 36,311    $     
 

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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PRONAI THERAPEUTICS, INC.

Consolidated Statements of Operations

(in thousands, except share and per share data)

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  
                 (unaudited)     (unaudited)  

Operating expenses:

        

Research and development

   $ 2,843      $ 19,078      $ 1,827      $ 5,296   

General and administrative

     1,162        3,500        493        1,441   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  4,005      22,578      2,320      6,737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

  (4,005   (22,578   (2,320   (6,737

Other income (expense), net:

Interest expense

  (2,719   —        —        —     

Change in fair value of preferred stock warrants

  (202   (1,380   (149   (1,326

Other income (expense)

  94      87      2      25   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

  (2,827   (1,293   (147   (1,301
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

  (6,832   (23,871   (2,467   (8,038

Provision for income taxes

  —        2      —        10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  (6,832   (23,873   (2,467   (8,048

Adjustment to redemption value on redeemable convertible preferred stock

  (5,713   (49,849   (2,442   (11,005
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

$ (12,545 $ (73,722 $ (4,909 $ (19,053
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (Note 3)

$ (2.57 $ (9.27 $ (0.77 $ (1.72
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted (Note 3)

  4,871,851      7,951,340      6,339,566      11,068,107   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
(Note 3)

$             $            
    

 

 

     

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (Note 3)

    

 

 

     

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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PRONAI THERAPEUTICS, INC.

Consolidated Statements of Comprehensive Loss

(in thousands)

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014             2014                     2015          

Net loss

   $ (6,832   $ (23,873   $ (2,467   $ (8,048

Other comprehensive loss:

        

Unrealized loss on investments

     —          (10     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

$     (6,832 $     (23,883 $ (2,467 $ (8,048
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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PRONAI THERAPEUTICS, INC.

Consolidated Statements of Convertible and Redeemable Convertible Preferred Stock and Stockholders’ Deficit

(in thousands, except share data)

 

    Convertible
Preferred Stock
    Redeemable
Convertible Preferred
Stock
    Subscription
Receivable
    Common Stock     Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Loss
    Accumulated
Deficit
    Total
Stockholders’
Deficit
 
    Shares     Amount     Shares     Amount       Shares     Amount          

Balance — December 31, 2012

    1,673,171      $ 2,543        23,430,228      $ 17,172      $ —          3,176,168      $ 3      $ 462      $         —        $ (22,715   $ (22,250

Issuance of common stock for exercise of stock options

    —          —          —          —          —          680,000        1        25        —          —          26   

Issuance of common stock for milestone payment

    —          —          —          —          —          2,108,870        2        55        —          —          57   

Issuance of non-vested common stock

    —          —          —          —          —          263,393        —          11        —          —          11   

Issuance of Series C redeemable convertible preferred stock in redemption of short-term convertible promissory notes

    —          —          11,139,914        7,798        —          —          —          —          —          —          —     

Issuance of Series C redeemable convertible preferred stock and warrants

    —          —          4,826,421        3,322        —          —          —          —          —          —          —     

Stock subscription receivable

    —          —          —          —          (1,159     —          —          —          —          —          —     

Stock-based compensation

    —          —          —          —          —          —          —          11        —          —          11   

Adjustment to redemption value on redeemable convertible preferred stock

    —          —          —          5,713        —          —          —          (564     —          (5,149     (5,713

Net loss

    —          —          —          —          —          —          —          —          —          (6,832     (6,832
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance — December 31, 2013

    1,673,171        2,543        39,396,563        34,005        (1,159     6,228,431        6        —          —          (34,696     (34,690

Issuance of common stock for exercise of stock options

    —          —          —          —          —          5,607,715        5        300        —          —          305   

Repayment of stock subscription receivable

    —          —          —          —          1,159        —          —          —          —          —          —     

Issuance of Series C redeemable convertible preferred stock on redemption of long-term note payable

    —          —          617,812        433        —          —          —          —          —          —          —     

Issuance of Series C redeemable convertible preferred stock

    —          —          1,949,995        1,365        —          —          —          —          —          —          —     

Issuance of Series D redeemable convertible preferred stock, net of issuance costs of $3.3 million

    —          —          84,999,981        56,180        —          —          —          —          —          —          —     

Stock-based compensation

    —          —          —          —          —          —          —          302        —          —          302   

Adjustment to redemption value on redeemable convertible preferred stock

    —          —          —          49,849        —          —          —          (602     —          (49,247     (49,849

Other comprehensive loss

    —          —          —          —              —          —          —          (10     —          (10

Net loss

    —          —          —          —          —          —          —          —          —          (23,873     (23,873
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance — December 31, 2014

    1,673,171      $ 2,543        126,964,351      $ 141,832      $ —          11,836,146      $ 11      $ —        $ (10   $ (107,816   $ (107,815
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of common stock for exercise of stock options (unaudited)

    —          —          —          —          —          207,223        1        14        —          —          15   

Stock-based compensation (unaudited)

    —          —          —          —          —          —          —          180        —          —          180   

Adjustment to redemption value on redeemable convertible preferred stock (unaudited)

    —          —          —          11,005        —          —          —          (194     —          (10,811     (11,005

Reclassification of other-than-temporary losses on short-term investments to net loss (unaudited)

    —          —          —          —          —          —          —          —          10        —          10   

Net loss (unaudited)

    —          —          —          —          —          —          —          —          —          (8,048     (8,048
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance — March 31, 2015 (unaudited)

    1,673,171      $ 2,543        126,964,351      $ 152,837      $ —          12,043,369      $ 12      $ —        $ —        $ (126,675   $ (126,663
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Consolidated Statements of Cash Flows

(in thousands)

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net loss

   $ (6,832   $ (23,873   $ (2,467   $ (8,048

Adjustments to reconcile net loss to net cash used in operating activities:

        

Noncash interest expense on short-term promissory notes and long-term note payable

     2,760        —          —          —     

Common stock issuance for milestone payment

     57        —          —          —     

Change in fair value of preferred stock warrant liabilities

     202        1,380        149        1,326   

Stock-based compensation

     22        302        22        180   

Depreciation and amortization

     1        12        —          13   

Impairment on short-term investments

     —          —          —          10   

Deferred income taxes

     —          (2     —          (1

Changes in operating assets and liabilities:

        

Prepaid expenses and other current assets

     (10     (531     (45     229   

Accrued liabilities

     356        740        (247     (276

Accounts payable

     (89     186        1,118        1,581   

Accrued interest

     (39     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

  (3,572   (21,786   (1,470   (4,986
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of short-term investments

  —        (10,020   —        (9

Change in restricted cash

  —        (75   —        (50

Purchase of property and equipment

  (2   (187   —        (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (2   (10,282   —        (71
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

  2,219      57,545      1,365      —     

Repayment of stock subscription receivable

  —        1,159      1,159      —     

Proceeds from short-term convertible promissory notes

  2,445      —        —        —     

Proceeds from exercise of common stock options

  25      305      24      15   

Proceeds from early exercise of stock options

  —        100      —        13   

Payment of deferred offering costs

  —        (316   —        (71
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  4,689      58,793      2,548      (43
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

  1,115      26,725      1,078      (5,100

CASH AND CASH EQUIVALENTS — Beginning of period

  1,314      2,429      2,429      29,154   
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS — End of period

$ 2,429    $     29,154    $ 3,507    $ 24,054   
  

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for income taxes

$ —      $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest

$ —      $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  
                 (unaudited)     (unaudited)  

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:

        

Change in redemption value of redeemable convertible preferred stock

   $ (5,713   $ (49,849   $ (2,442   $ 11,005   
  

 

 

   

 

 

   

 

 

   

 

 

 

Conversion of long-term note payable and accrued interest into Series C redeemable convertible preferred stock

$ —      $ 433    $ 433    $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred offering costs included in accounts payable and accrued liabilities

$ —      $ 233    $ —      $ 944   
  

 

 

   

 

 

   

 

 

   

 

 

 

Property and equipment purchases included in accounts payable

$ —      $ 39    $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Conversion of short-term convertible promissory notes and accrued interest into Series C redeemable convertible preferred stock

$ 5,383    $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Subscription receivable from investors on issuance of Series C redeemable convertible preferred stock

$ 1,159    $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of preferred stock warrants with redeemable convertible preferred stock

$ 57    $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Settlement of premium conversion derivative in redeemable convertible preferred stock

$     2,415    $ —      $ —      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

1. The Company and Basis of Presentation

Organization and Description of Business

ProNAi Therapeutics, Inc. (together with its subsidiaries, collectively the “Company”), a Delaware corporation, is a clinical-stage oncology company pioneering a novel class of therapeutics based on its proprietary DNAi technology platform. The core of the Company’s scientific expertise is its understanding of DNAi oligonucleotides, which are rationally designed DNA sequences that modulate the transcription of oncogenes known to be involved in cancer cell survival and proliferation. The Company’s lead DNAi product candidate, PNT2258, targets BCL2, a widely overexpressed oncogene that is an important gatekeeper of the programmed cell death pathway known as apoptosis and has been linked to many forms of cancer.

The Company’s primary activities since inception have been conducting research and development activities, conducting preclinical and clinical testing, recruiting personnel, performing business and financial planning, and raising capital to support development activities.

The Company has not generated any product revenue related to its primary business purpose to date, nor has it generated any income, and is subject to a number of risks and uncertainties, which include dependence on key individuals, the need for development of commercially viable products, the need to obtain regulatory approval for its products and commercialize them and the need to obtain adequate additional financing to fund the development of its product candidates.

Going Concern

As of December 31, 2014 and March 31, 2015, the Company has generated an accumulated deficit of approximately $107.8 million and $126.7 million since inception and expects to incur significant expenses and negative cash flows for the foreseeable future. Based on the Company’s operating plans, existing working capital at December 31, 2014 and March 31, 2015 is not sufficient to sustain operations through December 31, 2015 and March 31, 2016. Management believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund operations, including an initial public offering (IPO); however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional financing, the Company will need to reevaluate future operating plans. Accordingly, there is substantial doubt regarding the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The accompanying consolidated financial statements include the accounts of ProNAi Therapeutics, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

Use of Estimates  

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expense during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to the fair value of common stock, the fair value of preferred stock, the fair value of preferred stock warrant liabilities, the fair value of stock options, recoverability of the Company’s net deferred tax assets, and related valuation allowance and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of March 31, 2015, the interim consolidated statements of operations, comprehensive loss and cash flows for the three months ended March 31, 2014 and 2015 and the interim consolidated statements of convertible and redeemable convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2015 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated balance sheet as of March 31, 2015 and the consolidated statements of operations, comprehensive loss and cash flows for the three months ended March 31, 2014 and 2015 and the consolidated statements of convertible and redeemable convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2015. The consolidated financial data disclosed in these notes to the consolidated financial statements related to the three months ended March 31, 2014 and 2015 are also unaudited. The consolidated results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2015, or for any other future annual or interim period.

Unaudited Pro Forma Consolidated Balance Sheet

The unaudited pro forma consolidated balance sheet as of March 31, 2015 reflects: (i) the automatic conversion of all outstanding shares of the Company’s convertible and redeemable convertible preferred stock into an aggregate of shares of common stock immediately prior to the completion of an IPO; (ii) the accrual for the payment of $             million in cumulative but unpaid accruing dividends to the Company’s Series B and B-1 redeemable convertible preferred stockholders and the related reduction to additional paid-in capital; (iii) the issuance of              shares of common stock in payment of $             million of cumulative but unpaid accruing dividends to the Company’s Series C and D redeemable convertible preferred stockholders based on the amended terms as disclosed in Note 13; (iv) the exercise of outstanding preferred stock warrants to purchase shares of preferred stock that would otherwise expire upon completion of an IPO and the related reclassification of preferred stock warrant liabilities to additional paid-in capital; and (v) a $             million increase in stock-based compensation associated with stock options that vest upon the achievement of a performance condition that will be achieved upon the completion of this offering and service-based criteria, and the related increase to additional paid-in capital and accumulated deficit.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

Foreign Currency

The functional currency of the Company’s foreign subsidiary is the U.S. Dollar. Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the average exchange rate in effect during the period. At the end of each reporting period, monetary assets and liabilities are remeasured to the functional currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are remeasured at historical exchange rates. Gains and losses related to remeasurement are recorded in other income (expense) in the consolidated statements of operations. The net foreign exchange transaction gains (losses) included in other income (expense) in the accompanying consolidated statements of operations were insignificant for the years ended December 31, 2013 and 2014 and for the three months ended March 31, 2014 and 2015.

Cash and Cash Equivalents  

The Company considers all highly liquid investments with an original maturity of three months or less from the date or purchase to be cash equivalents. Cash and cash equivalents, which consist primarily of funds invested in readily available checking and savings accounts and highly liquid investments in money market funds.

Restricted Cash

Restricted cash represents collateral for a corporate credit card facility and a security deposit required for a facility lease. Restricted cash consists of funds invested in a money market fund. As of March 31, 2015, the current portion of restricted cash of $25,000 is included in prepaid expenses and other current assets and the long-term portion of restricted cash of $0.1 million is included in other assets in the accompanying consolidated balance sheets.

Investments  

The Company determines the appropriate designation of its investments as “trading”, “available-for-sale” or “held-to-maturity” based on management’s intent at the time of purchase and reevaluates such designation at each reporting date. As of December 31, 2014 and March 31, 2015, all of the Company’s short-term investments are designated as available-for-sale. Unrealized gains and losses, if any, are reported as a separate component of stockholders’ deficit, except for unrealized losses determined to be other-than-temporary which are recorded in other income (expense) in the accompanying consolidated statements of operations. The Company determines any realized gains or losses on the sale of any investments on a specific identification method and records such gains and losses as a component of other income (expense) in the accompanying consolidated statements of operations.

The Company evaluates its short-term investments periodically for possible other-than-temporary impairment. A decline in fair value below the amortized cost of the investment is considered other-than-temporary impairment if the Company has the intent to sell the investment or it is more likely than not that the Company will be required to sell the investment before recovery of the entire amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized cost basis is recognized in other income (expense). Regardless of the Company’s intent or requirement to sell an investment, impairment is considered other-than-temporary if the Company does not expect to recover the

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

entire amortized cost basis. For the three months ended March 31, 2015, the Company recognized an other-than-temporary impairment loss on its short-term investments of $10,000.

Investments with original maturities beyond three months at the date of purchase and which mature at, or less than twelve months from, the balance sheet date are classified as current. Investments with a maturity beyond twelve months from the consolidated balance sheet date are classified as long-term. As of December 31, 2014 and March 31, 2015, the Company’s short-term investments are classified as current assets.

Concentrations of Credit Risk  

Financial instruments that subject the Company to significant concentrations of credit risk consist of cash, cash equivalents, restricted cash and short-term investments. All of the Company’s cash, cash equivalents, restricted cash and short-term investments are held at financial institutions in the United States and Canada which management believes to be of high credit quality. Deposits held in the United States with these financial institutions exceed federally insured limits. The Company’s cash, cash equivalents, restricted cash and short-term investments held in accounts in the United States exceeded federally insured limits by $39.0 million and $33.8 million at December 31, 2014 and March 31, 2015.

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating.

Fair Value of Financial Instruments  

The Company’s cash and cash equivalents, restricted cash, short-term investments, other current assets, accounts payable, and accrued liabilities approximate their fair value at December 31, 2013 and 2014 and March 31, 2015, due to their short duration. Management believes that the long-term note payable bears interest at the prevailing market rates for instruments with similar characteristics, accordingly, the carrying value of this instrument approximates its fair value. The short-term investment maintains observable inputs, thus the carrying value of this instrument is carried at fair value and unrealized gains and losses, if any, are reported as a separate component of stockholders’ deficit. The Company’s preferred stock warrant liabilities contain unobservable inputs that reflect the Company’s own assumptions in which there is little, if any, market activity at the measurement date, thus the Company’s warrant liabilities are measured at fair value on a recurring basis using unobservable inputs.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Property and Equipment, Net

Property and equipment, net are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Depreciation and amortization begins at the time the asset is placed in

service. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and filing fees relating to an IPO, are capitalized. The deferred offering costs will be offset against offering proceeds upon the completion of the offering. In the event the offering is terminated or delayed, deferred offering costs will be expensed. As of December 31, 2014 and March 31, 2015, $0.5 million and $1.6 million of deferred offering costs have been capitalized, which is included in other long-term assets in the consolidated balance sheets.

Preferred Stock Warrant Liabilities

The Company accounts for its warrants issued in connection with its various financing transactions based upon the characteristics and provisions of the instrument. Warrants classified as derivative liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other income (expense), net in the accompanying consolidated statements of operations. The Company will continue to adjust the liability for changes in the fair value of these warrants until the earlier of the exercise of the warrants, the expiration of the warrants, or until such time as the warrants are no longer to be considered derivative instruments. On the completion of a Qualified IPO (as defined in Note 9), the liability on the preferred stock warrants will be reclassified to additional paid-in capital in stockholders’ deficit. The Company estimates the fair value of these liabilities using an Option Pricing Model (OPM) or a Probability Weighted Expected Return Method (PWERM) and using assumptions that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected term, expected volatility and risk-free interest rate.

Research and Development Costs

Research and development costs are expensed as incurred. The Company accounts for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made. Depending on the timing of payments to service providers of research and development costs, the Company recognizes prepaid expenses or accrued expenses related to these costs. These prepaid or accrued

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

expenses are based on management’s estimates of the work performed under service agreements and milestones achieved. Research and development costs include fees incurred in connection with license agreements, compensation and other related costs for employees engaged in research and development, costs associated with preclinical studies and trials, regulatory activities, manufacturing activities to support clinical activities, license fees, fees paid to external service providers that conduct certain research and development, clinical, and manufacturing activities on behalf of the Company and an allocation of overhead expenses.

Stock-Based Compensation  

The Company accounts for share-based payments at fair value, which is measured using the Black-Scholes option-pricing model. For share-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for employee stock-based compensation awards is the date of grant and the expense is recognized on a straight line basis, over the vesting period.

For share-based awards that vest subject to the satisfaction of a service requirement and a performance component, the fair value measurement date is the date of grant and is recognized over the requisite service period as achievement of the performance objective becomes probable. No expense has been recorded to date relating to this grant as the performance condition hasn’t been achieved.

Stock-based compensation arrangements with nonemployees are recognized at the grant date and remeasured to fair value at each reporting period. The expense is recognized over the vesting period which is generally the service period.

Income Taxes  

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Management makes an assessment of the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets have been fully offset by a valuation allowance.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of provision for income taxes.

Segment Information

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer.

The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of researching, developing, and commercializing therapies for the treatment of patients with cancer. Accordingly, the Company has a single reporting segment.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

3. Net Loss Per Share

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, less common stock issued that is subject to repurchase, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, convertible and redeemable convertible preferred stock and warrants for preferred stock, stock options and common stock subject to repurchase are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The following outstanding shares of common stock equivalents were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:

 

     Year Ended December 31,      Three Months Ended March 31,  
     2013      2014              2014                      2015          

Options to purchase common stock

     4,337,003         15,928,829         7,096,289         18,346,606   

Common stock subject to repurchase

     —           769,230         —           869,230   

Convertible preferred stock

     1,883,852         1,883,848         1,883,852         1,883,848   

Redeemable convertible preferred stock

     40,847,355         128,415,138         43,415,162         128,415,138   

Warrants for preferred stock

     7,467,034         7,274,822         7,467,041         7,274,822   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total potential dilutive shares

  54,535,244      154,271,867      59,862,344      156,789,644   
  

 

 

    

 

 

    

 

 

    

 

 

 

In future periods, if the Company were to generate net income, it would allocate participating securities a proportional share of the net income, determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the two-class method). The Company’s Series B redeemable convertible preferred stock (Series B), Series B-1 redeemable convertible preferred stock (Series B-1), Series C redeemable convertible preferred stock (Series C) and the Series D redeemable convertible preferred stock (Series D) participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income.

To date, the Company has only incurred net losses and has not allocated any loss to participating securities because the preferred stockholders have no contractual obligation to share in the losses of the Company. The Company computes diluted loss per common share after giving consideration to the dilutive effect of stock options, warrants and non-vested stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

Unaudited Pro Forma Basic and Diluted Net Loss Per Share

The denominator of the pro forma basic and diluted net loss per share attributable to common stockholders reflects the (i) automatic conversion of all outstanding shares of convertible and redeemable convertible preferred stock into common stock immediately prior to the closing of an IPO; (ii) the exercise of all outstanding preferred stock warrants into shares of common stock that would otherwise expire upon the

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

closing of an IPO; (iii) the vesting of stock options upon the achievement of a performance condition that will be achieved upon the completion of an IPO and service-based criteria; and (iv) the issuance of additional shares of common stock that the Company would be required to issue at an IPO price of $             per share to settle the cumulative but unpaid accruing dividends to the holders of the Series B, B-1, C and D redeemable convertible preferred stock on the completion of an IPO.

The numerator of the pro forma basic and diluted net loss per share attributable to common stockholders has been adjusted to exclude the effects of the adjustment to redemption value of the redeemable convertible preferred stock and the change in the fair value of the preferred stock warrant liabilities at each reporting date as the conversion of all of the convertible and redeemable convertible preferred stock and the exercise of the warrants is assumed to have occurred as of the beginning of the reporting period or the original issuance date, if later. The payment of the dividend to the redeemable convertible preferred stockholders and stock-based compensation associated with the vesting of the stock options upon the achievement of a performance condition is excluded from the pro forma presentation. The pro forma basic and diluted net loss per share attributable to common stockholders does not include the shares expected to be sold and related proceeds to be received from the IPO.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

The following table sets forth the computation of the Company’s unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the following periods (in thousands, except share and per share data).

 

    Year Ended
December 31,

2014
    Three Months Ended
March 31,

2015
 
    (unaudited)     (unaudited)  

Numerator:

   

Net loss per share attributable to common stockholders

  $                   $                

Add: Change in fair value of preferred stock warrant liability

   

Add: Total adjustment to redemption value on redeemable convertible preferred stock

   
 

 

 

   

 

 

 

Net loss per share attributable to common stockholders used in computing pro forma net loss per share attributable to common stockholders, basic and diluted

$                 $                
 

 

 

   

 

 

 

Denominator:

Weighted-average shares used in computing net loss per share attributable to common stock, basic and diluted

Weighted-average pro forma adjustment to reflect conversion of convertible and redeemable convertible preferred stock into common stock

Weighted-average pro forma adjustment to reflect exercise of preferred stock warrants

Weighted-average pro forma adjustment to reflect the assumed stock settlement of the cumulative but unpaid accruing dividend payment to the holders of the redeemable convertible preferred stock

 

 

 

   

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted

 

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

$                 $                
 

 

 

   

 

 

 

 

4. Fair Value Measurements

The Company measures and reports its cash equivalents, restricted cash, short-term investments and preferred stock warrant liabilities at fair value. The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

 

     December 31, 2013  
     Level 1      Level 2      Level 3      Total  
     (in thousands)  

Financial Assets

           

Money market funds

   $ 2,428       $ —         $ —         $ 2,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities

Preferred stock warrant liabilities

$ —      $ —      $ 430    $ 430   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

     December 31, 2014  
     Level 1      Level 2      Level 3      Total  
     (in thousands)  

Financial Assets

           

Money market funds

   $ 27,847       $ —         $ —         $ 27,847   

Restricted money market funds

     75         —           —           75   

Short-term investments

     —           10,010         —           10,010   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

$ 27,922    $ 10,010    $ —      $ 37,932   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities

Preferred stock warrant liabilities

$ —      $ —      $ 1,810    $ 1,810   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     March 31, 2015  
     Level 1      Level 2      Level 3      Total  
     (unaudited)  
     (in thousands)  

Financial Assets

           

Money market funds

   $ 22,806       $ —         $ —         $ 22,806   

Restricted money market funds

     125         —           —           125   

Short-term investments

     —           10,019         —           10,019   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

$ 22,931    $ 10,019    $ —      $ 32,950   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities

Preferred stock warrant liabilities

$ —      $ —      $ 3,136    $ 3,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as a Level 1 input.

The short-term investments contain observable inputs. Accordingly, the carrying value of this instruments approximates its fair value and is classified as Level 2 inputs.

The Company’s preferred stock warrant liabilities contain unobservable inputs that reflect the Company’s own assumptions in which there is little, if any, market activity for at the measurement date. Accordingly, the Company’s warrant liabilities are measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs. Refer to Note 10 for the valuation technique and assumptions used in estimating the fair value of the warrants.

There were no transfers between Levels 1, 2 or 3 for any of the periods presented. The Company did not realize any gains or losses during the years ended December 31, 2013 and 2014 and the three months ended March 31, 2014 related to its financial assets. For the three months ended March 31, 2015, the Company realized a $10,000 other-than-temporary impairment loss on its short-term investments through other income (expense) in the accompanying consolidated statements of operations.

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

The following table provides a roll-forward of the Company’s warrant liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3):

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
           2013                  2014                  2014                  2015        
                   (unaudited)  
     (in thousands)  

Fair value, beginning balance

   $ 171       $ 430       $ 430       $ 1,810   

Fair value of preferred stock warrants issued

     57         —           —           —     

Change in fair value of preferred stock warrants

     202         1,380         149         1,326   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, ending balance

$ 430    $ 1,810    $ 579    $ 3,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

The preferred stock warrant liabilities will increase or decrease each period based on fluctuations of the fair value of the underlying preferred stock. The change in the fair value of preferred stock warrants for each period is recognized as a gain or loss in the consolidated statements of operations. The Company evaluated whether a significant fluctuation in the fair value of the convertible or redeemable convertible preferred stock would have a material impact in the fair value of the preferred stock warrants and has determined that it would not.

 

5. Balance Sheet Components

Cash and Cash Equivalents

Cash and cash equivalents consist of the following:

 

     December 31,      March 31,
2015
 
     2013      2014     
            (unaudited)  
     (in thousands)  

Cash

   $ 1       $ 1,307       $ 1,248   

Cash equivalents:

        

Money market accounts

     2,428         27,847         22,806   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

$   2,429    $ 29,154    $ 24,054   
  

 

 

    

 

 

    

 

 

 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

     December 31,      March 31,
2015
 
     2013      2014     
            (unaudited)  
     (in thousands)  

Prepaid research and development project costs

   $ —         $ 515       $ 223   

Restricted cash

     —           —           25   

Other

     30         46         110   
  

 

 

    

 

 

    

 

 

 

Total prepaid expenses and other current assets

$        30    $      561    $      358   
  

 

 

    

 

 

    

 

 

 

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

Property and Equipment, net

Property and equipment, net consists of the following:

 

     December 31,      March 31,
2015
 
     2013      2014     
            (unaudited)  
     (in thousands)  

Computer equipment

   $ 2       $ 56       $ 81   

Software

     —           9         9   

Lab equipment

     2         163         150   
  

 

 

    

 

 

    

 

 

 

Property and equipment, gross

  4      228      240   

Less: accumulated depreciation

  (3   (14   (27
  

 

 

    

 

 

    

 

 

 

Total property and equipment, net

$          1    $      214    $      213   
  

 

 

    

 

 

    

 

 

 

Depreciation and amortization related to the Company’s property and equipment for the years ended December 31, 2013 and 2014 was $1,000 and $12,000 and for the three months ended March 31, 2014 and 2015 was insignificant and $13,000.

Other Assets

Other assets consist of the following:

 

     December 31,      March 31,
2015
 
     2013      2014     
            (unaudited)  
    

(in thousands)

 

Deferred offering costs

   $ —         $ 549       $ 1,564   

Restricted cash

     —           75         100   

Deferred tax assets

     —           2         3   
  

 

 

    

 

 

    

 

 

 

Total other assets

$      —      $      626    $   1,667   
  

 

 

    

 

 

    

 

 

 

Accrued Liabilities

Accrued liabilities consist of the following:

 

     December 31,      March 31,
2015
 
     2013      2014     
            (unaudited)  
     (in thousands)  

Accrued offering costs

   $ —         $ —         $ 818   

Accrued employee related costs

     474         759         322   

Accrued research and development costs

     199         526         594   

Accrued professional fees

     —           140         259   

Other

     60         48         22   
  

 

 

    

 

 

    

 

 

 

Total accrued liabilities

$      733    $   1,473    $   2,015   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

For the year ended December 31, 2013, accrued employee related costs were primarily made up of accrued bonuses for milestones reached during 2013 in accordance with agreements for two former employees, and accrued bonuses for services provided during 2013, that were paid out during 2014. For the year ended December 31, 2014, accrued employee related costs were primarily made up of accrued estimated bonuses for current employees for services provided during 2014 that will be paid out during 2015 and fees related to the recruitment for certain executive positions. For the three months ended March 31, 2015, accrued employee related costs were primarily made up of accrued estimated bonuses for current employees and fees related to the recruitment for certain executive positions. As of March 31, 2015, the Company incurred legal, accounting and consulting fees related to a contemplated IPO. These costs are recorded as accrued offering costs.

 

6. Debt

Michigan Strategic Fund (MSF) Loan

On December 31, 2007, the Company entered into a promissory note agreement with MSF whereby the Company could borrow up to $0.4 million. Interest on the note accrued at 1% per year on borrowings outstanding under the agreement. Per the terms of the promissory note, no payments were required until December 31, 2012, at which time accrued and unpaid interest would be added to the then outstanding principal. Interest would then accrue on the restated principal amount and was payable over 59 months starting January 1, 2013. The note was secured by all tangible personal property owned by the Company. If the Company ceased to have substantially all of its employees or operations located in Michigan or failed to comply with other terms as defined in the promissory note agreement, MSF could have declared the entire indebtedness, plus a 7% premium of the then-outstanding balance of the note, due and payable immediately.

On December 18, 2012, the Company and the MSF entered into an amendment to the promissory note agreement in which the MSF was granted the right to convert the outstanding indebtedness into equity of the Company upon the occurrence of certain events including a qualified financing. Also, under the terms of the amended promissory note, all accrued but unpaid interest as of January 1, 2013 was added to the then outstanding principal, with the restated principal accruing interest at 5%. Under the terms of the amended promissory note, the Company would be obligated to make payments on the restated principal on January 1, 2015 in monthly equal installments over 48 months if a qualified financing did not occur. The Company accounted for the amendment in 2012 as an extinguishment.

The outstanding principal on the promissory note payable was $0.4 million and accrued interest totaled $21,000 as of December 31, 2013.

On January 10, 2014, the outstanding principal and accrued interest of $0.4 million on the promissory note was extinguished on the Company’s closing of a Series C redeemable convertible preferred stock financing. On closing, the outstanding principal and accrued interest on the promissory note was converted into 617,812 shares of the Company’s Series C redeemable convertible preferred stock at a price per share of $0.70.

Convertible Promissory Note Financing  

On March 1, 2012, the Company entered into a convertible promissory note financing pursuant to which certain investors agreed to loan the Company up to $1.0 million. The convertible promissory notes accrued interest at 8% and would automatically convert into shares of the Company’s next issued series of convertible preferred stock upon the closing of a preferred stock financing of a specified size. Investors also

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

had the option to convert notes outstanding to convertible preferred stock if a change of control or IPO occurred. On October 1, 2012, the Company and the holders of the convertible promissory notes agreed to increase the total loan amount to up to $3.0 million and extend the maturity date of the notes to June 30, 2013. On November 13, 2012, the Company and the holders of the notes agreed to increase the total loan amount to up to $5.0 million, extend the maturity date of the notes to December 31, 2013, and offer to the note holders who matched their total investment through November 1, 2012, and all note holders subsequent to November 1, 2012, a conversion premium of 50%.

The Company issued convertible promissory notes for an aggregate principal amount of $5.0 million on various dates in 2012 and 2013. The investors that held notes dated prior to November 1, 2012, also received warrants to purchase additional shares of redeemable convertible preferred stock which met the requirements for liability classification. The estimated fair value of the warrants at issuance was recorded as a discount on the notes and amortized into interest expense over the expected life of the promissory notes. The holders of certain promissory notes dated prior to November 1, 2012, and all holders of promissory notes dated after November 1, 2012, received the benefit of a premium on conversion into Series C preferred stock at the time of their issuance. The Company determined that the embedded conversion feature met the definition of an embedded derivative at inception. This derivative expired prior to December 31, 2013. The fair value of this derivative at December 31, 2012 was $0.8 million and resulted in a discount on the short-term promissory notes. This discount was amortized to interest expense during the year ended 2013, the estimated term of the notes. During the year ended December 31, 2013, the Company recorded $0.8 million of interest expense related to the discount created by the embedded derivative. The Company recognized an additional $1.6 million of interest expense for the premium conversion feature on newly issued convertible promissory notes during the year ended December 31, 2013.

On December 20, 2013, the convertible promissory notes were extinguished in their entirety on the Company’s closing of a Series C redeemable convertible preferred stock financing. On closing, the Company issued an aggregate 11,139,914 shares of Series C redeemable convertible preferred stock at a per share price of $0.70 on conversion of the convertible promissory notes into shares of Series C redeemable convertible preferred stock. The Company issued Series C redeemable convertible preferred stock worth $7.8 million in settlement of all convertible promissory note obligations of which $5.0 million related to the outstanding principal obligations, $0.4 million in accrued interest and $2.4 million for settlement of the beneficial conversion feature.

As of December 31, 2013, there were no outstanding borrowings on the convertible promissory notes.

 

7. Commitments and Contingencies

License Agreements

In March 2007, the Company entered into an exclusive license agreement with Novosom AG (Novosom) to use certain patented LNP delivery technology for any of its DNAi drug candidates that target a region of the BCL2 gene (the Novosom License Agreement). In July 2010, the Novosom License Agreement was acquired by Marina Biotech, Inc. (Marina), but Novosom retained the right to receive all payments due from the Company under the Novosom License Agreement.

In March 2012, the Company and Marina entered into another exclusive license agreement (the Marina License Agreement) for the use of certain of Marina’s patented delivery technology, including LNP technology, for any of the Company’s current or future DNAi product candidates that target any gene. In

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

exchange for this exclusive right, the Company paid Marina an upfront payment of $0.3 million in 2012 to be applied to the first DNAi product candidate under this agreement. The Company will be required to pay Marina milestone payments of up to an aggregate of $14.5 million for each DNAi product candidate, other than PNT2258, upon successful completion of certain clinical and regulatory milestone events relating to each DNAi product candidate identified in the Marina License Agreement. In addition, for DNAi product candidates other than PNT2258, the Company is required to pay Marina a low single-digit royalty on net sales.

In May 2013, the Company issued Novosom 2,108,870 shares of common stock with a fair market value of $0.1 million in settlement of the first milestone payment. Pursuant to the terms of the Novosom License Agreement, additional shares may have been issued if certain dilution events occurred through December 31, 2014. The Company evaluated the need to accrue an expense related to the future potential issuance of shares at December 31, 2013 and 2014, but determined that each of the terms requiring additional issuances was not likely to occur and thus the expense was not recorded. The dilution provisions expired on December 31, 2014.

In April 2014, the Company entered into a Second License Amendment and Consent to Termination Agreement with Marina pursuant to which the Novosom License Agreement (which had been transferred to Marina by Novosom in July 2010) was terminated and the obligations previously set forth in the Novosom License Agreement were restated in the Marina License Agreement. In connection therewith, in April 2014, the Company also entered into a License Payment Agreement with Novosom under which the Company agreed to pay Novosom $11.0 million in cash upon the closing of a minimum $35.0 million financing. Also, the Company agreed to pay Novosom a $3.0 million milestone payment within 30 days of regulatory authority approval of PNT2258. Upon Novosom’s receipt of the cash payment of $11.0 million, all financial obligations of the Company to Novosom were terminated, other than the aforementioned milestone payment, historic manufacturing costs and a low-single digit royalty payment on net sales of PNT2258.

The Company made the $11.0 million payment to Novosom in April 2014, upon the closing of the Series D redeemable convertible preferred stock financing and a payment of $0.1 million in July 2014 settling the obligation for the historic manufacturing costs. The April 2014 Second License Amendment and Consent to Termination Agreement serves as the second amendment to the Marina License Agreement.

As of December 31, 2013 and 2014 and March 31, 2015, the Company has not accrued the $3.0 million milestone payment to Novosom as regulatory authority approval is not probable of occurring.

As of December 31, 2013 and 2014 and March 31, 2015, the Company has not identified any product candidates that would pertain to the Marina License Agreement. Therefore, there is currently no potential expense or payment due under the Marina License Agreement.

Cumulative Dividends

Holders of the Series B, B-1, C and D redeemable convertible preferred stock are entitled to receive cumulative accruing dividends at a rate of 8.0% per year of the original issuance price of the redeemable convertible preferred stock. The accruing dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The accruing dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by the Board of Directors, (ii) the liquidation of the Company (including a Deemed Liquidation Event) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series B, B-1, C and D redeemable convertible preferred stock. Since the

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

dividends are payable upon a contingent event, the Company has not recorded them as a liability in the accompanying consolidated financial statements for any of the periods presented. At December 31, 2013, cumulative unpaid accruing dividends in arrears total $8.0 million and consist of $6.9 million for the Series B, $1.1 million for the Series B-1 and $27,000 for the Series C redeemable convertible preferred stock. At December 31, 2014, cumulative unpaid accruing dividends in arrears totaled $14.4 million and consisted of $8.4 million for the Series B, $1.5 million for the Series B-1, $1.1 million for the Series C and $3.4 million for the Series D redeemable convertible preferred stock. At March 31, 2015, cumulative unpaid accruing dividends in arrears totaled $16.4 million and consisted of $8.9 million for the Series B, $1.6 million for the Series B-1, $1.3 million for the Series C and $4.6 million for the Series D redeemable convertible preferred stock.

Lease Agreements

The Company leases its Michigan facility under a short-term operating lease with a term of less than a year that provides for a fixed monthly rent for the term of the lease and also provides for certain rent adjustments covering the expenses and taxes of the facility. The total rent expense for the years ended December 31, 2013 and 2014, was $34,000 and $0.1 million.

In February 2015, the Company entered into an operating lease agreement to lease office space in Vancouver, Canada. The operating lease agreement expires on February 27, 2018. Under the terms of the agreement, the Company issued a Canadian Dollar $50,000 letter of credit to the sublessor on closing, which is collateralized by a restricted deposit of $50,000.

As of March 31, 2015, the aggregate future non-cancelable minimum lease payments associated with this operating lease (based on the daily average exchange rate on March 31, 2015 quoted by the Bank of Canada) are as follows:

 

Years Ending December 31:

   Operating Leases  
     (unaudited)  
     (in thousands)  

2015 (remainder)

   $ 157   

2016

     315   

2017

     315   

2018

     53   
  

 

 

 

Total

$ 840   
  

 

 

 

The total rent expense for all operating leases for the years ended December 31, 2013 and 2014 was $34,000 and $0.1 million and for the three months ended March 31, 2014 and 2015 was $8,000 and $35,000.

Contract Research Organization Obligations

In December 2014, as amended in March 2015, the Company entered into an agreement with a contract research organization that is estimated to be effective through 2017. In March 2015, the Company also entered into another agreement with the same contract research organization that is estimated to be effective through 2017.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

As of March 31, 2015, the aggregate future minimum payments associated with the contract research organization are as follows:

 

Years Ending December 31:

   Contract Research
Organization
Obligations
 
     (unaudited)  
     (in thousands)  

2015 (remainder)

   $ 2,255   

2016

     5,167   

2017

     4,747   
  

 

 

 

Total

$ 12,169   
  

 

 

 

For the three months ended March 31, 2015, total payments made to the contract research organization related to these obligations were $1.0 million.

Legal

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

 

8. Common Stock Reserved for Issuance

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to effect the conversion of all outstanding shares of preferred stock (and preferred stock warrants), plus options granted and available for grant under the incentive plans.

 

    December 31,     March 31,  
    2013     2014     2015  

Conversion of outstanding Series A convertible preferred stock

    1,883,852        1,883,848        1,883,848   

Conversion of outstanding Series B redeemable convertible preferred stock

    14,508,084        14,508,079        14,508,079   

Conversion of outstanding Series B-1 redeemable convertible preferred stock

    10,372,936        10,372,936        10,372,936   

Conversion of outstanding Series C redeemable convertible preferred stock

    15,966,335        18,534,142        18,534,142   

Conversion of outstanding Series D redeemable convertible preferred stock

    —          84,999,981        84,999,981   

Outstanding preferred stock warrants

    7,467,034        7,274,822        7,274,822   

Outstanding and issued stock options

    4,337,003        15,928,829        18,346,606   

Shares reserved for future option grants

    4,751,390        11,548,249        8,923,249   
 

 

 

   

 

 

   

 

 

 

Total common stock reserved for issuance

  59,286,634      165,050,886      164,843,663   
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

9. Convertible and Redeemable Convertible Preferred Stock

On December 20, 2013, the Company issued 15,966,335 shares of Series C redeemable convertible preferred stock at a per share price of $0.70. Of the total shares, 11,139,914 shares of Series C redeemable convertible preferred stock were issued on the conversion of the convertible promissory note (see Note 6) with principal, accrued interest and a beneficial conversion feature totaling $7.8 million and 4,826,421 shares of Series C redeemable convertible preferred stock were issued for cash proceeds of $3.3 million.

As of December 31, 2013, the Company had stock subscriptions receivable from certain investors for $1.2 million relating to the Series C redeemable convertible preferred stock issuance. These amounts were collected in January 2014.

On January 10, 2014, the Company issued 2,567,807 shares of Series C redeemable convertible preferred stock at a price per share $0.70. Of the total shares, 1,949,995 were issued for cash proceeds of $1.4 million and 617,812 were issued on the conversion of a note payable to MSF (see Note 6) with principal and accrued interest totaling $0.4 million.

On April 17, 2014, the Company issued 84,999,981 shares of Series D redeemable convertible preferred stock at a price of $0.70 per share for cash proceeds of $56.2 million, net of issuance costs of $3.3 million.

The convertible and redeemable convertible preferred stock as of December 31, 2013 and 2014 and March 31, 2015 consists of the following:

 

    December 31, 2013  
    Shares
Authorized
    Shares Issued
and
Outstanding
    Net Carrying
Value
    Liquidation
Price Per
Share
    Aggregate
Liquidation
Preference
    Redemption
Value
 
    (in thousands, except share and per share data)  

Convertible Preferred Stock:

           

Series A

    5,000,000        1,673,171      $ 2,543      $ 1.520      $ 2,543      $ —     

Redeemable Convertible Preferred Stock:

           

Series B

    20,000,000        13,057,292        13,057        1.525        19,909        13,057   

Series B-1

    20,000,000        10,372,936        4,143        0.454        4,714        4,143   

Series C

    27,000,000        15,966,335        16,805        0.702        11,203        16,805   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total redeemable convertible preferred stock

  67,000,000      39,396,563    $ 34,005    $ 35,826    $ 34,005   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total preferred stock

  72,000,000      41,069,734    $ 36,548    $ 38,369    $ 34,005   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

    December 31, 2014  
    Shares
Authorized
    Shares Issued
and
Outstanding
    Net Carrying
Value
    Liquidation
Price Per
Share
    Aggregate
Liquidation
Preference
    Redemption
Value
 
    (in thousands, except share and per share data)  
Convertible Preferred Stock:                                    

Series A

    1,843,894        1,673,171      $ 2,543      $ 1.520      $ 2,543      $ —     
Redeemable Convertible Preferred Stock:                                    

Series B

    13,134,880        13,057,292        19,504        1.647        21,502        19,504   

Series B-1

    16,122,618        10,372,936        6,979        0.490        5,091        6,979   

Series C

    19,812,349        18,534,142        21,052        0.757        14,035        21,052   

Series D

    85,000,000        84,999,981        94,297        0.740        62,865        94,297   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total redeemable convertible preferred stock

  134,069,847      126,964,351    $ 141,832    $ 103,493    $ 141,832   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total preferred stock

  135,913,741      128,637,522    $ 144,375    $ 106,036    $ 141,832   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

    March 31, 2015 (unaudited)  
    Shares
Authorized
    Shares Issued
and
Outstanding
    Net Carrying
Value
    Liquidation
Price Per
Share
    Aggregate
Liquidation
Preference
    Redemption
Value
 
    (in thousands, except share and per share data)  
Convertible Preferred Stock:                                    

Series A

    1,843,894        1,673,171      $ 2,543      $ 1.520      $ 2,543      $ —     
Redeemable Convertible Preferred Stock:                                    

Series B

    13,134,880        13,057,292        24,720        1.679        21,926        24,720   

Series B-1

    16,122,618        10,372,936        10,492        0.501        5,191        10,492   

Series C

    19,812,349        18,534,142        21,468        0.772        14,312        21,468   

Series D

    85,000,000        84,999,981        96,157        0.754        64,105        96,157   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total redeemable convertible preferred stock

  134,069,847      126,964,351    $ 152,837    $ 105,534    $ 152,837   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

Total preferred stock

  135,913,741      128,637,522    $ 155,380    $ 108,077    $ 152,837   
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

On issuance, the Company’s convertible and redeemable convertible preferred stock is recorded at fair value or the amount of allocated proceeds, net of issuance costs.

The Company’s Series A convertible preferred stock (the “convertible preferred stock”) is classified outside of stockholders’ deficit because, in the event of certain “liquidation events” that are not solely within the Company’s control (including merger, acquisition, or sale of all or substantially all of the Company’s assets), the shares would become redeemable at the option of the holders. As of December 31, 2013 and 2014 and March 31, 2015, the carrying value of the convertible preferred stock is the liquidation value.

The Company’s Series B, B-1, C and D redeemable convertible preferred stock (collectively, the “redeemable convertible preferred stock”) is classified outside of stockholders’ deficit because the stocks contain redemption features that commence at any time on or after December 31, 2018 at the election of the Series B, B-1, C and D redeemable convertible preferred stockholders. The Company adjusts the carrying amount of the redeemable convertible preferred stock to equal the redemption value at the end of each reporting period. Due to the absence of retained earnings, adjustments to redemption value are recorded against additional paid-in capital, if any, and then to accumulated deficit. The following table sets forth the

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

total adjustment to redemption value of each series of redeemable convertible preferred stock recognized during the following periods:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
             2013                      2014                      2014                      2015          
                   (unaudited)  
Redeemable Convertible Preferred Stock    (in thousands)  

Series B

   $ —         $ 6,447       $ 885       $ 5,216   

Series B-1

     28         2,836         280         3,513   

Series C

     5,685         2,449         1,277         416   

Series D

     —           38,117         —           1,860   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustment to redemption value on redeemable convertible preferred stock

$ 5,713    $ 49,849    $ 2,442    $ 11,005   
  

 

 

    

 

 

    

 

 

    

 

 

 

As the redemption value for the redeemable convertible preferred stock may at times be based on fair market value at each reporting date, the Company determines the fair value of the redeemable convertible preferred stock using a combination of the OPM and/or the PWERM models with the following assumptions used in the OPM:

 

     Year Ended December 31,    Three Months Ended March 31,
     2013    2014            2014                    2015        
               (unaudited)

Expected term (in years)

   2.5 - 3.1    1.2 - 2.5    2.2    1.1

Expected volatility

   66 - 70%    69 - 86%    78%    81%

Risk-free interest rate

   0.4 - 0.7%    0.3 - 0.6%    0.4%    0.3%

Expected dividend rate

   —%    —%    —%    —%

The holders of the convertible and redeemable convertible preferred stock (collectively, the “Preferred Stock”) have various rights, preferences, and privileges as follows:

Optional Conversion Rights

Each share of Preferred Stock is convertible at the option of the holder at any time into the number of shares of common stock based on the conversion price then in effect. The conversion rate shall be obtained by dividing the Series A, B, B-1, C and D original issuance prices of $1.52, $1.00, $0.35, $0.70 and $0.70 per share by the preferred conversion price for each series in effect. The conversion prices for each series are adjusted on a broad-based weighted-average basis in connection with certain dilutive issuances. However, the articles of incorporation provide that in no event shall the conversion price for the Series A be less than $1.35 per share or the conversion price for the Series B be less than $0.90 per share.

Based on the conversion ratios in effect at December 31, 2014 and March 31, 2015, the Series A convertible preferred stock will convert on a one-for-1.1259 basis into common stock, the Series B redeemable convertible preferred stock will convert on a one-for-1.1111 basis into common stock and each share of Series B-1, C and D redeemable convertible preferred stock will convert on a one-for-one basis into

 

F-28


Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

common stock. The conversion price per share for the Preferred Stock shall be adjusted for certain recapitalizations, splits, combinations, common stock dividends or similar events, as discussed below.

Automatic Conversion Rights

Each share of Preferred Stock shall automatically be converted into shares of common stock based on the then-effective conversion price upon either the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Preferred Stock or upon the closing of a Qualified IPO. A Qualified IPO is defined as the closing of a firm underwritten initial public offering pursuant to an effective registrant statement under the Securities Act of 1933, in which the aggregate cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least $50.0 million and if it covers the offer and sale of the Company’s common stock at a price per share of (i) at least 1.6 times the Series D original issue price ($1.12 per share) if such closing occurs on or before April 17, 2015; and (ii) at least 2.0 times the Series D original issue price ($1.40 per share) if such closing occurs after April 17, 2015. Upon such automatic conversion, any unpaid accruing dividends and any other accrued and unpaid dividends on the Preferred Stock shall also be paid.

Voting Rights

Each share of Preferred Stock has a number of votes equal to the number of shares of common stock into which it is convertible. The holders of the Series B and C redeemable convertible preferred stock each have the right to elect one director to the Board. The holders of the Series D redeemable convertible preferred stock have the right to elect two directors to Board. The holders of the common stock and Preferred Stock, voting together on an as-converted basis, elect the three remaining directors.

A separate vote of a majority of the Series A, B, B-1, C and D preferred stockholders, determined on the basis of the number of shares of common stock into which it is convertible, is required to authorize, effect or validate any action which alters or changes the rights, preferences or privileges or increases the number of authorized shares of each respective series of Preferred Stock.

Dividend Rights

The holders of the outstanding shares of Series B, B-1, C and D redeemable convertible preferred stock are entitled to receive cumulative accruing dividends at a rate of 8.0% per annum of the original issuance price per share, compounded annually (accruing dividends). The accruing dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The accruing dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by the Board, (ii) the liquidation of the Company (including a Deemed Liquidation Event) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series B, B-1, C and D redeemable convertible preferred stock. At December 31, 2013, cumulative unpaid accruing dividends in arrears total $8.0 million and consist of $6.9 million for the Series B, $1.1 million for the Series B-1 and $27,000 for the Series C redeemable convertible preferred stock. At December 31, 2014, cumulative unpaid accruing dividends in arrears totaled $14.4 million and consisted of $8.4 million for the Series B, $1.5 million for the Series B-1, $1.1 million for the Series C and $3.4 million for the Series D redeemable convertible preferred stock. At March 31, 2015, cumulative unpaid accruing dividends in arrears totaled $16.4 million and consisted of $8.9 million for the Series B, $1.6 million for the Series B-1, $1.3 million for the Series C and $4.6 million for the Series D redeemable convertible preferred stock.

 

F-29


Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

In the event a Qualified IPO occurs while the Series B, B-1, C and D redeemable convertible preferred stock are outstanding, the Company shall pay 50% of the then accrued but unpaid accruing dividends in cash and the remaining 50% shall be forfeited. If a Qualified IPO had occurred as of December 31, 2014 and March 31, 2015, the Company would have paid accruing dividends in the aggregate amount of $7.2 million and $8.2 million to the Series B, B-1, C and D redeemable convertible preferred stockholders.

The holders of the Series A convertible preferred stock, in preference to the holders of the common stock, shall be entitled to first receive, or simultaneously receive, when and as declared by the board, but only out of funds that are legally available therefore, a dividend in an amount of at least equal to $0.1064 per share of the Series A convertible preferred stock. Such dividends shall not be cumulative.

After payment of these dividends, any dividends declared by the board out of funds legally available shall be shared equally among all outstanding shares on an as-converted basis. No dividends have been declared to date.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the corporation, the holders of the Series A, Series B, Series B-1, Series C and Series D preferred stock are entitled to liquidation preferences in the amount of $1.52 per share for the Series A, $1.647 per share for the Series B, $0.49 per share for the Series B-1, $0.757 per share for the Series C and $0.740 per share for the Series D at December 31, 2014 and $1.52 per share for the Series A, $1.679 per share for the Series B, $0.501 per share for the Series B-1, $0.772 per share for the Series C and $0.754 per share for the Series D at March 31, 2015 (adjusted to reflect stock splits, stock dividends, and recapitalizations), plus all unpaid accruing dividends, whether or not declared, together with any other dividends declared but unpaid. Following distribution of the liquidation preferences to the preferred stockholders, the remaining assets of the Company available for distribution to shareholders shall be distributed among the holders of the Series B, B-1, C and D redeemable convertible preferred stock and common stock pro rata based on the number of shares of common stock held by each on an as-converted basis.

A Deemed Liquidation Event is defined as any acquisition of the corporation by means of merger or other form of corporate reorganization in which the outstanding shares of the corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary (other than a reincorporation transaction) or a sale of all or substantially all of the assets of the Company shall be treated as a liquidation, dissolution, or winding-up of the corporation and shall entitle the holders of preferred stock and common stock to receive at the closing the amounts specified above in cash, securities or other property.

Redemption Rights

The Series A convertible preferred stock does not contain any fixed or determinable redemption features.

At any time on or after December 31, 2018, upon the election of the holders of the then-outstanding Series B, B-1, C and D redeemable convertible preferred stock, voting as a separate class, the Company may be required to redeem in cash the then-outstanding shares of Series B, B-1, C and D redeemable convertible preferred stock. The Company shall effect any such redemption in three annual installments with the first to occur on the date sixty days after the date on which the Company receives notice of the redemption election. The redemption price for the Series B and B-1 redeemable convertible preferred stock is equal to the greater

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

of (a) 150% of the liquidation preference for such series; provided, however, that any sum in excess of the purchase price shall be paid out of the retained earnings of the Company; or, (b) the fair market value per share as determined by an appraisal plus all declared or accrued but unpaid accruing dividends. At December 31, 2013, due to the absence of retained earnings, the redemption value of the Series B redeemable convertible preferred stock was determined under criterion (a) and was the original issuance price of $1.00 per share. At December 31, 2014 and March 31, 2015, the redemption value of the Series B redeemable convertible preferred stock was determined under criterion (b) and was the fair value market value per share plus all unpaid accruing dividends. At December 31, 2013 and 2014 and March 31, 2015, the redemption price of the Series B-1 redeemable convertible preferred stock was determined under criterion (b) and was the fair market value per share plus all unpaid accruing dividends. The redemption price for the Series C and D redeemable convertible preferred stock is equal to the greater of (a) 150% of the liquidation preference of such series; or, (b) the fair market value per share as determined by an appraisal, plus all declared or accrued but unpaid accruing dividends. At December 31, 2013 and 2014 and March 31, 2015, the redemption value for Series C and D redeemable convertible preferred stock is determined under criterion (a) and is 150% of the liquidation preference for the Series C and D redeemable convertible preferred stock.

In addition, the Company may be required to redeem certain shares of its Series B, B-1, and C redeemable convertible preferred stock held by MSF and the Michigan Economic Development Corporation (MEDC) upon the occurrence of a deemed triggering event. If a triggering event occurs, MSF and MEDC both have the option to elect for the Company to redeem their shares in cash for a period of 60 days after the occurrence of the triggering event for the shares of Series B redeemable convertible preferred stock and a period of 120 days after the triggering event occurs for the shares of Series B-1 and C redeemable convertible preferred stock. The option expires if not exercised within the given timeframe. If a triggering event had occurred and the option to redeem the respective shares of Series B, B-1 and C redeemable convertible preferred stock had been exercised by both MSF and MEDC at December 31, 2014 and March 31, 2015, the cash redemption amount of the respective shares would have amounted to $5.4 million and $7.9 million. On April 1, 2015, the Company notified MSF and MEDC that a triggering event had occurred.

 

10. Preferred Stock Warrants

The Company classifies its preferred stock warrants as liabilities on the accompanying consolidated balance sheets. As of December 31, 2013 and 2014 and March 31, 2015, the preferred stock warrant liabilities were $0.4 million, $1.8 million and $3.1 million.

 

F-31


Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

The key terms of the convertible preferred stock warrants are summarized in the following table:

 

    Warrants Outstanding
    Warrants
Outstanding
December 31,

2013
     Warrants
Outstanding
December 31,
2014
     Warrants
Outstanding
March 31,
2015
     Exercise
Price
     Expiration
                  (unaudited)              

Series A preferred stock warrants

    170,723         —           —         $ 1.52       Various dates in 2014

Series B preferred stock warrants

    77,588         77,588         77,588         1.00       July 31, 2018

Series B-1 preferred stock warrants

    350,505         350,505         350,505         1.00       June 30, 2018

Series B-1 preferred stock warrants

    5,559,902         5,559,902         5,559,902         0.35       Various dates in 2016 – 2021

Series C preferred stock warrants

    1,278,207         1,278,207         1,278,207         0.70       Various dates in 2022 – 2023
 

 

 

    

 

 

    

 

 

       

Total preferred stock warrants

  7,436,925      7,266,202      7,266,202   
 

 

 

    

 

 

    

 

 

       

The warrants are immediately exercisable in whole or in part over the term of the warrants. In the event of a Qualified IPO, all of the Company’s outstanding preferred stock warrants expire unless the warrant holders elect to exercise them immediately prior to the IPO. During the year ended December 31, 2013 and 2014 and the three months ended March 31, 2015, no warrants were exercised.

Determination of Fair Value

At each reporting date, the Company remeasures the preferred stock warrants to fair value using the OPM and/or the PWERM models with the following assumptions used in the OPM:

 

     Year Ended December 31,    Three Months Ended March 31,
     2013    2014            2014                    2015        
               (unaudited)

Expected term (in years)

   2.5 - 3.1    1.2 - 2.5    2.2    1.1

Expected volatility

   66 - 70%    69 - 86%    78%    81%

Risk-free interest rate

   0.4 - 0.7%    0.3 - 0.6%    0.4%    0.3%

Expected dividend rate

   —%    —%    —%    —%

Discount for lack of marketability

   23.7% - 25.8%    19.5% - 24.3%    24.3%    17.0%

The assumptions used in calculating the estimated fair market value at each reporting period represent the Company’s best estimate, however inherent uncertainties are involved. As a result, if factors or assumptions change the warrant liability, the estimated fair value could be materially different.

The Company estimates the volatility of its stock based on comparable peer public companies historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon bond. The expected term applied in the OPM considers both the probabilities of failure and success of the Company. Cumulative

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

dividends associated with preferred stock are calculated as of the accrual start date of each security to the OPM maturity date.

 

11. Stock-Based Compensation

In the accompanying consolidated statement of operations, the Company recognized stock-based compensation expense for its employees and non-employees as follows:

 

     Year Ended
December 31,
     Three Months Ended
March 31,
 
     2013      2014      2014      2015  
                   (unaudited)  
     (in thousands)  

Research and development

   $ 5       $ 65       $ 9       $ 74   

General and administrative

     17         237         13         106   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

$        22    $      302    $        22    $      180   
  

 

 

    

 

 

    

 

 

    

 

 

 

Determination of Fair Value

The estimated grant-date fair value of all the Company’s stock-based awards was calculated using the Black-Scholes option pricing model, based on assumptions as follows:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2013     2014     2014     2015  
                 (unaudited)  

Expected term (in years)

     5.0 - 6.0        5.0 - 6.0        5.0 - 5.7        6.0 - 10.0   

Expected volatility

     79 - 82 %     81 - 83     81     75 - 82

Risk-free interest rate

     0.7 - 1.6     1.5 - 1.8     1.5 - 1.7     1.5 - 1.9

Expected dividend rate

                

The fair value of each stock option grant was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.

Expected Term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards. The expected term for options issued to nonemployees is the contractual term.

Expected Volatility— Since the Company does not have a trading history for its common stock, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.

Risk-Free Interest Rate— The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

Expected Dividend Rate— The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.

Forfeiture Rate— The forfeiture rate is estimated based on an analysis of actual forfeitures. Management will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from management’s estimates, the Company might be required to record adjustments to stock-based compensation in future periods.

Fair Value of Common Stock— Because there is no public market for the Company’s common stock as the Company is a private company, the Company’s board of directors has determined the fair value of the common stock by considering a number of objective and subjective factors, including having contemporaneous and retrospective valuations of its common stock performed by an unrelated valuation specialist, valuations of comparable peer public companies, sales of the Company’s redeemable convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. The fair value of the Company’s common stock will be determined by the Company’s board of directors until such time as the Company’s common stock is listed on an established stock exchange.

Equity Incentive Plans

2008 Plan

On June 24, 2008, the Company’s board of directors approved the 2008 Stock Plan (the “2008 Plan”) for issuance of up to 2,300,000 shares of common stock to be administered by the board of directors or a committee appointed by them. Amendments to the plan were approved by the board of directors to increase the authorized shares to 11,775,000 shares as of December 31, 2013 and 35,775,000 shares as of December 31, 2014. The 2008 Plan allows for the granting of Incentive Stock Options (ISO), nonqualified stock options and stock purchase rights. The term of the plan is for the later of 10 years from the effective date of the 2008 Plan or the earlier of the most recent board or stockholder approval of an increase in the number of shares reserved for issuance under the 2008 Plan. The per share exercise price to be established by the board of directors shall be: (i) for ISO’s, granted at no less than 100% of the fair value of the shares on the date of the grant, unless the options are granted to an insider defined as an optionee holding an ISO who at the time the ISO is granted, owns stock representing more than 10% of the voting power of all classes of stock of the company or any parent or subsidiary, in which case the price is no less than 110% of the fair value of the shares on the date of the grant; and (ii) for nonqualified stock options, no less than 85% of the fair value of the shares on the date of grant, unless the options are granted to a service provider who owns greater than ten percent (10%) of the voting power of all classes of stock of the Company, in which case the price is no less than 110% of the fair value of the shares on the date of the grant. The fair value of the shares on the date of the grant is determined by an application of a reasonable valuation method as determined by the board of directors. The vesting provisions of options or restricted awards granted are determined individually with each grant. 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 years from the date the options are granted. Stock options have a 10-year life, a five-year life for insiders and expire if not exercised within that period or if not exercised within 30 days of cessation of employment with the Company or such longer period of time as specified in the option agreement.

 

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Table of Contents

PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

2005 Stock Plan

As of December 31, 2014 and March 31, 2015, there were 27,000 and 7,000 awards issued and outstanding under the Company’s 2005 Plan (the “2005 Plan”). The terms of the 2005 Plan are similar to those of the 2008 Plan. On August 20, 2008, the board of directors canceled all shares available under the 2005 Plan with the intention to not issue any more shares under the plan.

A summary of activity under the 2005 Plan and 2008 Plan and related information is as follows:

 

          Options Outstanding     Non-Vested Stock  
    Shares
Available
for Grant
    Number
of Shares
Outstanding
    Weighted-
Average
Exercise
Price Per
Share
    Weighted-
Average
Remaining
Contractual
Term
(Years)
    Aggregate
Intrinsic
Value of
Outstanding
Options

(in
thousands)
    Number of
Shares
Outstanding
    Weighted-
Average
Grant
Date Fair
Value Per
Share
 

Outstanding — December 31, 2012

    4,135,784        2,021,002      $ 0.04        7.66      $ —          3,000      $ 0.04   

Awards authorized

    3,875,000               

Options granted

    (3,008,001     3,008,001        0.05           

Non-vested stock granted

    (263,393     —                263,393        0.04   

Options exercised

    —          (680,000     0.04           

Non-vested stock vested

    —          —                (266,393     0.04   

Options cancelled

    12,000        (12,000     0.04           
 

 

 

   

 

 

         

 

 

   

 

 

 

Outstanding — December 31, 2013

  4,751,390      4,337,003      0.05      8.63      48      —        —     

Awards authorized

  24,000,000   

Options granted

  (17,207,141   17,207,141      0.12   

Options exercised

  —        (5,607,715   0.07   

Options cancelled

  4,000      (7,600   0.28   
 

 

 

   

 

 

         

 

 

   

Outstanding — December 31, 2014

  11,548,249      15,928,829    $ 0.12      9.29    $ 3,153      —        —     
 

 

 

   

 

 

         

 

 

   

Awards authorized (unaudited)

  —     

Options granted (unaudited)

  (2,625,000   2,625,000      0.41   

Options exercised (unaudited)

  —        (207,223   0.13   

Options cancelled (unaudited)

  —        —     
 

 

 

   

 

 

         

 

 

   

Outstanding — March 31, 2015 (unaudited)

  8,923,249      18,346,606    $ 0.16      9.18    $ 8,566      —        —     

Exercisable— December 31, 2014

  15,888,829    $ 0.12      9.29    $ 3,143   
   

 

 

           

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

         Options Outstanding     Non-Vested Stock
    Shares
Available
for Grant
   Number
of Shares
Outstanding
    Weighted-
Average
Exercise
Price Per
Share
    Weighted-
Average
Remaining
Contractual
Term
(Years)
    Aggregate
Intrinsic
Value of
Outstanding
Options

(in
thousands)
    Number of
Shares
Outstanding
  Weighted-
Average
Grant
Date Fair
Value Per
Share

Vested and expected to vest — December 31, 2014

       14,600,834      $ 0.12        9.28      $ 2,897       
    

 

 

           

Exercisable— March 31, 2015 (unaudited)

  15,703,272    $ 0.12      9.05    $ 7,973   
    

 

 

           

Vested and expected to vest — March 31, 2015 (unaudited)

  17,060,190    $ 0.16      9.18    $ 7,943   
    

 

 

           

The weighted-average grant date fair values of options granted during the years ended December 31, 2013 and 2014, was $0.02 and $0.09, per share and for the three months ended March 31, 2014 and 2015, was $0.05 and $0.48 per share. The aggregate intrinsic value of options exercised was $0 and $1.4 million for the years ended December 31, 2013 and 2014 and $17,000 and $0.1 million for the three months ended March 31, 2014 and 2015. The total grant date fair value of options vested for the years ended December 31, 2013 and 2014 was $18,000 and $0.2 million and for the three months ended March 31, 2014 and 2015 was $22,000 and $18,000.

The aggregate intrinsic value totaled $0 for options outstanding at January 1, 2013 because the exercise price of the options was greater than the fair market value of the options for this date.

As of March 31, 2015, total unrecognized stock-based compensation related to unvested stock options was $3.2 million, net of estimated forfeitures. These costs are expected to be recognized over a remaining weighted-average period of 1.70 years as of March 31, 2015. Certain stock options are subject to occurrence of a performance condition.

Performance-Based Stock Option Grant

During the year ended December 31, 2014, the Company granted options to purchase 1,618,920 shares of common stock to an executive officer which contains both performance-based and service-based vesting criteria. Stock-based compensation associated with these performance-based stock options is recognized if the performance condition is achieved. Management has concluded that the performance-based milestone was not probable of achievement as of December 31, 2014. As such, no stock-based compensation has been recorded during the year ended December 31, 2014 related to these options. If the performance condition had been achieved at December 31, 2014, the Company would have recorded $17,000 in additional stock-based compensation related to these stock options.

On January 24, 2015, the Company amended the terms of the performance-based stock options to extend the date of the performance-based milestone. As of March 31, 2015, management had concluded that the performance-based milestone was not probable of achievement. As such, no stock-based compensation was recorded during the three months ended March 31, 2015 related to these options. If the performance condition had been achieved as of March 31, 2015, the Company would have recorded $0.1 million in additional stock-based compensation related to these stock options.

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

Liability for Early Exercise of Stock Options

The 2008 Plan allows for the granting of options that may be exercised before the options have vested. In December 2014, an executive officer early exercised 769,230 stock options. In February 2015, an executive officer early exercised 100,000 stock options. On early exercise, the awards became subject to a restricted stock agreement. The shares of restricted stock granted upon early exercise of the options are subject to the same vesting provisions as the original stock option awards. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment or services, at the price paid by the purchaser, and are not deemed to be issued for accounting purposes until those related shares vest. Accordingly, the Company has recorded the exercise proceeds of $0.1 million and $0.1 million from the early exercise as a long-term liability in the accompanying consolidated balance sheet as of December 31, 2014 and March 31, 2015. The long-term liability will be reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right has lapses. As of December 31, 2014 and March 31, 2015, 769,230 and 869,230 shares held by employees remained unvested and subject to repurchase with an aggregate price of $0.1 million and $0.1 million.

 

12. Income Taxes

The Company did not record a provision for federal income taxes for the three months ended March 31, 2015 because it expects to generate a loss for the year ended December 31, 2015. The income tax expense of $10,000 for the three months ended March 31, 2015 represents foreign taxes. The Company’s deferred tax assets continue to be offset by a valuation allowance.

The geographical breakdown of loss before provision for income taxes is as follows:

 

     Year Ended December 31,  
     2013     2014  
     (in thousands)  

United States

   $ (6,832   $ (23,872

International

               —                        1   
  

 

 

   

 

 

 

Loss before provision for income taxes

$ (6,832 $ (23,871
  

 

 

   

 

 

 

The components of the provision for income taxes are as follows:

 

     Year Ended
December 31,
 
     2013      2014  
     (in thousands)  

Current tax provision:

     

Federal

   $       —       $         —   

State

               

Foreign

             4   
  

 

 

    

 

 

 

Total current tax provision

       4   
  

 

 

    

 

 

 

Deferred tax provision (benefit):

Foreign

       (2
  

 

 

    

 

 

 

Total deferred tax provision (benefit)

$    $ (2
  

 

 

    

 

 

 

Total provision for income taxes

$    $ 2   
  

 

 

    

 

 

 

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

The reconciliation between income taxes computed at the federal statutory income tax rate and the provision for income taxes is as follows:

 

     Year Ended
December 31,
 
     2013     2014  

Federal statutory rate

     34.0            34.0

Effect of:

    

Change in valuation allowance

     (23.1     (37.3

Federal tax credit

     1.8        1.8   

State income tax benefit, net of federal benefit

            2.2        4.0   

Conversion costs

     (13.5     —     

Change in fair value of preferred stock warrants

     (1.1     (2.0

Other permanent items

     (0.3     (0.5
  

 

 

   

 

 

 

Total provision for income taxes

   
  

 

 

   

 

 

 

The components of the deferred tax assets are as follows:

 

     December 31,  
     2013      2014  
     (in thousands)  

Deferred tax assets:

     

Net operating loss carryforwards

   $ 4,381       $ 8,941   

Research and development credits

     230         649   

License fee

     20         3,880   

Other

     104         177   
  

 

 

    

 

 

 

Gross deferred tax assets

  4,735      13,647   

Valuation allowance

  (4,735   (13,645
  

 

 

    

 

 

 

Total net deferred tax assets

$    $ 2   
  

 

 

    

 

 

 

Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. Based upon the weight of available evidence, which includes historical operating performance and the recorded cumulative net losses in prior fiscal periods, the Company recorded a full valuation allowance of $4.7 million and $13.6 million against the net U.S. deferred tax assets as of December 31, 2013 and 2014. The net valuation allowance increased by $1.6 million for the year ended December 31, 2013 and increased by $8.9 million for the year ended December 31, 2014.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on the weight of all evidence, including a history of operating losses and the Company’s ability to generate future taxable income to realize the assets, management has determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, a full valuation allowance has been established to offset the net deferred tax asset.

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

As of December 31, 2014, the Company has federal operating loss carryforwards of $24.1 million and state operating loss carryforwards of $18.4 million, expiring in years ranging from 2021 to 2034. The Company also had net tax credit carryforwards of $0.6 million available to reduce future tax liabilities, if any, for federal tax purposes. The net tax credit carryforwards begin to expire in 2031.

Future utilization of the Company’s net operating loss and research and development credits carryforwards to offset future taxable income are subject to an annual limitation, pursuant to Internal Revenue Code (IRC) Sections 382 and 383, as a result of ownership changes that have occurred.

The disclosure of deferred tax assets in the table above for the year ended December 31, 2013 has been restated to correct the available net operating loss and research and development credit carryforwards with a corresponding effect on the related valuation allowance. In addition, other reclassifications have been made to the amounts disclosed in this table to conform to the current year’s presentation. These changes had no impact on the consolidated balance sheet or results of operations. The gross deferred tax assets balance and valuation allowance as of December 31, 2013 were previously reported as $9.5 million and has been corrected to $4.7 million.

Uncertain Tax Positions

The activity related to the gross amount of unrecognized tax benefits is as follows:

 

     Year Ended
December 31,
 
     2013      2014  
     (in thousands)  

Beginning balance

   $         28       $         58   

Additions based on tax positions related to current year

     30         104   
  

 

 

    

 

 

 

Ending balance

$ 58    $ 162   
  

 

 

    

 

 

 

If recognized, gross unrecognized tax benefits would not have an impact on the Company’s effective tax rate due to the Company’s full valuation allowance position. While it is often difficult to predict the final outcome of any particular uncertain tax position, the Company does not believe that the amount of gross unrecognized tax benefits will change significantly in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated statement of operations. Accrued interest and penalties, if applicable, are included in accrued liabilities in the consolidated balance sheet. For the years ended December 31, 2013 and 2014, the Company did not recognize any accrued interest and penalties.

The Company is subject to taxation in the United States, various states and Canada. Tax years 2011 through 2014 remain open to examination by the United States and various state jurisdictions. The 2014 tax year remains open to examination in Canada. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for any year.

 

13. Subsequent Events

The Company has evaluated subsequent events which may require adjustments to or disclosure in the consolidated financial statements through April 8, 2015, the date on which the December 31, 2014

 

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PRONAI THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

(Information as of March 31, 2015 and thereafter and

for the three months ended March 31, 2014 and 2015 is unaudited)

 

consolidated financial statements were originally issued. For the three months ended March 31, 2015, the Company evaluated subsequent events through May 19, 2015, the date on which the interim consolidated financial statements were originally issued and for disclosure purposes through June 12, 2015, the date of the Company’s issuance of its financial statements for inclusion in the registration statement on Form S-1.

Obligation with Contract Research Organization

In April 2015, the Company entered into an agreement with a contract research organization that is estimated to be effective through 2018. Payments associated with this agreement will result in clinical obligations of $0.3 million in 2015, $0.3 million in 2016, $0.3 million in 2017 and $0.1 million 2018.

Amendment to the Terms of Agreements with MSF and MEDC

On June 11, 2015, the Company and the MSF and MEDC entered into an amendment to equity conversion agreements previously entered into by the parties. The amendment modifies the terms of the equity conversion agreements that permit the MSF and MEDC to require the Company to repurchase shares of their preferred stock in certain circumstances such as a deemed trigger event, referred to as “put options.” The modification to the put options (i) suspended the exercisability of the put options during the period prior to and through the completion of the IPO and (ii) further provides that the put options will expire upon the completion of the IPO. However, in the event the IPO has not been completed by December 31, 2015 or is abandoned by the Company prior to that date, the MSF and MEDC will have the right to exercise the put options for a period of 120 days following the earlier to occur of such dates.

Series C and D Redeemable Convertible Preferred Stock Amended Dividend Rights

On June 10, 2015, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to modify the terms of the cumulative accruing dividends on the outstanding shares of the Company’s Series C and Series D redeemable convertible preferred stock. Under the terms of amended certificate of incorporation, upon conversion of the Company’s redeemable convertible preferred stock into common stock in connection with an IPO, the Company shall pay 50% of the then accrued but unpaid accruing dividends on shares of the Series C and Series D redeemable convertible preferred stock in shares of the Company’s common stock instead of payment in cash and the remaining 50% of the then accrued but unpaid accruing dividends shall be forfeited. The settlement of the accrued but unpaid accruing dividends in shares of common stock will be at the original issue price of the Series C and Series D redeemable convertible preferred stock of $0.70 per share. If the redeemable convertible preferred stock had converted into common stock in connection with an IPO as of December 31, 2014 and March 31, 2015, the Company would have issued an aggregate of 3,161,085 and 4,244,600 shares of common stock to the Series C and D redeemable convertible preferred stockholders under the terms of the amended certificate of incorporation. The terms of the dividends payable on Series B and B-1 preferred stock were not modified.

Stock-Based Compensation

On June 11, 2015, the Company granted stock options to purchase 5,475,000 shares of common stock to certain employees and nonemployees with an exercise price of $0.90 per share.

 

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                    Shares

 

LOGO

Common Stock

 

 

 

Jefferies BofA Merrill Lynch

Wedbush PacGrow

SunTrust Robinson Humphrey

 

 

                    , 2015


Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee:

 

     AMOUNT
PAID OR
TO BE PAID
 

SEC registration fee

   $ 10,022   

FINRA filing fee

     13,438   

NASDAQ Stock Market listing fee

     *   

Blue sky qualification fees and expenses

     *   

Printing and engraving expenses

     *   

Legal fees and expenses

     *   

Accounting fees and expenses

     *   

Transfer agent and registrar fees and expenses

     *   

Miscellaneous expenses

     *   
  

 

 

 

Total

$ *   
  

 

 

 

 

* To be completed by amendment.

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.

As permitted by the Delaware General Corporation Law, the Registrant’s restated certificate of incorporation to be effective upon the completion of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:

 

    any breach of the director’s duty of loyalty to the Registrant or its stockholders;

 

    acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

    under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); or

 

    any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Registrant’s restated bylaws to be effective upon the completion of this offering, provide that:

 

    the Registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;

 

    the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;

 

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    the Registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and

 

    the rights conferred in the restated bylaws are not exclusive.

Prior to the completion of this offering, the Registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant’s restated certificate of incorporation and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the Registrant for which indemnification is sought. Reference is also made to the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant’s restated certificate of incorporation, restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant’s directors and executive officers for liabilities arising under the Securities Act.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since June 1, 2012 and through June 1, 2015, the Registrant has issued and sold the following securities:

 

  1. Since June 1, 2012 and through June 1, 2015, the Registrant has granted to its directors, officers, employees and consultants options to purchase 22,956,142 shares of common stock under its 2008 Stock Plan with per share exercise prices ranging from $0.035 to $0.41, and has issued 5,387,938 shares of common stock upon exercise of such options. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Rule 701 promulgated under the Securities Act.

 

  2. Since June 1, 2012 and through June 1, 2015, the Registrant has issued to its directors, officers, employees and consultants 517,107 shares of restricted common stock under its 2008 Stock Plan, which shares were issued in lieu of payment for services provided. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Rule 701 promulgated under the Securities Act.

 

  3. Between June 2012 and September 2013, the Registrant sold an aggregate of approximately $4.3 million in convertible subordinated promissory notes to purchasers that represented to the Registrant that they were accredited investors and qualified institutional buyers. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.

 

  4. Between June 2012 and December 2013, the Registrant issued warrants exercisable for up to an aggregate of 1,178,566 shares of the Registrant’s Series C redeemable convertible preferred stock at an exercise price of $0.70 per share to purchasers that represented to the Registrant that they were accredited investors and qualified institutional buyers. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.

 

  5. In December 2013 and January 2014, the Registrant issued an aggregate of 18,534,142 shares of the Registrant’s Series C redeemable convertible preferred stock at $0.70 per share for an aggregate financing total of approximately $13.0 million to purchasers and promissory note holders that represented to the Registrant that they were accredited investors and qualified institutional buyers. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.

 

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  6. In April 2014, the Registrant sold an aggregate of 84,999,981 shares of the Registrant’s Series D redeemable convertible preferred stock at a purchase price of $0.70 per share for an aggregate purchase price of approximately $59.5 million to purchasers that represented to the Registrant that they were accredited investors and qualified institutional buyers. These transactions were exempt from the registration requirements of the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any general solicitation or advertising. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. Furthermore, the Registrant affixed appropriate legends to the share certificates and instruments issued in each foregoing transaction setting forth that the securities had not been registered under the Securities Act and the applicable restrictions on transfer.

 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

(b) Financial Statement Schedules.

No consolidated financial statement schedules are provided because the information called for is not required or is shown either in the consolidated financial statements or notes.

 

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

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 Securities Act of 1933 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 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 whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

 

  (a) 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 of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (b) 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, the Registrant has duly caused this registration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in City of Vancouver, Province of British Columbia on the 12th day of June 2015.

 

PRONAI THERAPEUTICS, INC.

By:

 

/s/ Nick Glover

 

Nick Glover

 

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below hereby constitutes and appoints Nick Glover and Sukhi Jagpal, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Nick Glover

   President, Chief Executive Officer and Director (Principal Executive Officer)   June 12, 2015

Nick Glover

    

/s/ Sukhi Jagpal

   Chief Financial Officer (Principal Accounting and Financial Officer)   June 12, 2015

Sukhi Jagpal

    

/s/ Donald Parfet

   Chairman of the Board   June 12, 2015

Donald Parfet

    

/s/ Albert Cha

   Director   June 12, 2015

Albert Cha

    

/s/ Nicole Onetto

   Director   June 12, 2015

Nicole Onetto

    

/s/ Robert Pelzer

   Director   June 12, 2015

Robert Pelzer

    

/s/ Peter Thompson

   Director   June 12, 2015

Peter Thompson

    

/s/ James Topper

  

Director

  June 12, 2015

James Topper

    

/s/ Alvin Vitangcol

   Director   June 12, 2015

Alvin Vitangcol

    


Table of Contents

EXHIBIT INDEX

 

Exhibit

Number

  

Description of Document

  1.1*    Form of Underwriting Agreement.
  3.1    Fifth Amended and Restated Certificate of Incorporation, as amended.
  3.2    Form of Restated Certificate of Incorporation to be effective upon completion of this offering.
  3.3    Amended and Restated Bylaws, as currently in effect.
  3.4    Form of Restated Bylaws to be effective upon completion of this offering.
  4.1*    Form of Common Stock Certificate.
  4.2    Third Amended and Restated Investor Rights Agreement, dated April 17, 2014, by and among the Registrant and certain of its stockholders, as amended.
  5.1*    Opinion of Fenwick & West LLP.
10.1    Form of Indemnification Agreement.
10.2    2008 Stock Plan, as amended, and forms of award agreements thereunder.
10.3*    2015 Equity Incentive Plan, to become effective upon the completion of this offering, and forms of award agreements thereunder.
10.4*    2015 Employee Stock Purchase Plan, to become effective upon the completion of this offering, and form of subscription agreement thereunder.
10.5*    Employment Agreement, dated             , 20    , by and between the Registrant and Nick Glover.
10.6*    Employment Agreement, dated             , 20    , by and between the Registrant and Richard Messmann.
10.7*    Employment Agreement, dated             , 20    , by and between the Registrant and Wendi Rodrigueza.
10.8    Separation and Release Agreement, dated September 12, 2014, by and between the Registrant and Mina P. Sooch.
10.9    Lease, dated March 9, 2012, by and between the Registrant and Michigan Life Science and Innovation Center, LLC, as amended.
10.10    Lease, dated February 4, 2015, by and between the Registrant and Thompson Creek Metals Company Inc.
10.11+    Exclusive License Amendment, dated March 13, 2012, by and between the Registrant and Marina Biotech, Inc.
10.12+    Second License Amendment and Consent to Termination, dated April 14, 2014, by and between the Registrant and Marina Biotech, Inc.
10.13+    License Payment Agreement, dated April 14, 2014, by and between the Registrant and Novosom Verwaltungs GmbH.
21.1    Subsidiaries of the Registrant.
23.1    Consent of independent registered public accounting firm.
23.2*    Consent of Fenwick & West LLP (included in Exhibit 5.1).
24.1    Power of Attorney. Reference is made to the signature page hereto.

 

* To be submitted by amendment.
+ Registrant has omitted and filed separately with the SEC portions of the exhibit pursuant to a confidential treatment request under Rule 406 promulgated under the Securities Act.

Exhibit 3.1

FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

PRONAI THERAPEUTICS, INC.

The undersigned, for the purpose of amending and restating the Certificate of Incorporation, as amended, of P RO N AI T HERAPEUTICS , I NC ., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ Company ”), hereby certifies that:

ONE: The Company was incorporated under the name Phenome Systems, Inc. pursuant to an original Certificate of Incorporation filed with the Secretary of the State of Delaware (the “ Delaware Secretary ”) on May 8, 2003. The Certificate of Incorporation was amended and restated pursuant to a First Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary on April 14, 2004 pursuant to which the name of the Company was changed to “ProNAi Therapeutics, Inc.” The First Amended and Restated Certificate of Incorporation was amended and restated by that certain Second Amended and Restated Certificate of Incorporation, as filed with the Delaware Secretary on December 8, 2004. The Second Amended and Restated Certificate of Incorporation was amended and restated by that certain Third Amended and Restated Certificate of Incorporation, as filed with the Delaware Secretary on June 26, 2008. The Third Amended and Restated Certificate of Incorporation was subsequently amended two times, by that certain Certificate of Amendment as filed with the Delaware Secretary on March 10, 2009 and that certain Certificate of Amendment as filed with the Delaware Secretary on June 22, 2011, and then subsequently amended and restated by that certain Fourth Amended and Restated Certificate of Incorporation, as filed with the Delaware Secretary on December 19, 2013 (collectively, the “ Certificate of Incorporation ”).

TWO: She is the duly elected and acting President of the Company.

THREE: The Certificate of Incorporation is hereby amended and restated to read as follows:

I.

The name of the Company is P RO N AI T HERAPEUTICS , I NC .

II.

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


III.

The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as amended (“ DGCL ”).

IV.

A. Upon the filing of this Fifth Amended and Restated Certificate of Incorporation with the Delaware Secretary (the “ Effective Time ”), the total number of shares of all classes of capital stock which the Company shall have the authority to issue shall be three hundred fifteen million nine hundred thirteen thousand seven hundred forty-one (315,913,741) shares, consisting solely of one hundred eighty million (180,000,000) shares of common stock, par value $0.001 per share (the “ Common Stock ”), and one hundred thirty-five million nine hundred thirteen thousand seven hundred forty-one (135,913,741) shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”), one million eight hundred forty-three thousand eight hundred ninety-four (1,843,894) of which are designated as “Series A Preferred Stock” (the “ Series A Preferred ”), thirteen million one hundred thirty-four thousand eight hundred eighty (13,134,880) of which are designated as “Series B Preferred Stock” (the “ Series B Preferred ”), sixteen million one hundred twenty-two thousand six hundred eighteen (16,122,618) of which are designated as “Series B-1 Preferred Stock”)(the “ Series B-1 Preferred ”, together with the Series B Preferred, the “ Preferred B Series of Stock ”), nineteen million eight hundred twelve thousand three hundred forty-nine (19,812,349) of which are designated as “Series C Preferred Stock” (the “ Series C Preferred ”), and eighty five million (85,000,000) of which are designated as “Series D Preferred Stock” (the “ Series D Preferred ”).

B. [Reserved]

C. The rights, preferences, privileges, restrictions and other matters relating to the Preferred Stock are as follows:

1. D IVIDEND R IGHTS .

(a) Series D Dividend.

(i) Holders of the Series D Preferred, in preference to the holders of the Series C Preferred, the Preferred B Series of Stock, the Series A Preferred and the Common Stock, shall be entitled to receive cumulative accruing dividends at a rate of eight percent (8%) per annum of the Series D Original Issue Price (as defined below), compounded annually, on each outstanding share of the Series D Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof)(the “ Series D Accruing Dividends ”). The Series D Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The Series D Accruing Dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by the Board, (ii) the liquidation of the Company (including a Deemed Liquidation Event (as defined below) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series D Preferred (as applicable, the “ Series D Dividend Payment Date ”). Notwithstanding the foregoing, if the Board reasonably believes that the

 

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Company is not legally able to pay the Series D Accruing Dividends in cash at the Series D Dividend Payment Date, the Series D Accruing Dividend shall be paid in shares of the Common Stock at a price equal to the then-effective Series D Conversion Price (as defined below).

(ii) Notwithstanding the foregoing, in the event the Series D Accruing Dividends are paid upon the conversion of the outstanding shares of the Series D Preferred in connection with the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Securities Act of 1933, as amended (the “ Act ”)(the “ Initial Public Offering ”), the Company shall pay fifty percent (50%) of then-accrued Series D Accruing Dividends in cash, and the remaining fifty percent (50%) of the then-accrued Series D Accruing Dividends shall be forfeited.

(iii) The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of the Common Stock payable in shares of the Common Stock) unless (in addition to the obtaining of any consents required elsewhere in this Certificate of Incorporation) the holders of the Series D Preferred then outstanding shall first receive a dividend on each outstanding share of the Series D Preferred equal to the aggregate Series D Accruing Dividends then accrued on such share of the Series D Preferred and not previously paid.

(b) Series C Dividend.

(i) Holders of the Series C Preferred, in preference to the holders of the Preferred B Series of Stock, the Series A Preferred and the Common Stock, shall be entitled to receive cumulative accruing dividends at a rate of eight percent (8%) per annum of the Series C Original Issue Price (as defined below), compounded annually, on each outstanding share of the Series C Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof)(the “ Series C Accruing Dividends ”). The Series C Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The Series C Accruing Dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by the Board, (ii) the liquidation of the Company (including a Deemed Liquidation Event (as defined below) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series C Preferred (as applicable, the “ Series C Dividend Payment Date ”). Notwithstanding the foregoing, if the Board reasonably believes that the Company is not legally able to pay the Series C Accruing Dividends in cash at the Series C Dividend Payment Date, the Series C Accruing Dividend shall be paid in shares of the Common Stock at a price equal to the then-effective Series C Conversion Price (as defined below).

(ii) Notwithstanding the foregoing, in the event the Series C Accruing Dividends are paid upon the conversion of the outstanding shares of the Series C Preferred in connection with the Initial Public Offering, the Company shall pay fifty percent (50%) of then-accrued Series C Accruing Dividends in cash, and the remaining fifty percent (50%) of the then-accrued Series C Accruing Dividends shall be forfeited.

(iii) The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than

 

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dividends on shares of the Series D Preferred) unless (in addition to the obtaining of any consents required elsewhere in this Certificate of Incorporation) the holders of the Series C Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of the Series C Preferred in an amount at least equal to the amount of the aggregate Series C Accruing Dividends then accrued on such share of the Series C Preferred and not previously paid.

(c) Series B-1 Dividend.

(i) Holders of the Series B-1 Preferred, in preference to the holders of the Series B Preferred, Series A Preferred and the Common Stock, shall be entitled to receive cumulative accruing dividends at a rate of eight percent (8%) per annum of the Series B-1 Original Issue Price (as defined below), compounded annually, on each outstanding share of the Series B-1 Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof)(the “ Series B-1 Accruing Dividends ”). The Series B-1 Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The Series B-1 Accruing Dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by the Board, (ii) the liquidation of the Company (including a Deemed Liquidation Event (as defined below) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series B-1 Preferred (as applicable, the “ Series B-1 Dividend Payment Date ”). Notwithstanding the foregoing, if the Board reasonably believes that the Company is not legally able to pay the Series B-1 Accruing Dividends in cash at the Series B-1 Dividend Payment Date, the Series B-1 Accruing Dividend shall be paid in shares of the Common Stock at a price equal to the then-effective Series B-1 Conversion Price (as defined below).

(ii) Notwithstanding the foregoing, in the event the Series B-1 Accruing Dividends are paid upon the conversion of the outstanding shares of the Series B-1 Preferred in connection with the Initial Public Offering, the Company shall pay fifty percent (50%) of then-accrued Series B-1 Accruing Dividends in cash, and the remaining fifty percent (50%) of the then-accrued Series B-1 Accruing Dividends shall be forfeited.

(iii) The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of the Series D Preferred and Series C Preferred) unless (in addition to the obtaining of any consents required elsewhere in this Certificate of Incorporation) the holders of the Series B-1 Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of the Series B-1 Preferred in an amount at least equal to the amount of the aggregate Series B-1 Accruing Dividends then accrued on such share of the Series B-1 Preferred and not previously paid.

(d) Series B Dividend.

(i) Holders of the Series B Preferred, in preference to the holders of the Series A Preferred and the Common Stock, shall be entitled to receive cumulative accruing dividends at a rate of eight percent (8%) per annum of the Series B Original Issue Price (as defined below), compounded annually, on each outstanding share of the Series B Preferred

 

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(as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof)(the “ Series B Accruing Dividends ”, together with the Series D Accruing Dividends, the Series C Accruing Dividends and the Series B-1 Accruing Dividends, the “ Accruing Dividends ”). The Series B Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. The Series B Accruing Dividends shall be deemed declared annually and payable upon the earliest to occur of (i) the date determined by Board, (ii) the liquidation of the Company (including a Deemed Liquidation Event (as hereinafter defined)) and (iii) the conversion or redemption of at least a majority of the outstanding shares of the Series B Preferred (as applicable, the “ Series B Dividend Payment Date ”). Notwithstanding the foregoing, if the Board reasonably believes that the Company is not legally able to pay the Series B Accruing Dividends in cash at the Series B Dividend Payment Date, then the Series B Accruing Dividend shall be paid in shares of the Common Stock at a price equal to the then-effective Series B Conversion Price (as defined below).

(ii) Notwithstanding the foregoing, in the event the Series B Accruing Dividends are paid upon the conversion of the outstanding shares of the Series B Preferred in connection with the Initial Public Offering, the Company shall pay fifty percent (50%) of then-accrued Series B Accruing Dividends in cash, and the remaining fifty percent (50%) of the then-accrued Series B Accruing Dividends shall be forfeited.

(iii) The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on the shares of the Series D Preferred, Series C Preferred and the Series B-1 Preferred) unless (in addition to the obtaining of any consents required elsewhere in this Certificate of Incorporation) the holders of the Series B Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of the Series B Preferred in an amount at least equal to the amount of the aggregate Series B Accruing Dividends then accrued on such share of the Series B Preferred and not previously paid.

(e) Series A Dividend. Holders of the Series A Preferred, in preference to the holders of the Common Stock, shall be entitled to first receive, or simultaneously receive, when and as declared by the Board, but only out of funds that are legally available therefore, a dividend in an amount at least equal to $0.1064 per share of the Series A Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time). Such dividends shall not be cumulative.

(f) Participation in Common Stock Dividends. If the Board shall declare a dividend payable upon the then-outstanding shares of the Common Stock, in addition to any dividend payable pursuant to subsection (a), (b), (c), (d) and (e) of Article IV, Section C.1. above, the Board shall declare at the same time a dividend upon the then-outstanding shares of the Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends per share of the Preferred Stock as would have been payable on the largest number of whole shares of the Common Stock into which each share of the Preferred Stock held by each holder thereof had been converted if such shares of the Preferred Stock had been converted to the Common Stock pursuant to the provisions of Section 4 hereof as of the record date for the determination of holders of the Common Stock entitled to receive such dividends.

 

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2. V OTING R IGHTS .

(a) General Rights. Except as otherwise provided herein or in the Company’s bylaws, the Preferred Stock shall vote together with the Common Stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the Common Stock. Each holder of shares of the Preferred Stock shall be entitled to the number of votes equal to the number of shares of the Common Stock (including fractions of a share) into which such shares of the Preferred Stock are then convertible pursuant to Section 4 hereof.

(b) Separate Vote of Preferred Stock. For so long as any of the authorized shares of the Preferred Stock remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least sixty percent (60%) of the outstanding shares of the Preferred Stock, voting or consenting together as a separate class, shall be necessary for authorizing, effecting or validating the following actions:

(i) the liquidation, dissolution or winding-up of the business and affairs of the Company, effecting any Deemed Liquidation Event, or consenting or entering into any agreement related to any of the foregoing;

(ii) amending, altering or repealing any provision of this Certificate of Incorporation or Bylaws of the Company, whether by merger, consolidation or otherwise;

(iii) declaring or effecting any stock split, combination of shares, reverse stock split, reorganization, recapitalization, or other reclassification affecting the Company’s equity securities;

(iv) creating, or authorizing the creation of any additional class or series of capital stock or issuing or obligating itself to issue shares of or increasing the authorized number of shares of any class or series of capital stock (except for the issuance of shares pursuant to a stock option or stock incentive plan as approved by a majority of the entire Board);

(v) purchasing or redeeming (or permitting any subsidiary to purchase or redeem) or paying or declaring any dividend or making any distribution on, any shares of capital stock of the Company other than (1) redemptions of or dividends or distributions on the Preferred Stock as expressly authorized herein; (2) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Company or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof; or (3) as approved by a majority of the members of the Board, including the approval of a majority of the Preferred Directors (as defined herein) and at least one Series D Director (as defined herein);

(vi) adopting or amending any stock option or other stock incentive plan;

 

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(vii) creating, or authorizing the creation of any debt security; and

(viii) increasing or decreasing the size of the Board.

(c) Separate Vote of the Series D Preferred. For so long as any of the authorized shares of the Series D Preferred remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least a majority of the outstanding shares of the Series D Preferred, voting or consenting together as a separate class, shall be necessary for authorizing, effecting or validating the following actions:

(i) creating, or authoring the creation of any additional class or series of capital stock or issuing or obligating itself to issue shares of any security convertible into or exercisable for any equity security having rights, preferences or privileges senior to or on parity with the Series D Preferred;

(ii) increasing the number of authorized shares of Series D Preferred; or

(iii) purchasing or redeeming (or permitting any subsidiary to purchase or redeem) or paying or declaring any dividend or making any distribution on, any shares of capital stock of the Company prior to payment of all accrued dividends on the Series D Preferred.

(d) Separate Vote of the Series C Preferred. For so long as any of the authorized shares of the Series C Preferred remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least a majority of the outstanding shares of the Series C Preferred, voting or consenting together as a separate class, shall be necessary for authorizing, effective or validating any action which adversely alters or changes the rights, preferences or privileges or increases the number of authorized shares of the Series C Preferred.

(e) Separate Vote of the Series B-1 Preferred. For so long as any of the authorized shares of the Series B-1 Preferred remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least a majority of the outstanding shares of the Series B-1 Preferred, voting or consenting together as a separate class, shall be necessary for authorizing, effective or validating any action which adversely alters or changes the rights, preferences or privileges or increases the number of authorized shares of the Series B-1 Preferred.

(f) Separate Vote of the Series B Preferred. For so long as any of the authorized shares of the Series B Preferred remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least a majority of the outstanding shares of the Series B Preferred, voting or consenting together as a separate class, shall be necessary for authorizing, effective or validating any action which adversely alters or changes the rights, preferences or privileges or increases the number of authorized shares of the Series B Preferred.

 

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(g) Separate Vote of the Series A Preferred. For so long as any of the authorized shares of the Series A Preferred remain outstanding, in addition to any other vote or consent required by the Company’s certificate of incorporation or bylaws, the vote or written consent of the holders of at least a majority of the outstanding shares of the Series A Preferred, voting or consenting together as a separate class, shall be necessary for authorizing, effective or validating any action which adversely alters or changes the rights, preferences or privileges or increases the number of authorized shares of the Series A Preferred.

(h) Election of Board. For so long as any of the Preferred Stock remains outstanding, the Board shall consist of no less than seven (7) directors, to be elected as follows:

(i) For so long as any shares of the Series D Preferred remain outstanding, the holders of the Series D Preferred, voting as a separate class, shall be entitled to elect two (2) members of the Board (the “ Series D Directors ”) at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director.

(ii) For so long as any shares of the Series C Preferred remain outstanding, the holders of the Series C Preferred, voting as a separate class, shall be entitled to elect one (1) member of the Board (the “ Series C Director ”) at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director.

(iii) For so long as any shares of the Preferred B Series of Stock remain outstanding, the holders of the Preferred B Series of Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board (the “ Preferred B Director ”) at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. The Preferred B Director, together with the Series D Directors and the Series C Director, are the “ Preferred Directors .”

(iv) The holders of the Common Stock and the Preferred Stock, voting together as a single class on an as if converted basis, shall be entitled to elect the remaining members of the Board at each meeting or pursuant to each consent of the Company’s stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.

(v) This subsection (g) shall have no further force or effect upon the occurrence of an Initial Public Offering.

3. L IQUIDATION R IGHTS .

(a) Preferential Payments to the Holders of the Series D Preferred. In the event of any Deemed Liquidation Event (as defined herein), voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of the Series D Preferred then outstanding shall be entitled to be paid out of the assets of the Company legally

 

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available for distribution to its stockholders, before any payment shall be made to the holders of the Series C Preferred, the Preferred B Series of Stock, the Series A Preferred and the Common Stock by reason of their ownership thereof, an amount per share equal to $0.70 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time, the “ Series D Original Issue Price ”), plus any Series D Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “ Series D Liquidation Preference ”). If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of the Series D Preferred the full amount to which they shall be entitled under this Subsection 3(a), the holders of shares of the Series D Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable cm or with respect to such shares were paid in full.

(b) Preferential Payments to the Holders of the Series C Preferred. In the event of any Deemed Liquidation Event (as defined herein), voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of the Series C Preferred then outstanding shall be entitled to be paid out of the assets of the Company legally available for distribution to its stockholders, after payment of the Series D Liquidation Preference, but before any payment shall be made to the holders of the Series B-1 Preferred, Series B Preferred, Series A Preferred and the Common Stock by reason of their ownership thereof, an amount per share equal to $0.70 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time, the “ Series C Original Issue Price ”), plus any Series C Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “ Series C Liquidation Preference ”). If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of the Series C Preferred the full amount to which they shall be entitled under this Subsection 3(a), the holders of shares of the Series C Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

(c) Preferential Payments to the Holders of the Series B-1 Preferred. In the event of any Deemed Liquidation Event (as defined herein), voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of the Series B-1 Preferred then outstanding shall be entitled to be paid out of the assets of the Company legally available for distribution to its stockholders, after payment of the Series D Liquidation Preference and the Series C Liquidation Preference but before any payment shall be made to the holders of the Series B Preferred, Series A Preferred and the Common Stock by reason of their ownership thereof, an amount per share equal to $0.35 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time, the “ Series B-1 Original Issue Price ”), plus any Series B-1 Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “ Series B-1 Liquidation Preference ”). If, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of the Series B-1 Preferred the full amount to which

 

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they shall be entitled under this Subsection 3(b), the holders of shares of the Series B-1 Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

(d) Preferential Payments to Holders of the Series B Preferred. In the event of any Deemed Liquidation Event, voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of the Series B Preferred then outstanding shall be entitled to be paid out of the assets of the Company legally available for distribution to its stockholders, after payment of the Series D Liquidation Preference, the Series C Liquidation Preference and the Series B-1 Liquidation Preference, but before any payment shall be made to the holders of the Series A Preferred Stock and the Common Stock by reason of their ownership thereof, an amount per share equal to $1.00 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time, the “ Series B Original Issue Price ”), plus any Series B Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “ Series B Liquidation Preference ”). lf, upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of the Series B Preferred the full amount to which they shall be entitled under this Subsection 3(c), the holders of shares of the Series B Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

(e) Preferential Payments to the Holders of the Series A Preferred. In the event of any Deemed Liquidation Event, voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series A Preferred then outstanding shall be entitled to be paid out of the assets of the Company legally available for distribution to its stockholders, after payment of the Series D Liquidation Preference, the Series C Liquidation Preference, the Series B-1 Liquidation Preference and the Series B Liquidation Preference, but before any payment shall be made to the holders of the Common Stock, an amount per share of the Series A Preferred equal to an amount equal to the greater of (i) $1.52 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Effective Time, the “ Series A Original Issue Price ”), plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had each such share been converted into the Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution or winding up (such amounts are collectively referred to as the “ Series A Liquidation Preference ”). If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction), shall be insufficient to make payment in full to all holders of the Series A Preferred of the Series A Liquidation Preference, then such assets (or consideration) shall be distributed among the holders of the Series A Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled.

(f) Distribution of Remaining Assets. In the event of any Deemed Liquidation Event, voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment of the Series D Liquidation Preference, Series C Liquidation

 

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Preference, Series B-1 Liquidation Preference, the Series B Liquidation Preference and the Series A Liquidation Preference, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of the shares of the Series D Preferred, Series C Preferred, the Preferred B Series of Stock and the Common Stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to the Common Stock pursuant to the terms of this Fifth Amended and Restated Certificate of Incorporation immediately prior to such dissolution, liquidation or winding up of the Company; provided, however that until and including April 17, 2015, the Series D Liquidation Amount (as defined below) shall be capped at three (3) times the Series D Original Issue Price. The aggregate per share amount which a holder of a share of the Series D Preferred is entitled to receive under Subsections 3(a) and 3(f) is hereinafter referred to as the “ Series D Liquidation Amount ”. The aggregate per share amount which a holder of a share of the Series C Preferred is entitled to receive under Subsections 3(b) and 3(f) is hereinafter referred to as the “ Series C Liquidation Amount .” The aggregate per share amount which a holder of a share of the Series B-1 Preferred is entitled to receive under Subsections 3(c) and 3(f) is hereinafter referred to as the “ Series B-1 Liquidation Amount .” The aggregate per share amount which the holder of a share of the Series B Preferred is entitled to receive under Subsections 3(d) and 3(f) is hereinafter referred to as the “ Series B Liquidation Amount .” The aggregate per share amount which a holder of a share of the Series A Preferred is entitled to receive under Subsection 3(e) is hereinafter referred to as the “ Series A Liquidation Amount .”

(g) Deemed Liquidation Events.

(i) Definition . Each of the following events shall be considered a “ Deemed Liquidation Event ”, unless the holders of at least sixty percent (60%) of the then-outstanding shares of the Preferred Stock elect otherwise by written notice given to the Company at least ten (10) days prior to the effective date of any such event:

(A) the liquidation, dissolution or winding up of the Company;

(B) a merger or consolidation in which the Company is a constituent party, or a subsidiary of the Company is a constituent party, and the Company issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Company or a subsidiary in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation;

(C) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred; except for any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof; or

 

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(D) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the Company, of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly-owned subsidiary of the Company.

(ii) Effecting a Deemed Liquidation Event .

(A) The Company shall not have the power to effect a Deemed Liquidation Event referred to in this Subsection 3(g) unless the definitive agreement for such transaction (the “ Transaction Agreement ”) provides that the consideration payable to the stockholders of the Company shall be allocated among the holders of capital stock of the Company in accordance with Subsections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) above.

(B) In the event of a Deemed Liquidation Event referred to in Subsection 3(g)(i) above, if the Company does not effect a dissolution of the Company under the DGCL within ninety (90) days after such Deemed Liquidation Event, then (1) the Company shall send a written notice to each holder of the Preferred Stock no later than the ninetieth (90 th ) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (2) to require the redemption of such shares of the Preferred Stock, and (2) if the holders of at least sixty percent (60%) of the then-outstanding shares of the Preferred Stock so request in a written instrument delivered to the Company not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Company shall use the consideration received by the Company for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of the Company) together with any other assets of the Company available for distribution to its stockholders (the “ Available Proceeds ”), to the extent legally available therefor, on the one hundred fiftieth (150 th ) day after such Deemed Liquidation Event, to redeem all outstanding shares of (1) the Series D Preferred at a per share price equal to the Series D Liquidation Amount; provided, however, that in the event the Deemed Liquidation Event occurs on or before April 17, 2015, the Series D Liquidation Amount shall be capped at three (3) times the Series D Original Issue Price; (2) the Series C Preferred at a per share price equal to the Series C Liquidation Amount; (3) the Series B-1 Preferred at a per share price equal to the Series B-1 Liquidation Amount; (4) the Series B Preferred at a price per share equal to the Series B Liquidation Amount; and (5) the Series A Preferred at a price per share equal to the Series A Liquidation Amount.

(C) Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding clause (B), if the Available Proceeds are not sufficient to redeem all outstanding shares of the Preferred Stock, or if the Company does not have sufficient lawfully available funds to effect such redemption, the Company shall use such Available Proceeds (i) to first redeem the Series D Preferred to the fullest extent of such Available Proceeds or such lawfully available funds; (ii) to then redeem the Series C Preferred to the fullest extent of such Available Proceeds or such lawfully available funds; (iii) to then redeem the

 

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Series B-1 Preferred, to the fullest extent of such remaining Available Proceeds or such lawfully available funds; (iv) to then redeem the Series B Preferred, to the fullest extent of such Available Proceeds or such lawfully available funds; and (v) to finally redeem the Series A Preferred to the fullest extent of such remaining Available Proceeds or such lawfully available funds, in each case based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares. The Company shall then redeem any remaining shares of the Series D Preferred, Series C Preferred, Series B-1 Preferred, Series B Preferred and Series A Preferred, as the case may be, as soon as practicable after the Company has funds legally available therefor. The provisions of Subsection 5 below shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Preferred Stock pursuant to this Subsection 3(g)(ii). Prior to the distribution or redemption provided for in this Subsection 3(g)(ii), the Company shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.

(iii) Amount Deemed Paid or Distributed . If the amount deemed paid or distributed under this Subsection 3(g) is made in property other than in cash, the value of such distribution shall be the fair market value of such property, determined as follows:

(A) For securities not subject to investment letters or other similar restrictions on free marketability,

(1) if traded on a securities exchange or the NASDAQ Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over the thirty (30) trading day period ending three (3) days prior to the closing of such transaction;

(2) if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the thirty (30) trading day period ending three (3) days prior to the closing of such transaction; or

(3) if there is no active public market, the value shall be the fair market value thereof, as determined by the Board acting in good faith (including the affirmative vote of a majority of the Preferred Directors). In any such case, the Board shall notify each holder of shares of the Preferred Stock of its determination of the fair market value or allocation, as the case may be, of such consideration prior to payment or accepting receipt thereof. If, within ten (10) days after receipt of such notice, the holders of not less than sixty percent (60%) of the shares of the Preferred Stock then outstanding shall notify the Board in writing of their objection to such determination, a determination of the fair market value of such consideration or allocation, as the case may be, shall be made by a nationally recognized independent investment banking firm acceptable to the Company and the holders of sixty percent (60%) of the shares of the Preferred Stock then outstanding. If the parties are unable to agree on such an investment banking firm, one shall be chosen by two nationally recognized independent investment banking firms, one of which shall be designated by the Company and one of which shall be designated by the holders of sixty percent (60%) of the shares of the Preferred Stock then outstanding. The Company shall bear the entire cost of the fees and expenses borne by the parties in such determination of such fair market value.

 

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(B) The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall take into account an appropriate discount (as mutually determined by the Board and holders of sixty percent (60%) of the outstanding shares of the Preferred Stock) from the market value as determined pursuant to clause (1) above so as to reflect the approximate fair market value thereof.

(iv) Allocation of Escrow . In the event of a Deemed Liquidation Event pursuant to Subsection 3(g)(i) above, 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 Transaction Agreement shall provide that (1) 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 Subsections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) above as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (2) any additional consideration which 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 Subsections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) above after taking into account the previous payment of the Initial Consideration as part of the same transaction.

4. C ONVERSION R IGHTS .

The holders of the Preferred Stock shall have the following rights with respect to conversion into shares of the Common Stock (the “ Conversion Rights ”):

(a) Optional Conversion. Subject to and in compliance with the provisions of this Subsection 4, shares of the Preferred Stock may, at the option of the holder thereof, be converted by the holder thereof at any time into fully-paid and nonassessable shares of the Common Stock. The number of shares of the Common Stock to which a holder of the Series D Preferred shall be entitled upon conversion shall be the product obtained by multiplying the Series D Preferred Conversion Rate (as hereinafter defined) then in effect by the number of shares of the Series D Preferred being converted. The number of shares of the Common Stock to which a holder of the Series C Preferred shall be entitled upon conversion shall be the product obtained by multiplying the Series C Preferred Conversion Rate (as hereinafter defined) then in effect by the number of shares of the Series C Preferred being converted. The number of shares of the Common Stock to which a holder of the Series B-1 Preferred shall be entitled upon conversion shall be the product obtained by multiplying the Series B-1 Preferred Conversion Rate (as hereinafter defined) then in effect by the number of shares of the Series B-1 Preferred being converted. The number of shares of the Common Stock to which a holder of the Series B Preferred shall be entitled upon conversion shall be the product obtained by multiplying the Series B Preferred Conversion Rate (as hereinafter defined) then in effect by the number of shares of the Series B Preferred being converted. The number of shares of the Common Stock to

 

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which a holder of the Series A Preferred shall be entitled upon conversion shall be the product obtained by multiplying the Series A Preferred Conversion Rate (as hereinafter defined) then in effect by the number of shares of the Series A Preferred being converted.

(b) Conversion Rate. The conversion rate in effect at any time for conversion of the Series D Preferred (the “ Series D Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Series D Original Issue Price by the Series D Preferred Conversion Price, calculated as provided in Subsection 4(c). The conversion rate in effect at any time for conversion of the Series C Preferred (the “ Series C Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Series C Original Issue Price by the Series C Preferred Conversion Price, calculated as provided in Subsection 4(c). The conversion rate in effect at any time for conversion of the Series B-1 Preferred (the “ Series B-1 Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Series B-1 Original Issue Price by the Series B-1 Preferred Conversion Price, calculated as provided in Subsection 4(c). The conversion rate in effect at any time for conversion of the Series B Preferred (the “ Series B Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Series B Original Issue Price by the Series B Preferred Conversion Price, calculated as provided in Subsection 4(c). The conversion rate in effect at any time for the Series A Preferred (the “ Series A Preferred Conversion Rate ”) shall be the quotient obtained by dividing the Series A Original Issue Price by the Series A Preferred Conversion Price, calculated as provided in Subsection 4(c).

(c) Conversion Price. The conversion price for the Series D Preferred (the “ Series D Preferred Conversion Price ”) shall initially be the Series D Original Issue Price; provided, however, that in the event the Milestone identified in that certain Series D Preferred Stock Purchase Agreement between the Company and the purchasers named therein dated on or about April 17, 2014 (the “ Series D Purchase Agreement ”) is achieved, as determined in accordance with the terms of the Purchase Agreement, the initial Series D Preferred Conversion Price shall be $0.84. The Series D Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series D Preferred Conversion Price herein shall mean the Series D Preferred Conversion Price as adjusted. The conversion price for the Series C Preferred (the “ Series C Preferred Conversion Price ”) shall initially be the Series C Original Issue Price. The Series C Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series C Preferred Conversion Price herein shall mean the Series C Preferred Conversion Price as adjusted. The conversion price for the Series B-1 Preferred (the “ Series B-1 Preferred Conversion Price ”) shall initially be the Series B-1 Original Issue Price. The Series B-1 Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series B-1 Preferred Conversion Price herein shall mean the Series B-1 Preferred Conversion Price as adjusted. The conversion price for the Series B Preferred (the “ Series B Preferred Conversion Price ”) shall initially be the Series B Original Issue Price. The Series B Preferred Conversion Price shall be adjusted from time to time in accordance with this Subsection 4; provided, however, that in no event shall the Series B Preferred Conversion Price be less than $0.90. All references to the Series B Preferred Conversion Price herein shall mean the Series B Preferred Conversion Price as adjusted, subject to the limitation set forth in the preceding sentence. The conversion price for the Series A Preferred (the “ Series A Preferred Conversion Price ”) initially shall be equal to the Series A Original Issue Price. The Series A Preferred Conversion Price shall be adjusted from time to time after the Effective Time in

 

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accordance with this Subsection 4; provided, however, that in no event shall the Series A Preferred Conversion Price be less than $1.35. All references to the Series A Preferred Conversion Price herein shall mean the Series A Preferred Conversion Price as so adjusted, subject to the limitation set forth in the preceding sentence. The term “ Applicable Conversion Price ” shall refer to the Series D Preferred Conversion Price, the Series C Preferred Conversion Price, the Series B-1 Preferred Conversion Price, the Series B Preferred Conversion Price or the Series A Preferred Conversion Price, as the case may be.

(d) Mechanics of Conversion. Each holder of the Preferred Stock who desires to convert the same into shares of the Common Stock pursuant to this Subsection 4 shall surrender the certificate or certificates therefore, duly endorsed, at the office of the Company or any transfer agent for the Preferred Stock, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of the Preferred Stock being converted. Thereupon, the Company shall promptly (but in no event more than three (3) business days after delivery of the notice required by the first sentence of this Subsection 4(d)) issue and deliver at such office to such holder a certificate or certificates for the number of shares of the Common Stock to which such holder is entitled and shall promptly pay (i) in shares of the Common Stock (at the applicable conversion price) any unpaid Accruing Dividends (whether or not declared) and any other declared and unpaid dividends on the shares of such Preferred Stock being converted and (ii) in cash (at the Common Stock’s fair market value determined in good faith by the Board as of the date of conversion) the value of any fractional share of the Common Stock otherwise issuable to any holder of the Preferred Stock. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of the Preferred Stock to be converted, and the person entitled to receive the shares of the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of the Common Stock on such date.

(e) Adjustment for Stock Splits and Combinations. If at any time or from time to time on or after the date that the first share of the Series A Preferred is issued (the “ Original Issue Date ”), the Company effects a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date, the Company combines the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the Applicable Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Subsection 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(f) Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time on or after the Original Issue Date, the Company pays a dividend or other distribution on the Common Stock in additional shares of the Common Stock

 

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(excluding any shares of the capital stock issued in payment of the Accruing Dividends), the Applicable Conversion Price that is then in effect shall be decreased as of the time of such issuance, as provided below:

(i) The Applicable Conversion Price shall be adjusted by multiplying such Applicable Conversion Price then in effect by a fraction:

(A) the numerator of which is the total number of shares of the Common Stock issued and outstanding immediately prior to the time of such issuance, and

(B) the denominator of which is the total number of shares of the Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of the Common Stock issuable in payment of such dividend or distribution.

(ii) If the Company fixes a record date to determine which holders of the Common Stock are entitled to receive such dividend or other distribution, the Applicable Conversion Price shall be fixed as of the close of business on such record date and the number of shares of the Common Stock shall be calculated immediately prior to the close of business on such record date.

(iii) If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefore, the Applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Applicable Conversion Price shall be adjusted pursuant to this Subsection 4(f) to reflect the actual payment of such dividend or distribution.

(g) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time on or after the Original Issue Date, the Common Stock issuable upon the conversion of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a Deemed Liquidation Event or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Subsection 4), in any such event, each holder of the Preferred Stock shall then have the right to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of the Common Stock into which such shares of the Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other stock, securities or property by the terms thereof.

(h) Reorganizations, Mergers or Consolidations. If at any time or from time to time on or after the Original Issue Date, there is a capital reorganization of the Common Stock or a merger or consolidation of the Company with or into another corporation or another entity or person (other than a Deemed Liquidation Event or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Subsection 4), as a part of such capital reorganization, merger or consolidation, provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive, upon conversion of the Preferred Stock, the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of the Common Stock deliverable upon conversion would have been entitled upon such capital reorganization, merger

 

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or consolidation, subject to adjustment in respect of such stock, securities or property by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Subsection 4 with respect to the rights of the holders of the Preferred Stock after the capital reorganization, merger or consolidation to the end that the provisions of this Subsection 4 (including adjustment of the Applicable Conversion Price then in effect and the number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

(i) Sale of Shares Below Applicable Conversion Price.

(i) If at any time or from time to time on or after the Original Issue Date, the Company issues or sells, or is deemed by the express provisions of this Subsection 4(i) to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as a dividend or other distribution on the Common Stock in Additional Shares of the Common Stock, as provided in Subsection 4(f) above, and other than a subdivision or combination of shares of the Common Stock (as provided in Subsection 4(e) above), for an Effective Price (as hereinafter defined) less than the then-effective Applicable Conversion Price, then the Applicable Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Applicable Conversion Price in effect immediately prior to such issuance or sale by a fraction:

(A) the numerator of which shall be (i) the number of shares of the Common Stock Deemed Outstanding (as hereinafter defined) immediately prior to such issue or sale, plus (ii) the number of shares of the Common Stock which the Aggregate Consideration (as hereinafter defined) received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the then-effective Applicable Conversion Price, and

(B) the denominator of which shall be (i) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (ii) the total number of Additional Shares of Common Stock so issued or deemed to be issued.

For purposes of the foregoing sentence “ Common Stock Deemed Outstanding ” means, as of any given date, the sum of (A) the number of shares of the Common Stock outstanding, (B) the number of shares of the Common Stock into which the then-outstanding shares of the Preferred Stock could be converted if fully converted on the day immediately preceding the given date, and (C) the number of shares of the Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date.

Notwithstanding the provisions of this Subsection 4(i), (v) no adjustment to the Series D Conversion Price shall be made pursuant to this Subsection 4(i) if, on or before the date of an issuance of sale, or deemed issuance or sale, of Additional Shares of Common Stock for an Effective Price less than the Series D Preferred Conversion Price then in effect, the holders of at least fifty percent (50%) of the outstanding shares of the Series D Preferred, voting or consenting as a separate class, waive the application of this Subsection 4(i) to the Series D Preferred Conversion Price in connection with any such issuance or sale, or deemed issuance or sale; (w)

 

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no adjustment to the Series C Preferred Conversion Price shall be made pursuant to this Subsection 4(i) if, on or before the date of an issuance or sale, or deemed issuance or sale, of Additional Shares of Common Stock for an Effective Price less than the Series C Preferred Conversion Price then in effect, the holders of at least fifty percent (50%) of the outstanding shares of the Series C Preferred, voting or consenting as a separate class, waive the application of this Subsection 4(i) to the Series C Preferred Conversion Price in connection with any such issuance or sale, or deemed issuance or sale; (x) no adjustment to the Series B-1 Preferred Conversion Price shall be made pursuant to this Subsection 4(i) if, on or before the date of an issuance or sale, or deemed issuance or sale, of Additional Shares of Common Stock for an Effective Price less than the Series B-1 Preferred Conversion Price then in effect, the holders of at least fifty percent (50%) of the outstanding shares of the Series B-1 Preferred, voting or consenting as a separate class, waive the application of this Subsection 4(i) to the Series B-1 Preferred Conversion Price in connection with any such issuance or sale, or deemed issuance or sale, (y) no adjustment to the Series B Preferred Conversion Price shall be made pursuant to this Subsection 4(i) if, on or before the date of an issuance or sale, or deemed issuance or sale, of Additional Shares of Common Stock for an Effective Price less than the Series B Preferred Conversion Price then in effect, the holders of at least fifty percent (50%) of the outstanding shares of the Series B Preferred, voting or consenting as a separate class, waive the application of this Subsection 4(i) to the Series B Preferred Conversion Price in connection with any such issuance or sale or deemed issuance or sale, and (z) no adjustment to the Series A Preferred Conversion Price shall be made pursuant to this Subsection 4(i) if, on or before the date of an issuance or sale, or deemed issuance or sale, of Additional Shares of Common Stock for an Effective Price less than the Series A Preferred Conversion Price then in effect, the holders of at least fifty percent (50%) of the outstanding shares of the Series A Preferred, voting or consenting as a separate class, waive the application of this Susbsection 4(i) to the Series A Preferred Conversion Price in connection with any such issuance or sale or deemed issuance or sale.

(ii) No adjustment shall be made to any of the Series D Preferred Conversion Price, Series C Preferred Conversion Price, the Series B-1 Preferred Conversion Price, the Series B Preferred Conversion Price or the Series A Preferred Conversion Price under this Subsection 4(i) in an amount less than one cent ($0.01) per share. Any adjustment otherwise required by this Subsection 4(i) that is not required to be made due to the preceding sentence shall be included in any subsequent adjustment to the Series D Preferred Conversion Price, the Series C Preferred Conversion Price, the Series B-1 Preferred Conversion Price, the Series B Preferred Conversion Price and the Series A Preferred Conversion Price, as the case may be.

(iii) For the purpose of the adjustment required under this Section 4(i), if (1) the Company issues or sells (x) Convertible Securities or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and (2) the Effective Price (as defined below) of such Additional Shares of Common Stock is less than the Applicable Conversion Price, in each case, the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of

 

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the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus:

(A) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options; and

(B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of anti-dilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.

(C) If the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of anti-dilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided , however , that if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities.

(D) No further adjustment of the Applicable Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Applicable Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Applicable Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of any shares of the Preferred.

(E) No readjustment pursuant to Section 4(i)(iii)(C) and Section 4(i)(iii)(D) shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (1) the Applicable Conversion Price on the original adjustment date or (2) the Applicable Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date.

 

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(iv) As used in this Subsection 4(i) and elsewhere in this Fifth Amended and Restated Certificate of Incorporation, capitalized terms shall have the following meanings:

(A) Additional Shares of Common Stock ” shall mean all shares of the Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(i) (including shares of the Common Stock subsequently reacquired or retired by the Company), and, for the purposes of Subsection 4(i)(i) only, all shares of the Preferred Stock, other than:

(1) shares of the Common Stock issued or issuable upon conversion of any shares of the Preferred Stock;

(2) shares of the capital stock of the Company issued in payment of the Series D Accruing Dividends or shares of the capital stock of the Company issued in payment of Accruing Dividends on shares of Preferred Stock outstanding as of the Effective Time;

(3) shares of the Common Stock, including options, warrants or other rights to purchase up to such number of shares of the Common Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Original Issue Date), issued, sold or granted after the Original Issue Date to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by a majority of the members of the Board;

(4) shares of the Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company;

(5) shares of the Common Stock or the Preferred Stock issued or issuable pursuant to the exercise of options, warrants or Convertible Securities outstanding as of the Effective Time;

(6) shares of the Common Stock or Preferred Stock and/or options, warrants or other rights to purchase the Common Stock or the Preferred Stock issued or issuable for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by a majority of the members of the Board;

(7) shares of the Common Stock or the Preferred Stock issued or issuable pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by a majority of the members of the Board; and

(8) any equity securities issued or issuable in connection with strategic transactions involving the Company and other entities approved by a majority of the members of the Board, including (a) joint ventures, manufacturing, marketing or distribution arrangements or (b) technology transfer or development arrangements,

 

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(B) Aggregate Consideration ” shall: (1) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company; (2) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (3) if Additional Shares of Common Stock, Convertible Securities or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options.

(C) Convertible Securities ” means any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for shares of the Common Stock, but excluding Options.

(D) Effective Price ” means the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Subsection 4(i), into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under Subsection 4(i), for such Additional Shares of Common Stock.

(E) Option ” means outstanding rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(j) Multiple Closing Dates. In the event the Company shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4(i) above, then, upon the final such issuance, the Applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

(k) Certificate of Adjustment . In each case of an adjustment or readjustment of the Applicable Conversion Price for the number of shares of the Common Stock or other securities issuable upon conversion of the Preferred Stock, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Preferred Stock at the holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the Effective Price of any such Additional Shares of Common Stock, (iii) the Applicable Conversion Price for the Preferred Stock, at the time in effect, (iv) the number of Additional Shares of Common Stock and (v) the type and amount, if any, of other property which at the time would be received upon conversion of the Preferred Stock.

 

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(l) Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Deemed Liquidation Event or other capital reorganization of the Company, any stock split, combination of shares, reverse stock split, reorganization, recapitalization, or other reclassification affecting the Company’s equity securities (each, a “ Recapitalization Event ”), any merger or consolidation of the Company with or into any other corporation, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of the Preferred Stock at least ten (10) days prior to the record date specified therein (or such shorter period approved by the holders of a majority of the outstanding Preferred Stock) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Deemed Liquidation Event, Recapitalization Event, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of the Common Stock (or other securities) shall be entitled to exchange their shares of the Common Stock (or other securities) for securities or other property deliverable upon such Deemed Liquidation Event, Recapitalization Event, transfer, consolidation, merger, dissolution, liquidation or winding up.

(m) Automatic Conversion.

(i) Upon either (A) the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Preferred Stock; or (B) at the closing of a firmly underwritten initial public offering (involving the listing of the Company’s Common Stock on a U.S. national securities exchange or the NASDAQ stock market) pursuant to an effective registration statement under the Act, covering the offer and sale of the Common Stock for the account of the Company at a price of (1) at least one and six-tenths (1.6) times the Series D Original Issue Price if such closing occurs on or before April 17, 2015; and (2) at least two (2) times the Series D Original Issue Price if such closing occurs after April 17, 2015; and in either case, in which the net cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least fifty million dollars ($50,000,000) (the “ Qualified Initial Public Offering ”) (the time of such closing or the date and time of the event specified in such vote or written consent is referred to herein as the “ Automatic Conversion Time ”), (I) all outstanding shares of the Preferred Stock shall automatically be converted into shares of the Common Stock, at the then-effective Series D Preferred Conversion Price, the Series C Preferred Conversion Rate, the Series B-1 Preferred Conversion Rate, Series B Preferred Conversion Rate or Series A Preferred Conversion Rate, as the case may be, and (II) such shares may not be reissued by the Company. Upon such automatic conversion, any unpaid Accruing Dividends and any other accrued and unpaid dividends on the Preferred Stock shall be paid in accordance with the provisions of Subsection 4(d).

(ii) The Company shall send to all holders of record of shares of the Preferred Stock written notice of the Automatic Conversion Time and the place designated for mandatory conversion of all such shares of the Preferred Stock pursuant to this Subsection

 

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4(m). The Company need not send such notice in advance of the occurrence of the Automatic Conversion Time. Upon receipt of such notice, each holder of shares of the Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate) to the Company at the place designated in such notice, and shall thereafter receive a certificate or certificates for the number of shares of the Common Stock to which such holder is entitled pursuant to this Subsection 4(m). At the Automatic Conversion Time, all outstanding shares of the Preferred Stock shall be deemed to have been converted into shares of the Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of the Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the last sentence of this clause (ii). If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Automatic Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for the Preferred Stock, the Company shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of the Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided below in lieu of any fraction of a share of the Common Stock otherwise issuable upon such conversion and the payment of any unpaid Accruing Dividends on the shares converted.

(iii) All shares of the Preferred Stock shall, from and after the Automatic Conversion Time, no longer be deemed to be outstanding and, notwithstanding the failure of the holder or holders thereof to surrender the certificates for such shares on or prior to such time, all rights with respect to such shares shall immediately cease and terminate at the Automatic Conversion Time, except only the right of the holders thereof to receive shares of the Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Such converted shares of the Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Company may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of the Preferred Stock accordingly.

(n) Fractional Shares. No fractional shares of the Common Stock shall be issued upon conversion of the Preferred Stock. All shares of the Common Stock (including fractions thereof) issuable upon conversion of more than one share of the Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If; after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock’s fair market value (as determined in good faith by the Board) on the date of conversion.

 

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(o) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of the Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of the Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock, If at any time the number of authorized but unissued shares of the Common Stock shall not be sufficient to effect the conversion of all then-outstanding shares of the Preferred Stock, the Company will take such corporate action as may, in the opinion of its legal counsel, be necessary to increase its authorized but unissued shares of the Common Stock to such number of shares as shall be sufficient for such purpose.

(p) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of the Common Stock upon conversion of shares of the Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of the Common Stock in a name other than that in which the shares of the Preferred Stock so converted were registered.

5. R EDEMPTION .

(a) At any time on or after December 31, 2018, the holders of at least eighty percent (80%) of the then-outstanding shares of the Series D Preferred, voting as a separate class, may require the Company, to the extent it may lawfully do so, to redeem all the outstanding shares of the Series D Preferred (the “ Series D Redemption Election ”). The Company shall effect any such redemption in three (3) annual installments with the first to occur on the date sixty (60) days after the date on which the Company receives notice of the Series D Redemption Election (each a “ Series D Redemption Date ”), by paying in cash therefore a redemption price equal to the greater of:

(i) 150% of the Series D Liquidation Preference; or

(ii) the Fair Market Value (as hereinafter defined) per share plus all declared or accrued but unpaid Series D Accruing Dividends (the “ Series D Redemption Price ”).

(b) At any time on or after December 31, 2018, the holders of at least eighty percent (80%) of the then-outstanding shares of the Series C Preferred, voting as a separate class, may require the Company, to the extent it may lawfully do so, to redeem the outstanding shares of the Series C Preferred (the “ Series C Redemption Election ”), such redemption to be at the option of each holder of the Series C Preferred. The Company shall effect any such redemption in three (3) annual installments with the first to occur on the date sixty (60) days after the date on which the Company receives notice of the Series C Redemption Election (each a “ Series C Redemption Date ”), by paying in cash therefore a redemption price equal to the greater of:

(i) 150% of the Series C Liquidation Preference; or

 

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(ii) the Fair Market Value (as hereinafter defined) per share plus all declared or accrued but unpaid Series C Accruing Dividends (the “ Series C Redemption Price ”).

Notwithstanding the foregoing, the Company shall not effect a redemption of any shares of Series C Preferred unless the Company simultaneously redeems, pursuant to subsection 5(g) below, the then-outstanding shares of Series D Preferred; provided, however, that this restriction may be waived by the holders of not less than two-thirds of the then-outstanding shares of Series D Preferred.

(c) At any time on or after December 31, 2018, the holders of at least sixty-seven percent (67%) of the then-outstanding shares of the Series B-1 Preferred, voting as a separate class, may require the Company, to the extent it may lawfully do so, to redeem the outstanding shares of the Series B-1 Preferred (the “ Series B-1 Redemption Election ”), such redemption to be at the option of each holder of the Series B-1 Preferred. The Company shall effect any such redemption in three (3) annual installments with the first to occur on the date sixty (60) days after the date on which the Company receives notice of the Series B-1 Redemption Election (each a “ Series B-1 Redemption Date ”), by paying in cash therefore a redemption price equal to the greater of:

(i) 150% of the Series B-1 Liquidation Preference; provided, however, that any sum in excess of the purchase price for such Series B-1 Preferred shall be paid out of the retained earnings of the Company; or

(ii) the Fair Market Value (as hereinafter defined) per share plus all declared or accrued but unpaid Series B-1 Accruing Dividends (the “ Series B-1 Redemption Price ”).

Notwithstanding the foregoing, the Company shall not effect a redemption of any shares of Series B-1 Preferred unless the Company simultaneously redeems, pursuant to subsections 5(g) and 5(h) below, the then-outstanding shares of Series D Preferred and Series C Preferred; provided, however, that this restriction may be waived by the holders of not less than two-thirds of the then-outstanding shares of Series D Preferred, with respect to the Series D Preferred, and by the holders of not less than two-thirds of the then-outstanding shares of Series C Preferred, with respect to the Series C Preferred.

(d) At any time on or after December 31, 2018, the holders of at least sixty-seven percent (67%) of the then-outstanding shares of the Series B Preferred, voting as a separate class, may require the Company, to the extent it may lawfully do so, to redeem the outstanding shares of the Series B Preferred (the “ Series B Redemption Election ”), such redemption to be at the option of each holder of the Series B Preferred. The Company shall effect any such redemption in three (3) annual installments with the first to occur on the date sixty (60) days after the date on which the Company receives notice of the Series B Redemption Election (each a “ Series B Redemption Date ”, together with the Series B-1 Redemption Date

 

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and without distinction between them, each a “ Redemption Date ”), by paying in cash therefore a redemption price equal to the greater of:

(i) 150% of the Series B Liquidation Preference; provided, however, that any sum in excess of the purchase price for such Series B Preferred shall be paid out of the retained earnings of the Company; or

(ii) the Fair Market Value per share plus all declared or accrued but unpaid Series B Accruing Dividends (the “ Series B Redemption Price ”).

Notwithstanding the foregoing, the Company shall not effect a redemption of any shares of Series B Preferred unless the Company simultaneously redeems, pursuant to subsections 5(g), 5(h) and 5(i) below, the then-outstanding shares of the Series D Preferred, Series C Preferred and the Series B-1 Preferred; provided, however, that this restriction may be waived by the holders of not less than two-thirds of the then-outstanding shares of Series D Preferred, with respect to the Series D Preferred, by the holders of not less than two-thirds of the then-outstanding shares of Series C Preferred, with respect to the Series C Preferred, and by the holders of not less than two-thirds of the then-outstanding shares of the Series B-1 Preferred, with respect to the Series B-1 Preferred.

(e) The “ Fair Market Value ” shall be the value per share of Series D Preferred, Series C Preferred, Series B-1 Preferred or Series B Preferred, as the case may be, as determined by a qualified independent appraiser jointly selected by the Company and the holders of at least two-thirds of the Series D Preferred, Series C Preferred, Series B-1 Preferred or Series B Preferred, as the case may be, without any discount for minority interest or lack of marketability. If such holders and the Company cannot agree on an independent appraiser, then the holders of two-thirds of the Series D Preferred, Series C Preferred, Series B-1 Preferred or Series B Preferred, as the case may be, and the Company shall each choose an appraiser, and those appraisers will jointly select another independent appraiser to perform the appraisal. The cost of determining the Fair Market Value shall be borne equally by the Company and the holders requesting redemption.

(f) At least thirty (30) days but no more than sixty (60) days prior to a Redemption Date, the Company shall send a written notice (a “ Redemption Notice ”) to all holders of the Series D Preferred, Series C Preferred and the Preferred B Series of Stock setting forth (A) the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price and Series B Redemption Price, as the case may be, for the shares to be redeemed on such Redemption Date; and (B) the place at which such holders may obtain payment of the Series D Redemption Price, Series C Redemption Price, the Series B-1 Redemption Price and the Series B Redemption Price, as the case may be, upon surrender of their share certificates.

(g) On each Series D Redemption Date, the Company shall pay the Series D Redemption Price to the holders of the Series D Preferred for each share of the Series D Preferred to be redeemed on such Redemption Date.

(h) On each Series C Redemption Date, the Company shall first pay the Series D Redemption Price to the holders of the Series D Preferred for each share of the Series D Preferred to be redeemed on such Redemption Date, and second pay the Series C Redemption Price to the holders of the Series C Preferred for each share of the Series C Preferred to be redeemed on such Redemption Date.

 

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(i) On each Series B-1 Redemption Date, the Company shall first pay the Series D Redemption Price to the holders of the Series D Preferred for each share of the Series D Preferred to be redeemed on such Redemption Date, second pay the Series C Redemption Price to the holders of the Series C Preferred for each share of the Series C Preferred to be redeemed on such Redemption Date, and third pay the Series B-1 Redemption Price to the holders of the Series B-1 Preferred for each share of the Series B-1 Preferred to be redeemed on such Redemption Date.

(j) On each Series B Redemption Date, the Company shall first pay the Series D Redemption Price to the holders of the Series D Preferred for each share of the Series D Preferred to be redeemed on such Redemption Date, second pay the Series C Redemption Price to the holders of the Series C Preferred for each share of the Series C Preferred to be redeemed on such redemption date, third pay the Series B-1 Redemption Price to the holders of the Series B-1 Preferred for each share of the Series B-1 Preferred to be redeemed on such Redemption Date, and fourth pay the Series B Redemption Price to the holders of the Series B Preferred, for each share of the Series B Preferred to be redeemed on such Redemption Date.

(k) Shares subject to redemption pursuant to this Subsection 5 shall be redeemed from each holder of shares of the Series D Preferred, Series C Preferred, Series B-1 Preferred and the Series B Preferred on a pro rata basis, based on the total number of shares of the Series D Preferred, Series C Preferred and Preferred B Series of Stock then outstanding. If the Company does not have sufficient funds available to legally redeem all shares to be redeemed on such Redemption Date (including, if applicable, those to be redeemed at the option of the Company), then it shall redeem such shares of the Series D Preferred first pro rata (based on the portion of the Aggregate Redemption Price (as defined below) payable to them) to the extent possible, then redeem the Series C Preferred pro rata (based on the portion of the Aggregate Redemption Price (as defined below) payable to them) to the extent possible, then redeem the Series B-1 Preferred pro rata (based on the portion of the Aggregate Redemption Price (as defined below) payable to them) to the extent possible, and shall redeem the remaining shares of the Series D Preferred, Series C Preferred, Series B-1 Preferred and the Series B Preferred to be redeemed as soon as sufficient funds are legally available.

(l) In the event that the Company fails or is unable under applicable law to pay the aggregate amount to be paid to all holders of the Series D Preferred, Series C Preferred and the Preferred B Series of Stock upon the applicable Redemption Date (the “ Aggregate Redemption Price ”), the Company shall, at its sole cost and expense, engage an investment banking firm selected and approved by the Board (including the approval of the Preferred Directors) to the end of selling the assets of the Company at the highest possible price for the purpose of paying any balance of the Aggregate Redemption Price. The Company shall use commercially reasonable efforts to do so as soon as practicable.

(m) On or prior to a Redemption Date, the Company shall deposit the Aggregate Redemption Price payable on such Redemption Date with a bank or trust company

 

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having aggregate capital and surplus in excess of one hundred million dollars ($100,000,000), as a trust fund, with irrevocable instructions and authority to the bank or trust company to pay, on and after such Redemption Date, the Series D Redemption Price for the shares to their respective holders of the Series D Preferred upon the surrender of their share certificates, the Series C Redemption Price for the shares to their respective holders of the Series C Preferred upon the surrender of their share certificates, the Series B-1 Redemption Price for the shares to their respective holders of the Series B-1 Preferred upon the surrender of their share certificates, and the Series B Redemption Price for the shares to their respective holders of the Series B Preferred upon the surrender of their share certificates. Any moneys deposited by the Company pursuant to this Subsection 5 for the redemption of shares thereafter converted into shares of the Common Stock pursuant to Subsection 4 hereof no later than the applicable Redemption Date, shall be returned to the Company forthwith upon such conversion. The balance of any funds deposited by the Company pursuant to this Subsection 5 remaining unclaimed at the expiration of one (1) year following such Redemption Date shall be returned to the Company promptly upon its written request.

(n) On or after the applicable Redemption Date, each holder of shares of the Series D Preferred, Series C Preferred or Preferred B Series of Stock to be redeemed shall surrender such holder’s certificates representing such shares to the Company in the manner and at the place designated in the Redemption Notice, and thereupon the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price or the Series B Redemption Price for such shares, as the case may be, 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 canceled. In the event less than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Redemption Date, unless there shall have been a default in payment of any of the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price or the Series B Redemption Price, or the Company is unable to pay the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price or the Series B Redemption price payable upon such Redemption Date due to not having sufficient legally available funds, all rights of the holder of such shares as holder of the Series D Preferred, Series C Preferred or Preferred B Series of Stock (except the right to receive the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price and the Series B Redemption Price without interest upon surrender of their certificates), shall cease and terminate with respect to such shares; provided that in the event that shares of the Series D Preferred, Series C Preferred and the Preferred B Series of Stock are not redeemed due to a default in payment by the Company or because the Company does not have sufficient legally available funds, such shares of the Series D Preferred, Series C Preferred and Preferred B Series of Stock shall remain outstanding and shall be entitled to all of the rights and preferences provided herein.

(o) In the event the Company receives the Redemption Notice, the Conversion Rights (as defined in Subsection 4) for such Series D Preferred, Series C Preferred or Preferred B Series of Stock, as the case may be, shall terminate as to the shares designated for redemption at the close of business on each Redemption Date, unless default is made in payment of the Series D Redemption Price, the Series C Redemption Price, the Series B-1 Redemption Price or the Series B Redemption Price, as the case may be, for the shares to be redeemed on such Redemption Date.

 

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(p) If the Company receives, on or prior to the 20 th day after the date of delivery of the Redemption Notice to a holder of the Series D Preferred, the Series C Preferred or the Preferred B Series of Stock, written notice from such holder that such holder elects to be excluded from the redemption provided in this Section 5 (the “ Exclusion Notice ”), then the shares of the Series D Preferred, Series C Preferred or Preferred B Series of Stock, as the case may be, registered on the books of the Company in the name of such holder at the time of the Company’s receipt of such notice shall thereafter be “ Excluded Shares ” and shall automatically be converted into shares of the Common Stock, at the then-effective Series D Preferred Conversion Rate with respect to Excluded Shares that are shares of the Series D Preferred, the then-effective Series C Preferred Conversion Rate with respect to Excluded Shares that are shares of the Series C Preferred, the then-effective Series B-1 Preferred Conversion Rate with respect to Excluded Shares that are shares of the Series B-1 Preferred and the then-effective Series B Conversion Rate with respect to Excluded Shares that are shares of the Series B Preferred. Upon such automatic conversion, any accrued and unpaid dividends on the Excluded Shares shall be paid in accordance with the provisions of Subsection 4(d). Each holder of the Excluded Shares agrees to surrender any certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft or destruction of such certificate) to the Company at the place designated in such notice, and shall thereafter receive certificates for the number of shares of the Common Stock to which such holder is entitled pursuant to this Subsection 5(n). As of the date set forth in the Exclusion Notice, all of the Excluded Shares shall be deemed to have been converted into shares of the Common Stock and all rights with respect to the Excluded Shares so converted, including the rights, if any, to receive notices and vote (other than as a holder of the Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in this Subsection 5(n). If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in a form satisfactory to the Company, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Company’s receipt of the Exclusion Notice and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for the Excluded Shares, the Company shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of the Common Stock issuable on such conversion in accordance with the provisions hereof.

6. N OTICES . Any notice required by the provisions of this Article 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.

7. W AIVER . Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of the Preferred Stock by

 

P RO NA I T HERAPEUTICS , I NC .

F IFTH A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION – 30


the affirmative written consent or vote of the holders of at least sixty percent (60%) of the shares of the Preferred Stock then outstanding. Any of the rights, powers, preferences and other terms of the Series D Preferred set forth herein may be waived on behalf of all holders of the Series D Preferred by the affirmative written consent or vote of the holders of at least fifty percent (50%) of the shares of the Series D Preferred then outstanding. Any of the rights, powers, preferences and other terms of the Series C Preferred set forth herein may be waived on behalf of all holders of the Series C Preferred by the affirmative written consent or vote of the holders of at least fifty percent (50%) of the shares of the Series C Preferred then outstanding. Any of the rights, powers, preferences and other terms of the Series B-1 Preferred set forth herein may be waived on behalf of all holders of the Series B-1 Preferred by the affirmative written consent or vote of the holders of at least fifty percent (50%) of the shares of the Series B-1 Preferred then outstanding. Any of the rights, powers, preferences and other terms of the Series B Preferred set forth herein may be waived on behalf of all holders of the Series B Preferred by the affirmative written consent or vote of the holders of at least fifty percent (50%) of the shares of the Series B Preferred then outstanding. Any of the rights, powers, preferences and other terms of the Series A Preferred set forth herein may be waived on behalf of all holders of the Series A Preferred by the affirmative written consent or vote of the holders of at least fifty percent (50%) of the shares of the Series A Preferred then outstanding.

D. The rights, preferences, privileges, restrictions and other matters relating to the Common Stock are as follows:

1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject to and subordinate to those that may be fixed with respect to any shares of the Preferred Stock.

2. Voting Rights. Except as otherwise required by law or the Company’s certificate of incorporation, each holder of the Common Stock shall have one vote in respect of each share of stock held by such holder of record on the books of the Company for the election of directors and all matters submitted to a vote of stockholders of the Company. Except as otherwise provided herein or in the Company’s bylaws, the Preferred Stock shall vote together with the Common Stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, without limitation, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the Common Stock.

Notwithstanding the provisions of Section 242(b)(2) of the DGCL, but without limitation of and subject to the provisions of Part C, Section 2 hereof, the number of authorized shares of the Common Stock may be increased or decreased (but not below the number of shares of the Common Stock then outstanding) by the affirmative vote of the holders of at least a majority of the Common Stock and the Preferred Stock (voting together as a single class on an as-converted basis), and the holders of the Common Stock shall not be entitled to a separate class vote with respect thereto.

 

P RO NA I T HERAPEUTICS , I NC .

F IFTH A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION – 31


V.

A. The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent permitted by applicable law.

B. Any repeal or modification of this Article V shall only be prospective and shall not affect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.

VI.

A. The management of the business and the conduct of the affairs of the Company shall be vested in its Board. The number of directors which shall constitute the whole Board shall be fixed by the Board in the manner provided herein and in the Company’s bylaws.

B. The Board is expressly empowered to adopt, amend or repeal the bylaws of the Company.

VII.

To the maximum extent permitted from time to time under the laws of the State of Delaware, the Company shall indemnify and upon request shall advance expenses to any person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to be a director or officer of the Company or while a director or officer is or was serving at the request of the Company as a director, officer, partner, trustee, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against any and all expenses (including attorney’s fees and expenses), judgments, fines, penalties and amounts paid in settlement or incurred in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim; provided , however , that the foregoing shall not require the Company to indemnify or advance expenses to any person in connection with any action, suit, proceeding, claim or counterclaim initiated by or on behalf of such person. Such indemnification shall not be exclusive of other indemnification rights arising under any bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. No amendment or repeal of this Article VII shall apply to or adversely affect any right or protection of a director or officer of the Company with respect to any act or omission of such director occurring prior to such amendment or repeal.

VIII.

The Company reserves the right to amend or repeal any provision contained in the Company’s certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation.

 

P RO NA I T HERAPEUTICS , I NC .

F IFTH A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION – 32


* * * *

FOUR: This Fifth Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of the Company.

FIVE: This Fifth Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Company and was approved by written consent of the stockholders of the Company in accordance with the provisions of Section 228 of the DGCL.

S IGNATURE ON THE F OLLOWING P AGE

 

P RO NA I T HERAPEUTICS , I NC .

F IFTH A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION – 33


I N W ITNESS W HEREOF , the Company has caused this Fifth Amended and Restated Certificate of Incorporation to be signed by its President this 16 th day of April, 2014.

 

P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Mina Sooch

Mina Sooch
Its: President and CEO

 

S IGNATURE P AGE TO F IFTH A MENDED AND R ESTATED C ERTIFICATE OF I NCORPORATION OF

P RO NA I T HERAPEUTICS , I NC .


CERTIFICATE OF AMENDMENT

TO THE

FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

PRONAI THERAPEUTICS, INC.

ProNAi Therapeutics, Inc. (the “ Company ”), a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “ DGCL ”), does hereby certify that the following amendments to the Company’s Fifth Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on April 16, 2014 (the “ Current Certificate ”), has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendments by the Company’s stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the DGCL:

1. Article IV, Part A of the Current Certificate is hereby amended and restated in its entirety to read as follows:

“IV

A. Upon the filing of this Fifth Amended and Restated Certificate of Incorporation with the Delaware Secretary (the “ Effective Time ”), the total number of shares of all class of capital stock which the Company shall have the authority to issue shall be three hundred sixteen million seventy-four thousand four hundred sixty-six (316,074,466) shares, consisting solely of: one hundred eighty million (180,000,000) shares of common stock, par value $0.001 per share (the “ Common Stock ”), and one hundred thirty-six million seventy-four thousand four hundred sixty-six (136,074,466) shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”), one million eight hundred forty-three thousand eight hundred ninety-four (1,843,894) of which are designated as “Series A Preferred Stock” (the “ Series A Preferred ”), thirteen million one hundred thirty-four thousand eight hundred eighty (13,134,880) of which are designated as “Series B Preferred Stock” (the “ Series B Preferred ”), sixteen million two hundred eighty-three thousand three hundred forty-three (16,283,343) of which are designated as “Series B-1 Preferred Stock” (the “ Series B-1 Preferred ”, and, together with the Series B Preferred, the “ Series B Series of Stock ”), nineteen million eight hundred twelve thousand three hundred forty-nine (19,812,349) of which are designated as “Series C Preferred Stock” (the “ Series C Preferred ”), and eighty-five million (85,000,000) of which are designated as “Series D Preferred Stock” (the “ Series D Preferred ”).”

2. The first clause of Article IV, Part C, Section 2(h) of the Current Certificate is hereby amended and restated in its entirety to read as follows:

“( h ) Election of Board. For so long as any of the Preferred Stock remains outstanding, the Board shall consist of no less than eight (8) directors, to be elected as follows:”

3. Article IV, Part C, Section 2(h)(v) of the Current Certificate is hereby amended and restated in its entirety to read as follows:

“( v ) This subsection (h) shall have no further force or effect upon the occurrence of an Initial Public Offering.”


4. A new Article IX shall be added to the Current Certificate to read in its entirety as follows:

“IX

Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders; (c) any action asserting a claim against the Company arising pursuant to any provision of the DGCL, this Certificate of Incorporation or the Bylaws; (d) any action to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim against the Company governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and to have consented to the provisions of this Article IX.”

5. The foregoing amendments to the Current Certificate have been duly approved by the Company’s Board of Directors in accordance with Sections 141 and 242 of the DGCL.

6. The foregoing amendments to Current Certificate have been duly approved by the Company’s stockholders in accordance with Sections 228 and 242 of the DGCL.

7. This Certificate of Amendment shall be effective upon filing with the Delaware Secretary of State.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 14th day of May, 2015 and the foregoing facts stated herein are true and correct.

 

PRONAI THERAPEUTICS, INC.
By:

/s/ NICK GLOVER

Name: Nick Glover
Title: Chief Executive Officer


CERTIFICATE OF AMENDMENT

TO THE

FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

PRONAI THERAPEUTICS, INC.

ProNAi Therapeutics, Inc. (the “ Company ”), a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “ DGCL ”), does hereby certify that the following amendments to the Company’s Fifth Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on April 16, 2014 (the “ Current Certificate ”), have been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendments by the Company’s stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the DGCL:

1. Article IV, Part C, Section 1(a)(ii) of the Current Certificate is hereby amended and restated in its entirety to read as follows:

“(ii) Notwithstanding the foregoing, in the event the Series D Accruing Dividends are paid upon the conversion of the outstanding shares of the Series D Preferred in connection with the Company’s first firm commitment underwritten public offering of its Common Stock (the “ Initial Public Offering ”) registered under the Securities Act of 1933, as amended (the “ Act ”), the Company shall pay fifty percent (50%) of then-accrued Series D Accruing Dividends in shares of Common Stock, and the remaining fifty percent (50%) of the then-accrued Series D Accruing Dividends shall be forfeited. The number of shares of Common Stock to which a holder of the Series D Preferred shall be entitled upon the payment of the dividend described in this Subsection 1(a)(ii) shall be equal to the quotient obtained by dividing 50% of the then-accrued Series D Accruing Dividend on such holders shares of outstanding Series D Preferred by the Series D Original Issue Price (as defined below). No fractional shares of Common Stock shall be issued upon payment of the Series D Accruing Dividend. The value of any fractional share of Common Stock otherwise issuable to any holder of Series D Preferred upon payment of the Series D Accruing Dividend shall be paid in cash at the Common Stock’s fair market value determined in good faith by the Board as of the date of payment.”

2. Article IV, Part C, Section 1(b)(ii) of the Current Certificate is hereby amended and restated in its entirety to read as follows:

“(ii) Notwithstanding the foregoing, in the event the Series C Accruing Dividends are paid upon the conversion of the outstanding shares of the Series C Preferred in connection with the Initial Public Offering, the Company shall pay fifty percent (50%) of then-accrued Series C Accruing Dividends in shares of Common Stock, and the remaining fifty percent (50%) of the then-accrued Series C Accruing Dividends shall be forfeited. The number of shares of Common Stock to which a holder of the Series C Preferred shall be entitled upon the payment of the dividend described in this Subsection 1(b)(ii) shall be equal to the quotient obtained by dividing 50% of the then-accrued Series C Accruing Dividend on such holders shares of outstanding Series C Preferred by the Series C Original Issue Price (as defined below). No fractional shares of Common Stock shall be issued upon payment of the Series C Accruing Dividend. The value of any fractional share of Common Stock otherwise issuable to any holder of Series C Preferred upon payment of the Series C Accruing Dividend shall be paid in cash at the Common Stock’s fair market value determined in good faith by the Board as of the date of payment.”


3. The foregoing amendments to the Current Certificate have been duly approved by the Company’s Board of Directors in accordance with Sections 141 and 242 of the DGCL.

4. The foregoing amendments to Current Certificate have been duly approved by the Company’s stockholders in accordance with Sections 228 and 242 of the DGCL.

5. This Certificate of Amendment shall be effective upon filing with the Delaware Secretary of State.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 10th day of June, 2015 and the foregoing facts stated herein are true and correct.

 

PRONAI THERAPEUTICS, INC.
By: /s/ NICK GLOVER
Name: Nick Glover
Title: Chief Executive Officer

 

 

 

Exhibit 3.2

PRONAI THERAPEUTICS, INC.

RESTATED CERTIFICATE OF INCORPORATION

ProNAi Therapeutics, Inc., a Delaware corporation, hereby certifies as follows.

1. The name of the corporation is ProNAi Therapeutics, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was May 8, 2003 under the name Phenome Systems, Inc.

2. The Restated Certificate of Incorporation of the corporation attached hereto as Exhibit “A” , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this corporation as previously amended or supplemented, has been duly adopted by the Board of Directors and by the stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, this corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.

 

Dated:

PRONAI THERAPEUTICS, INC.

By:

 

Name: Nick Glover
Title: Chief Executive Officer

 

1


EXHIBIT “A”

PRONAI THERAPEUTICS, INC.

RESTATED CERTIFICATE OF INCORPORATION

ARTICLE I: NAME

The name of the corporation is ProNAi Therapeutics, Inc. (the “ Corporation ”).

ARTICLE II: AGENT FOR SERVICE OF PROCESS

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of the registered agent of the Corporation at that address is Corporation Service Company.

ARTICLE III: PURPOSE

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 the State of Delaware.

ARTICLE IV: AUTHORIZED STOCK

1. Total Authorized . The total number of shares of all classes of stock that the Corporation has authority to issue is Five Hundred and Ten Million (510,000,000) shares, consisting of two classes: Five Hundred Million (500,000,000) shares of Common Stock, $0.001 par value per share (“ Common Stock ”), and Ten Million (10,000,000) shares of Preferred Stock, $0.001 par value per share (“ Preferred Stock ”).

2. Designation of Additional Series.

2.1. The Board of Directors of the Corporation (the “ Board ”) is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, vesting, powers, preferences and relative, participating, optional or other rights, if any, of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series. The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of two-thirds of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, unless a vote of any such holders is required pursuant to the terms of any certificate or certificates establishing a series of Preferred Stock.

 

2


2.2 Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock or any future class or series of Preferred Stock or Common Stock.

2.3 Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided , however , that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock).

ARTICLE V: AMENDMENT OF BYLAWS

The Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the Whole Board. For purposes of this Certificate of Incorporation, the term “ Whole Board ” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided , however , that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation (including any Preferred Stock issued pursuant to a Certificate of Designation), the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.

ARTICLE VI: MATTERS RELATING TO THE BOARD OF DIRECTORS

1. Director Powers . The conduct of the affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

2. Number of Directors . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by resolution adopted by a majority of the Whole Board.

 

3


3. Classified Board . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively (the “ Classified Board ”). The Board may assign members of the Board already in office to the Classified Board, which assignments shall become effective at the same time the Classified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board, with the number of directors in each class to be divided as nearly equal as reasonably possible. The initial term of office of the Class I directors shall expire at the Corporation’s first annual meeting of stockholders following the closing of the Corporation’s initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, relating to the offer and sale of Common Stock to the public (the “ Initial Public Offering ”), the initial term of office of the Class II directors shall expire at the Corporation’s second annual meeting of stockholders following the closing of the Initial Public Offering and the initial term of office of the Class III directors shall expire at the Corporation’s third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.

4. Term and Removal . Each director shall hold office until such director’s successor is elected and qualified, or until such director’s earlier death, resignation or removal. Any director may resign at any time upon notice to the Corporation given in writing or by any electronic transmission permitted in the Corporation’s Bylaws. Subject to the rights of the holders of any series of Preferred Stock, no director may be removed except for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the then-outstanding shares of capital stock of the Corporation then entitled to vote at an election of directors voting together as a single class. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director.

5. Board Vacancies . Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (a) the Board determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which the director has been assigned expires or until such director’s successor shall have been duly elected and qualified, or until such director’s earlier death, resignation or removal.

6. Vote by Ballot . Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

4


ARTICLE VII: DIRECTOR LIABILITY

1. Limitation of Liability . To the fullest extent permitted by law, no director of the Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, 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. Change in Rights . Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.

ARTICLE VIII: MATTERS RELATING TO STOCKHOLDERS

1. No Action by Written Consent of Stockholders . Subject to the rights of any series of Preferred Stock, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting of stockholders and no action shall be taken by the stockholders by written consent.

2. Special Meeting of Stockholders . Special meetings of the stockholders of the Corporation may be called only by the Chairperson of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the Whole Board.

3. Advance Notice of Stockholder Nominations and Business Transacted at Special Meetings . Advance notice of stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before any meeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. Business transacted at special meetings of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.

ARTICLE IX: CHOICE OF FORUM

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders; (c) any action asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law, this Certificate of Incorporation or the Bylaws; (d) any action to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws; or (e) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article IX.

 

5


ARTICLE X: AMENDMENT OF CERTIFICATE OF INCORPORATION

If any provision of this Certificate of Incorporation becomes or is declared on any ground 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 Certificate of Incorporation, and the court will replace such illegal, void or unenforceable provision of this Certificate of Incorporation with a valid and enforceable provision that most accurately reflects the Corporation’s intent, in order to achieve, to the maximum extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Certificate of Incorporation shall be enforceable in accordance with its terms.

The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided , however , that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article X or Article V, Article VI, Article VII or Article VIII.

* * * * * * * * * * *

 

6

Exhibit 3.3

 

 

 

AMENDED AND RESTATED

BYLAWS OF

PRONAI THERAPEUTICS, INC.

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE 1

 

OFFICES

     1   

1.1

 

Registered Office

     1   

1.2

 

Other Offices

     1   

ARTICLE 2

 

STOCKHOLDERS’ MEETINGS

     1   

2.1

 

Place of Meetings

     1   

2.2

 

Annual Meeting

     1   

2.3

 

Special Meetings

     2   

2.4

 

Notice of Meetings

     2   

2.5

 

Quorum

     3   

2.6

 

Adjournment and Notice of Adjourned Meetings

     3   

2.7

 

Voting Rights

     3   

2.8

 

Joint Owners of Stock

     4   

2.9

 

List of Stockholders

     4   

2.10

 

Action Without Meeting

     4   

2.11

 

Organization

     5   

ARTICLE 3

 

DIRECTORS

     6   

3.1

 

Number and Term of Office

     6   

3.2

 

Powers

     6   

3.3

 

Term of Directors

     6   

3.4

 

Vacancies

     6   

3.5

 

Resignation

     7   

3.6

 

Removal

     7   

3.7

 

Meetings

     7   

3.8

 

Quorum and Voting

     8   

3.9

 

Action Without Meeting

     8   

3.10

 

Fees and Compensation

     9   

3.11

 

Committees

     9   

3.12

 

Organization

     10   

ARTICLE 4

 

OFFICERS

     10   

4.1

 

Officers Designated

     10   

4.2

 

Tenure and Duties of Officers

     10   

4.3

 

Resignations

     12   

4.4

 

Removal

     12   

ARTICLE 5

 

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION

     12   

5.1

 

Execution of Corporate Instruments

     12   

5.2

 

Voting of Securities Owned by the Corporation

     12   

ARTICLE 6

 

SHARES OF STOCK

     13   

6.1

 

Form and Execution of Certificates

     13   

6.2

 

Lost Certificates

     13   

 

-i-


TABLE OF CONTENTS

(continued)

 

         Page  

6.3

 

Transfers

     13   

6.4

 

Fixing Record Dates

     14   

6.5

 

Registered Stockholders

     15   

6.6

 

Execution of Other Securities

     15   

ARTICLE 7

 

DIVIDENDS

     15   

7.1

 

Declaration of Dividends

     15   

7.2

 

Dividend Reserve

     16   

ARTICLE 8

 

FISCAL YEAR

     16   

8.1

 

Fiscal Year

     16   

ARTICLE 9

 

INDEMNIFICATION

     16   

9.1

 

Indemnification of Directors, Officers, Employees and Other Agents

     16   

ARTICLE 10

 

NOTICES

     20   

10.1

 

Notices

     20   

ARTICLE 11

 

AMENDMENTS

     21   

11.1

 

Amendments

     21   

ARTICLE 12

 

RIGHT OF FIRST REFUSAL; MARKET STAND-OFF

     21   

12.1

 

Right of First Refusal

     21   

12.2

 

Market Stand-Off

     23   

ARTICLE 13

 

LOANS TO OFFICERS

     24   

13.1

 

Loans to Officers

     24   

 

-ii-


PRONAI THERAPEUTICS, INC.

AMENDED AND RESTATED

BYLAWS

ARTICLE 1

OFFICES

1.1 R EGISTERED O FFICE . The registered office of ProNAi Therapeutics, Inc., a Delaware corporation (the “ Corporation ”), in the State of Delaware shall be in the City of Wilmington, County of New Castle.

1.2 O THER O FFICES . The Corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors of the Corporation (the “ Board of Directors ”), and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE 2

STOCKHOLDERS’ MEETINGS

2.1 P LACE OF M EETINGS . Meetings of the stockholders of the Corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (the “ DGCL ”).

2.2 A NNUAL M EETING .

(a) The annual meeting of the stockholders of the Corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the Corporation’s notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting.

(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Article 2 Section 2.2(a) above, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and (ii) such other business must be a proper matter for stockholder action under the DGCL. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the tenth (10 th ) day following the day on which notice of the date of such annual meeting is given to the stockholders. Such stockholder’s notice shall set forth (A) a brief description of the business

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 1


desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (B) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(c) Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.

2.3 S PECIAL M EETINGS .

(a) Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer or President, (iii) the Board of Directors or (iv) by the holders of shares entitled to cast not less than twenty percent (20%) of the votes at the meeting, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix.

(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer or President, or the Secretary of the Corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Article 2 Section 2.4 below. Nothing contained in this paragraph (b) 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 N OTICE OF M EETINGS . Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, 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 any such meeting. If mailed, notice 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 records of the Corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof or by electronic transmission by such person, either before or after such meeting, and will be

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 2


waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

2.5 Q UORUM . At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy duly authorized at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.

2.6 A DJOURNMENT AND N OTICE OF A DJOURNED M EETINGS . Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof 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 thirty (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.

2.7 V OTING R IGHTS . For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 3


whose names shares stand on the stock records of the Corporation on the record date, as provided in Article 6 Section 6.4 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.

2.8 J OINT O WNERS OF S TOCK . If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsections (b) and (c) shall be a majority or even-split in interest.

2.9 L IST OF S TOCKHOLDERS . The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (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 principal place of business of the Corporation. 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. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.

2.10 A CTION W ITHOUT M EETING .

(a) 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 any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission 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.

(b) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty

 

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(60) days of the earliest date consent is delivered to the Corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the Corporation by delivery to its registered office in the State of Delaware or its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.

(c) 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 or by electronic transmission 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 stockholders to take action were delivered to the Corporation as provided in Section 228(c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

(d) A telegram, cablegram or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxy holder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder and (ii) the date on which such stockholder or proxy holder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

(e) Notwithstanding the foregoing, no such action by written consent or by electronic transmission may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ 1933 Act ”), covering the offer and sale of Common Stock of the Corporation to the public (the “ Initial Public Offering ”).

2.11 O RGANIZATION .

(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

 

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(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

ARTICLE 3

DIRECTORS

3.1 N UMBER AND T ERM OF O FFICE . The authorized number of directors of the Corporation shall be determined as provided in the Corporation’s Certificate of Incorporation or as determined from time to time by resolution of the Board of Directors. Directors need not be stockholders unless so required by the Certificate of Incorporation. If, for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient.

3.2 P OWERS . The powers of the Corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

3.3 T ERM OF D IRECTORS . Subject to any voting agreement among stockholders for the election of directors, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

3.4 V ACANCIES . Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any class or series of capital stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, provided , however , that 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

 

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Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, 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. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.

3.5 R ESIGNATION . Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall 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, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.

3.6 R EMOVAL . Subject to any limitations imposed by applicable law and subject to the contractual rights of holders of any class or series of capital stock, the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors or (ii) without cause by the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power of all then-outstanding shares of capital stock of the Corporation, entitled to vote generally at an election of directors.

3.7 M EETINGS .

(a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designated to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for a regular meeting of the Board of Directors.

(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any director.

(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of

 

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conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, postage prepaid at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the 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.

(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

3.8 Q UORUM AND V OTING .

(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with these Bylaws and the Certificate of Incorporation; provided , however , at any meeting, whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote shall be required by law, the Certificate of Incorporation, any agreement to which the Corporation is a party or these Bylaws.

3.9 A CTION W ITHOUT M EETING . 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 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 such writing or writings or 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.

 

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3.10 F EES AND C OMPENSATION . Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

3.11 C OMMITTEES .

(a) Committees. The Board of Directors may, from time to time, appoint such committees as may be permitted by law. Such committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the Corporation.

(b) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsection (a) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. 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, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they 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.

(c) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Section 3.11 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting

 

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is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

3.12 O RGANIZATION . At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

ARTICLE 4

OFFICERS

4.1 O FFICERS D ESIGNATED . The officers of the Corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the Corporation shall be fixed by or in the manner designated by the Board of Directors.

4.2 T ENURE AND D UTIES OF O FFICERS .

(a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in paragraph (c) of this Article 4 Section 4.2.

(c) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other

 

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officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

(d) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the Corporation, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

(e) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(f) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(g) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant

 

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Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

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

4.3 Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the Corporation under any contract with the resigning officer.

4.4 Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

ARTICLE 5

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING

OF SECURITIES OWNED BY THE CORPORATION

5.1 E XECUTION OF C ORPORATE I NSTRUMENTS .

(a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name without limitation, or to enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation.

(b) All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

(c) Unless 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.

5.2 V OTING OF S ECURITIES O WNED BY THE C ORPORATION . All stock and other securities of other Corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the

 

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person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.

ARTICLE 6

SHARES OF STOCK

6.1 F ORM AND E XECUTION OF C ERTIFICATES . The shares of the Corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or any Vice President, and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by such holder in the Corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back 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 or otherwise required by law or with respect to this section 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.

6.2 L OST C ERTIFICATES . A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The Corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the Corporation in such manner as it shall require or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

6.3 T RANSFERS .

(a) 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 attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

(b) 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.

 

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6.4 F IXING R ECORD D ATES .

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, 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, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, 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. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, 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 date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable 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 Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

 

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(c) 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, in advance, 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 sixty (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.

6.5 R EGISTERED S TOCKHOLDERS . The Corporation 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, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

6.6 E XECUTION OF O THER S ECURITIES . All bonds, debentures and other corporate securities of the Corporation, other than stock certificates (covered in Section 6.1), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided , however , that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

ARTICLE 7

DIVIDENDS

7.1 D ECLARATION OF D IVIDENDS . Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.

 

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7.2 D IVIDEND R ESERVE . Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE 8

FISCAL YEAR

8.1 F ISCAL Y EAR . Unless otherwise fixed by resolution of the Board of Directors, the fiscal year of the Corporation shall be the calendar year.

ARTICLE 9

INDEMNIFICATION

9.1 I NDEMNIFICATION OF D IRECTORS , O FFICERS , E MPLOYEES AND O THER A GENTS .

(a) Directors and Officers. The Corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the Corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d). A director’s entitlement to indemnification under this Article 9 includes his or her capacity both as a member of the Board or Directors and as a member of any committee, including the audit committee, of the Board of Directors.

(b) Employees and Other Agents. The Corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person except officers as the Board of Directors shall determine.

(c) Expenses.

(i) The Corporation shall advance to 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, by reason of the fact that he is or was a director or officer of the Corporation or member of a committee of the Board of Directors, or is or was serving at the request of the Corporation as a director or officer of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, or as a

 

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limited liability company member or manager, as a partner of a partnership or as trustee of a trust, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “ undertaking ”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “ final adjudication ”) that such indemnitee is not entitled to be indemnified for such expenses under this Article 9 or otherwise.

(ii) Notwithstanding the foregoing, unless otherwise determined pursuant to this Article 9, no advance shall be made by the Corporation to an officer of the Corporation (except by reason of the fact that such officer is or was a director of the Corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (1) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (2) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the 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 Corporation.

(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the Corporation and the director or officer. Any right to indemnification or advances granted by this Article 9 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefore. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the Corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the Corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the Corporation) for advances, the Corporation shall be entitled to raise a defense as to any such action clear and convincing evidence 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 Corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful.

 

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(e) Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article 9 or otherwise shall be on the Corporation.

(f) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding 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 advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.

(g) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

(h) Insurance. To the fullest extent permitted by the DGCL, or any other applicable law, the Corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. The Corporation shall promptly notify its directors and officers of any change, lapse or cancellation of such insurance coverage.

(i) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation.

(j) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. If this Article 9 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the Corporation shall indemnify each director and officer to the full extent under applicable law.

 

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(k) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:

(i) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(ii) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(iii) The term 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, and 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 Bylaw with respect to the resulting or surviving Corporation as he would have with respect to such constituent Corporation if its separate existence had continued.

(iv) References to a “director,” “officer,” “employee,” or “agent” of the Corporation shall include, without limitation, situations where such person is serving at the request of the Corporation as, respectively, a director, officer, employee, trustee or agent of another Corporation, limited liability company, partnership, joint venture, trust or other enterprise, or as a limited liability company member or manager, as a partner of a partnership or as trustee of a trust. References to “director” and “directors” include directors in their capacities as members of the Board of Directors and as members of any committee (including the audit committee) of the Board of Directors.

(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 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 he 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 Bylaw.

 

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ARTICLE 10

NOTICES

10.1 N OTICES .

(a) Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Article 2 Section 2.4 above. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by United States mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.

(b) Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or as provided for in Article 3 Section 3.7 of these Bylaws. If such notice is not delivered personally, it shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.

(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(e) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the Corporation, 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 any provision of 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.

(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the 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

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 20


given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the Corporation within 60 days of having been given notice by the Corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the Corporation.

ARTICLE 11

AMENDMENTS

11.1 A MENDMENTS . Subject to the limitations set forth elsewhere in these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.

ARTICLE 12

RIGHT OF FIRST REFUSAL; MARKET STAND-OFF

12.1 R IGHT OF F IRST R EFUSAL . No stockholder shall sell, assign, pledge, or in any manner transfer any of the shares of Common Stock of the Corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this Bylaw:

(a) If a stockholder desires to sell or otherwise transfer any of his shares of Common Stock, then the stockholder shall first give written notice thereof to the Corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer.

(b) For thirty (30) days following receipt of such notice, the Corporation shall have the option to purchase all (but not less than all) of the shares specified in the notice at the price and upon the terms set forth in such notice; provided , however , that, with the consent of the stockholder, the Corporation shall have the option to purchase a lesser portion of the shares specified in such notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Article 12 Section 12.1, the price shall be deemed to be the fair market value of the Common Stock at such time as determined in good faith by the Board of Directors. In the event the Corporation elects to purchase all of the shares or, with consent of the stockholder, a lesser portion of the shares, it shall give written notice to the transferring stockholder of its election and settlement for such shares shall be made as provided below in paragraph (d).

(c) The Corporation may assign its rights hereunder.

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 21


(d) In the event the Corporation and/or its assignee(s) elect to acquire any of the shares of the transferring stockholder as specified in such transferring stockholder’s notice, the Secretary of the Corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the Corporation receives such transferring stockholder’s notice; provided that if the terms of payment set forth in such transferring stockholder’s notice were other than cash against delivery, the Corporation and/or its assignee(s) shall pay for such shares on the same terms and conditions set forth in such transferring stockholder’s notice.

(e) In the event the Corporation and/or its assignees(s) do not elect to acquire all of the shares specified in the transferring stockholder’s notice, such transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the Corporation and/or its assignees(s) herein, transfer the shares specified in such transferring stockholder’s notice which were not acquired by the Corporation and/or its assignees(s) as specified in such transferring stockholder’s notice. All shares so sold by such transferring stockholder shall continue to be subject to the provisions of this Bylaw in the same manner as before such transfer.

(f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Bylaw:

(i) A stockholder’s transfer of any or all shares held either during such stockholder’s lifetime or on death by will or intestacy to such stockholder’s immediate family or to any custodian or trustee for the account of such stockholder or such stockholder’s immediate family or to any limited partnership of which the stockholder, members of such stockholder’s immediate family or any trust for the account of such stockholder or such stockholder’s immediate family will be the general of limited partner(s) of such partnership. “ Immediate family ” as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer.

(ii) A stockholder’s bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of such shares by such institution shall be conducted in the manner set forth in this Bylaw.

(iii) A stockholder’s transfer of any or all of such stockholder’s shares to the Corporation or to any other stockholder of the Corporation.

(iv) A stockholder’s transfer of any or all of such stockholder’s shares to a person who, at the time of such transfer, is an officer or director of the Corporation.

(v) A corporate stockholder’s transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder.

(vi) A corporate stockholder’s transfer of any or all of its shares to any or all of its stockholders.

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 22


(vii) A transfer by a stockholder which is a limited or general partnership to any or all of its partners or former partners.

(viii) In any such case, the transferee, assignee, or other recipient shall receive and hold such Common Stock subject to the provisions of this Bylaw, and there shall be no further transfer of such Common Stock except in accord with this Bylaw.

(g) The provisions of this Bylaw may be waived with respect to any transfer either by the Corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation (excluding the votes represented by those shares to be transferred by the transferring stockholder). This Bylaw may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the Corporation.

(h) Any sale or transfer, or purported sale or transfer, of Common Stock of the Corporation shall be null and void unless the terms, conditions, and provisions of this Bylaw are strictly observed and followed.

(i) The foregoing right of first refusal shall terminate upon the date securities of the Corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities Act of 1933, as amended.

(j) If there is any conflict between the terms, conditions and obligations of this Bylaw and the terms, conditions and obligations of a written agreement between the Corporation and a stockholder, the terms, conditions and obligations of such agreement shall control.

(k) The certificates representing shares of Common Stock of the Corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.”

12.2 M ARKET S TAND -O FF . Each holder of capital stock of the Corporation shall not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Corporation’s initial public offering (the “ IPO ”) and ending on the date specified by the Corporation and the managing underwriter (such period not to exceed 180 days) or, if required by such underwriter, such longer period of time as is necessary to enable such underwriter to issue a research report or make a public appearance that relates to an earnings release or announcement by the Corporation within eighteen (18) days prior to or after the date that is one hundred eighty (180) days after the effective date of the registration statement relating to such offering, but in any event not to exceed two hundred ten (210) days following the effective date of the registration statement relating to such offering

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 23


(a) lend, 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, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock held immediately prior to the effectiveness of the registration statement for the IPO, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the capital stock, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of capital stock or other securities, in cash or otherwise. The foregoing provisions of this Section shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the holder of capital stocks if all officers, directors and holders of more than three percent (3%) of the outstanding shares of company common stock (after giving effect to the conversion into common stock of all outstanding series of preferred stock) enter into similar agreements. Each holder of capital stock further agrees to execute such agreements as may be reasonably requested by the underwriters in the IPO that are consistent with this Section or that are necessary to give further effect thereto.

ARTICLE 13

LOANS TO OFFICERS

13.1 L OANS TO O FFICERS . Except as otherwise prohibited by applicable law and subject to any restrictions in the Certificate of Incorporation or any agreement to which the Corporation is a party, the Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

 

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS - 24


CERTIFICATE OF ADOPTION OF

AMENDED AND RESTATED BYLAWS

OF

PRONAI THERAPEUTICS, INC

CERTIFICATE BY SECRETARY

The undersigned hereby certifies that the undersigned is the duly elected and acting Secretary of ProNAi Therapeutics, Inc., and that the foregoing Amended and Restated Bylaws were adopted as the Bylaws of the Corporation on June 24, 2008 by the Board of Directors of the Corporation.

Executed this 24 th day of June, 2008.

 

/s/ Robert Forgey

Robert Forgey

P RO NA I T HERAPEUTICS , I NC . A MENDED AND R ESTATED B YLAWS – C ERTIFICATE OF A DOPTION

Exhibit 3.4

 

 

 

PRONAI THERAPEUTICS, INC.,

a Delaware Corporation

AMENDED AND RESTATED BYLAWS

As Adopted     , 2015

 

 

 


PRONAI THERAPEUTICS, INC.,

a Delaware Corporation

AMENDED AND RESTATED BYLAWS

TABLE OF CONTENTS

 

Article I - STOCKHOLDERS

Section 1.1:

Annual Meetings

Section 1.2:

Special Meetings

Section 1.3:

Notice of Meetings

Section 1.4:

Adjournments

Section 1.5:

Quorum

Section 1.6:

Organization

Section 1.7:

Voting; Proxies

Section 1.8:

Fixing Date for Determination of Stockholders of Record

Section 1.9:

List of Stockholders Entitled to Vote

Section 1.10:

Inspectors of Elections

Section 1.11:

Notice of Stockholder Business; Nominations

Article II - BOARD OF DIRECTORS

Section 2.1:

Number; Qualifications

Section 2.2:

Election; Resignation; Removal; Vacancies

Section 2.3:

Regular Meetings

Section 2.4:

Special Meetings

Section 2.5:

Remote Meetings Permitted

Section 2.6:

Quorum; Vote Required for Action

Section 2.7:

Organization

Section 2.8:

Written Action by Directors

Section 2.9:

Powers

Section 2.10:

Compensation of Directors

Article III - COMMITTEES

Section 3.1:

Committees

Section 3.2:

Committee Rules

Article IV - OFFICERS

Section 4.1:

Generally

Section 4.2:

Chief Executive Officer

Section 4.3:

Chairperson of the Board

Section 4.4:

President

Section 4.5:

Vice President

 

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Section 4.6:

Chief Financial Officer

Section 4.7:

Treasurer

Section 4.8:

Secretary

Section 4.9:

Delegation of Authority

Section 4.10:

Removal

Article V - STOCK

Section 5.l:

Certificates

Section 5.2:

Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares

Section 5.3:

Other Regulations

Article VI - INDEMNIFICATION

Section 6.1:

Indemnification of Officers and Directors

Section 6.2:

Advancement of Expenses

Section 6.3:

Non-Exclusivity of Rights

Section 6.4:

Indemnification Contracts

Section 6.5:

Right of Indemnitee to Bring Suit

Section 6.6:

Nature of Rights

Section 6.7:

Insurance

Article VII - NOTICES

Section 7.l:

Notice

Section 7.2:

Waiver of Notice

Article VIII - INTERESTED DIRECTORS

Section 8.1:

Interested Directors

Section 8.2:

Quorum

Article IX – MISCELLANEOUS

Section 9.1:

Fiscal Year

Section 9.2:

Seal

Section 9.3:

Form of Records

Section 9.4:

Reliance Upon Books and Records

Section 9.5:

Certificate of Incorporation Governs

Section 9.6:

Severability

Article X - AMENDMENT

 

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PRONAI THERAPEUTICS, INC.,

a Delaware Corporation

AMENDED AND RESTATED BYLAWS

As Adopted     , 2015

ARTICLE I: STOCKHOLDERS

Section 1.1 : Annual Meetings . An annual meeting of stockholders shall be held for the election of directors at such date and time as the Board of Directors of the Corporation (the “ Board ”) shall each year fix. The meeting may be held either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the “ DGCL ”), or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.

Section 1.2 : Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the “ Whole Board ,” which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships. Special meetings may not be called by any other person or persons. The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine.

Section 1.3 : Notice of Meetings . Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting, the means of remote communications, if any, by which stockholders and proxyholders 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. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (the “ Certificate of Incorporation ”), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.

Section 1.4 : Adjournments . The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and 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; provided , however , that if the adjournment is for more than thirty (30) days, or if a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the Board may postpone or reschedule any previously scheduled special or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.

 

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Section 1.5 : Quorum . At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, unless otherwise required by applicable law. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class 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. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided , however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum.

Section 1.6 : Organization . Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.10 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 1.7 : Voting; Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast. Unless otherwise provided by applicable law, the rules of any stock exchange upon which the Corporation’s securities are listed, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by a majority of the votes cast for or against the matter.

Section 1.8 : Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or entitled to receive payment of any dividend or other distribution or allotment of any rights, 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, unless otherwise required by law, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60), nor less than ten (10), days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board, then the record date shall be as provided by applicable law. To the fullest extent permitted by law, a determination of

 

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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 may fix a new record date for the adjourned meeting.

Section 1.9 : List of Stockholders Entitled to Vote . A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also 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 at the meeting. If the meeting is held solely by means of remote communication, then the list shall 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 the list shall be provided with the notice of the meeting.

Section 1.10 : Inspectors of Elections .

1.10.1 Applicability . Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Board.

1.10.2 Appointment . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.

1.10.3 Inspector’s Oath . Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

1.10.4 Duties of Inspectors . At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

 

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1.10.5 Opening and Closing of Polls . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

1.10.6 Determinations . In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(b)(i) or (iii) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 1.11: Notice of Stockholder Business; Nominations .

1.11.1 Annual Meeting of Stockholders .

(a) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of such meeting, (ii) by or at the direction of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations or propose business (other than business included in the Corporation’s proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “ Exchange Act ”)), at an annual meeting of stockholders.

(b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 1.11.1(a):

(i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation;

(ii) such other business must otherwise be a proper matter for stockholder action;

(iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined in this Section, such stockholder or beneficial owner must, in the case of

 

4


a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and

(iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section.

To be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding year’s annual meeting (except in the case of the Corporation’s first annual meeting following its initial public offering, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by Section 1.11.2); provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and fifth (105th) day prior to currently proposed annual meeting and (B) no later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder’s notice shall set forth:

(x) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to Regulation 14A under the Exchange Act, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(y) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and

(z) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (aa) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (bb) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner, (cc) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, (dd) a description of any agreement, arrangement or understanding (including any derivative or

 

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short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to shares of stock of the Corporation, (ee) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination and (ff) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent being a “ Solicitation Notice ”). If requested by the Corporation, the information required under clauses (bb), (cc) and (dd) of this subparagraph (z) shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such information as of the record date.

(c) Notwithstanding anything in the second sentence of Section 1.11.1(b) to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least seventy five (75) days prior to the first anniversary of the preceding year’s annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy five (75) days prior to such annual meeting), a stockholder’s notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation no later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.

1.11.2 Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of such meeting (a) by or at the direction of the Board or (b) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 1.11.1(b) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (i) no earlier than the one hundred fifth (105th) day prior to such special meeting and (ii) no later than the close of business on the later of the seventy fifth (75th) day prior to such special meeting or the tenth (10th) 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 to be elected at such meeting.

 

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1.11.3 General .

(a) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded.

(b) For purposes of this Section 1.11, the term “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(c) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

ARTICLE II: BOARD OF DIRECTORS

Section 2.1 : Number; Qualifications . The Board shall consist of one or more members. The initial number of directors shall be fixed from time to time as set forth in the Certificate of Incorporation. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.

Section 2.2 : Election; Resignation; Removal; Vacancies . The directors shall be divided, with respect to the time for which they severally hold office, into classes as provided in the Certificate of Incorporation, and vacancies occurring in the Board and any newly created directorships resulting from any increase in the authorized number of directors shall be filled, as provided in the Certificate of Incorporation.

Section 2.3 : Regular Meetings . Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.

Section 2.4 : Special Meetings . Special meetings of the Board may be called by the Chairperson of the Board, the President or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.

 

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Section 2.5 : Remote Meetings Permitted . Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such 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 participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.

Section 2.6 : Quorum; Vote Required for Action . Subject to the Certificate of Incorporation regarding the ability of members of the Board to fill a vacancy occurring in the Board, a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.

Section 2.7 : Organization . Meetings of the Board shall be presided over by the Chairperson of the Board, or in such person’s absence by the President, or in such person’s absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8 : Written Action by Directors . 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 such 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, respectively, in the minute books of the Corporation. 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.

Section 2.9 : Powers . The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.

Section 2.10 : Compensation of Directors . Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.

ARTICLE III: COMMITTEES

Section 3.1 : Committees . The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. 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 the committee, the member or members thereof present at any meeting of such committee who are 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 place of any such absent or disqualified member. Any such committee, to the extent

 

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provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board 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 in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.

Section 3.2 : Committee Rules . Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.

ARTICLE IV: OFFICERS

Section 4.1 : Generally . The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a Secretary and a Treasurer and may consist of such other officers, including a Chief Financial Officer and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided , however , that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such person’s successor is appointed or until such person’s earlier resignation, death or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board.

Section 4.2 : Chief Executive Officer . Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:

(a) To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;

(b) Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;

(c) Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper;

(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation; and

 

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(e) To vote and otherwise act on, or to authorize any officer to vote or otherwise act on, on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise, or authorize any officer otherwise to exercise, any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.

Section 4.3 : Chairperson of the Board . The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.

Section 4.4 : President . The Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.

Section 4.5 : Vice President . Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer’s absence or disability.

Section 4.6 : Chief Financial Officer . The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.

Section 4.7 : Treasurer . The Treasurer shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section 4.8 : Secretary . The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and

 

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the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.

Section 4.9 : Delegation of Authority . The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

Section 4.10 : Removal . Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.

ARTICLE V: STOCK

Section 5.1 Certificates .  The shares of capital stock of the Corporation shall be represented by certificates; provided, however, that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Notwithstanding the adoption of such resolution by the Board, each 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 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 Corporation, certifying the number of shares owned by such stockholder in the Corporation. 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 shall have 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 an officer, transfer agent or registrar at the date of issue.

Section 5.2 : Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares . The Corporation may issue a new certificate of stock, or uncertificated shares, in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be 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 agree to indemnify the Corporation and/or 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.

Section 5.3 : Other Regulations . The issue, transfer, conversion and registration of stock certificates and uncertificated securities shall be governed by such other regulations as the Board may establish.

 

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ARTICLE VI: INDEMNIFICATION

Section 6.1 : Indemnification of Officers and Directors . Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “ Indemnitee ”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of such Indemnitees’ heirs, executors and administrators. Notwithstanding the foregoing, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board. As used herein, the term the “ Reincorporated Predecessor ” means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware. 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 this Section 6.1 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.

Section 6.2 : Advancement of Expenses . Except as otherwise provided in a written indemnification agreement between the Corporation and an Indemnitee, the Corporation shall pay all expenses (including attorneys’ fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided , however , that if the DGCL then so requires, the payment of such expenses incurred by such Indemnitee in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise. Expenses (including attorneys’ fees) actually and reasonably 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

 

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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 VI or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. 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 6.1 prior to a determination that the person is not entitled to be indemnified by the corporation.

Section 6.3 : Non-Exclusivity of Rights . The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

Section 6.4 : Indemnification Contracts . The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person 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 employee benefit plans, that provide indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.

Section 6.5 : Right of Indemnitee to Bring Suit . The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.

6.5.1 Right to Bring Suit . If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.

6.5.2 Effect of Determination . Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.

 

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6.5.3 Burden of Proof . In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.

Section 6.6 : Nature of Rights . The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.

Section 6.7 : 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.

ARTICLE VII: NOTICES

Section 7.1 : Notice .

7.1.1 Form and Delivery . Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via telegram, cablegram, facsimile, electronic mail or other form of electronic transmission, when dispatched.

7.1.2 Electronic Transmission . Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation

 

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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 in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) 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; provided , however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 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 such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.

7.1.3 Affidavit of Giving Notice . 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 in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Section 7.2 : 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 of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, 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, directors or members of a committee of directors need be specified in any waiver of notice.

ARTICLE VIII: INTERESTED DIRECTORS

Section 8.1 : Interested Directors . No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.

 

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Section 8.2 : Quorum . Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

ARTICLE IX: MISCELLANEOUS

Section 9.1 : Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board.

Section 9.2 : Seal . The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.

Section 9.3 : Form of Records . Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.

Section 9.4 : Reliance upon Books and Records . A member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

Section 9.5 : Certificate of Incorporation Governs . In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.

Section 9.6 : Severability . If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.

ARTICLE X: AMENDMENT

Notwithstanding any other provision of these Bylaws, any amendment or repeal of these Bylaws, or adoption of Bylaws, shall require the approval of the Board or the stockholders of the Corporation as provided in the Certificate of Incorporation.

 

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Exhibit 4.2

PRONAI THERAPEUTICS, INC.

THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT


TABLE OF CONTENTS

 

         Page  

SECTION 1. GENERAL

     1   

1.1

 

Definitions

     1   

SECTION 2. RESTRICTIONS ON TRANSFER; REGISTRATION

     3   

2.1

 

Restrictions on Transfer

     3   

2.2

 

Demand Registration

     5   

2.3

 

Piggyback Registrations

     7   

2.4

 

Short Form Registration

     8   

2.5

 

Expenses of Registration

     9   

2.6

 

Obligations of the Company

     9   

2.7

 

Termination of Registration Rights

     11   

2.8

 

Delay of Registration; Furnishing Information

     11   

2.9

 

Indemnification

     11   

2.10

 

Assignment of Registration Rights

     13   

2.11

 

Amendment of Registration Rights

     13   

2.12

 

Limitation on Subsequent Registration Rights

     14   

2.13

 

“Market Stand-Off” Agreement

     14   

2.14

 

Agreement to Furnish Information

     14   

2.15

 

Rule 144 Reporting

     14   

SECTION 3. COVENANTS OF THE COMPANY

     15   

3.1

 

Basic Financial Information and Reporting

     15   

3.2

 

Operating Budget

     16   

3.3

 

Inspection

     16   

3.4

 

Confidentiality of Records

     16   

3.5

 

Payment of Corporate Taxes; Corporate Existence and Licenses; Maintenance of Properties

     16   

 

-i-


TABLE OF CONTENTS

 

         Page  

3.6

 

Insurance

     17   

3.7

 

Maintenance and Protection of Intellectual Property

     17   

3.8

 

Employee Agreements

     18   

3.9

 

Employee Vesting

     18   

3.10

 

Related Party Transactions

     18   

3.11

 

Matters Requiring Majority of the Board Approval

     18   

3.12

 

Board Matters

     19   

3.13

 

Termination of Covenants

     20   

SECTION 4. PARTICIPATION RIGHTS.

     20   

4.1

 

Subsequent Offerings

     20   

4.2

 

Exercise of Rights

     20   

4.3

 

Issuance of Equity Securities to Other Persons

     20   

4.4

 

Termination And Waiver Of Participation Rights

     21   

4.5

 

Transfer Of Participation Rights

     21   

4.6

 

Sale Without Notice

     21   

4.7

 

Loss Of Participation Rights

     21   

4.8

 

Excluded Securities

     21   

SECTION 5. MISCELLANEOUS.

     22   

5.1

 

Governing Law; Consent to Jurisdiction; Waiver of Jury Trial

     22   

5.2

 

Successors and Assigns

     23   

5.3

 

Entire Agreement

     23   

5.4

 

Effect on Prior Agreement

     23   

5.5

 

Severability

     23   

5.6

 

Amendment and Waiver

     23   

 

-ii-


TABLE OF CONTENTS

 

         Page  

5.7

 

Delays or Omissions

     24   

5.8

 

Notices

     24   

5.9

 

Attorneys’ Fees

     24   

5.10

 

Titles and Subtitles

     25   

5.11

 

Additional Investors

     25   

5.12

 

Aggregation of Stock

     25   

5.13

 

Counterparts

     25   

 

-iii-


PRONAI THERAPEUTICS, INC.

THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

T HIS T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT (this “ Agreement ”) is entered into as of April 17, 2014 by and among P RO NA I T HERAPEUTICS , I NC . , a Delaware corporation (the “ Company ”), and the Investors listed on Exhibit A attached to this Agreement (collectively, the “ Investors ” and each, without distinction among them, an “ Investor ”).

R ECITALS

WHEREAS, certain of the Investors (the “ Prior Investors ”) are holders of the Company’s Series A Preferred Stock (the “ Series A Preferred ”), the Company’s Series B Preferred Stock (the “ Series B Preferred ”), the Company’s Series B-1 Preferred Stock (the “ Series B-1 Preferred ”, collectively with the Series B Preferred, the “ Preferred B Stock ”) or the Company’s Series C Preferred Stock (the “ Series C Preferred ”); and

WHEREAS, certain of the Investors (the “ New Investors ”), concurrent with the execution of this Agreement, are purchasing shares of the Company’s Series D Preferred Stock (the “ Series D Preferred ”, together with the Series A Preferred, the Preferred B Stock and the Series C Preferred, the “ Preferred ”) pursuant to that certain Series D Preferred Stock Purchase Agreement of even date herewith (the “ Purchase Agreement ”), by and among the Company and the New Investors; and

WHEREAS, the Prior Investors and the Company entered into that certain Second Amended and Restated Investor Rights Agreement dated December 20, 2013 (the “ Prior Agreement ”); and

WHEREAS, the Company and the Prior Investors desire to amend and restate the Prior Agreement to provide the New Investors with the rights and privileges set forth herein.

A GREEMENT

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1. GENERAL.

1.1 D EFINITIONS . As used in this Agreement the following terms shall have the following respective meanings:

(a) Change in Control ” means (i) the sale of substantially all of the assets of the Company, or (ii) the consolidation or merger of the Company with or into any other corporation or other entity or person or any other corporate reorganization, in which the capital stock of the Company prior to such consolidation, merger or reorganization, represents less than


fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization, provided , however , that (A) any consolidation or merger effected exclusively to change the domicile of the Company, or (B) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof, shall not constitute a Change in Control.

(b) Common Stock ” means the Company’s common shares, as so designated in the Restated Certificate.

(c) Equity Securities ” means (i) any Common Stock, the Preferred or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, the Preferred or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, the Preferred or other security, or (iv) any such warrant or right.

(d) Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(e) Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(f) Holder ” means any Investor owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof.

(g) Initial Offering ” means the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Securities Act.

(h) Proprietary Rights ” means patents, trademarks, trade names, know-how, rights in trade dress and packaging, and shop rights, copyrights, inventions, trade secrets, service marks and all other intellectual property rights, in each case whether registered or not and in each case wherever such rights exist throughout the world, and including the right to recover for any past infringement.

(i) Register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(j) Registrable Securities ” means (i) Common Stock of the Company issued or issuable upon conversion of the Preferred and (ii) any other shares of Common Stock of the Company held beneficially or of record (or issuable upon the conversion or exercise of any warrant, right or other security which is held beneficially or of record) by a holder of the securities described in the foregoing clause (i). Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor’s rights under Section 2 of this Agreement are not assigned.

 

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(k) Registrable Securities Deemed Outstanding ” means the shares of the Company’s Common Stock that are Registrable Securities that are either: (i) then issued and outstanding, or (ii) issuable upon the exercise or conversion of vested rights under exercisable or convertible securities.

(l) Registration Expenses ” means all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed $30,000 for a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).

1.2 Restated Certificate ” means the Fifth Amended and Restated Certificate of Incorporation of the Company, as it may be amended or further restated from time to time as permitted by the terms thereof and this Agreement.

(a) Rule 144 ” means Rule 144, as promulgated under the Securities Act, or any similar or analogous rule promulgated under the Securities Act.

(b) SEC ” or “ Commission ” means the Securities and Exchange Commission.

(c) Securities Act ” means the Securities Act of 1933, as amended.

(d) Selling Expenses ” means all underwriting discounts and selling commissions applicable to the sale.

(e) Special Registration Statement ” means (i) a registration statement relating to any employee benefit plan, (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statements related to the resale of securities issued in such a transaction, or (iii) a registration related to stock issued upon conversion of debt securities.

(f) State Securities Laws ” means all applicable state securities laws and regulations, including, without limitation, the registration, permit or qualification requirements thereunder.

SECTION 2. RESTRICTIONS ON TRANSFER; REGISTRATION.

2.1 R ESTRICTIONS ON T RANSFER .

(a) Each Holder agrees not to make any disposition of all or any portion of Registrable Securities unless and until:

(i) There is then in effect a registration statement under the Securities Act and the State Securities Laws covering such proposed disposition and such disposition is made in accordance with such registration statement; or

 

3


(ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. Notwithstanding the foregoing, no such opinion of counsel shall be required in connection with any transfer of shares of Registrable Securities made in compliance with Rule 144 and State Securities Laws.

(iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder that is (A) a partnership transferring to its partners or former partners in accordance with partnership interests, (B) a corporation transferring to a wholly-owned subsidiary or a parent corporation that owns all of the capital stock of the Holder, (C) a limited liability company transferring to its members or former members in accordance with their interest in the limited liability company, or (D) an individual transferring to the Holder’s family member or trust for the benefit of an individual Holder; provided , however , that in each case the transferee will be subject to the terms of this Agreement to the same extent as if the transferee were an original Holder hereunder.

(b) Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under State Securities Laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY).

(c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any Holder thereof if the Holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend.

 

4


(d) Any legend endorsed on an instrument pursuant to State Securities Laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal.

(e) The restrictions set forth in this Section 2.1 shall terminate upon completion of the Company’s Initial Offering.

2.2 D EMAND R EGISTRATION .

(a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of not less than twenty-five percent (25%) of the outstanding shares of the Registrable Securities (the “ Initiating Holders ”) that the Company file a registration statement under the Securities Act having an aggregate offering price to the public of not less than $5,000,000 (a “ Qualified Public Offering ”), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, the Company shall use its commercially reasonable efforts to effect the registration under the Securities Act of all Registrable Securities that the Holders request to be registered.

(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration 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 enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders); provided , however , that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other outstanding securities of the Company are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. A registration statement shall not be counted if, as a result of an exercise of the underwriter’s cut-back provisions, fewer than 25% of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

 

5


(c) The Company shall not be required to effect a registration pursuant to this Section 2.2:

(i) prior to the earlier of (A) the third anniversary of the date of this Agreement, or (B) one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering;

(ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective;

(iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of, the registration statement on Form S-1, Form SB-1 or Form SB-2, or any similar or successor form pertaining to the Initial Offering; provided, however , that the Company makes a reasonable good faith effort to effect such registration as soon thereafter as practicable;

(iv) prior to ninety (90) days after the first follow-on offering of the Company’s Common Stock to the public that is registered under the Securities Act and follows the Initial Offering;

(v) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company’s intention to file a registration statement with respect to the Initial Offering within ninety (90) days;

(vi) if the Registrable Securities to be included in the registration statement could be sold without restriction under SEC Rule 144(k) within a ninety (90) day period and the Company is currently subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act;

(vii) if the Company shall furnish to Holders requesting a registration pursuant to this Section 2.2, a certificate signed by 1) the Chairman of the Board of Directors of the Company (the “ Board ”) or 2) a majority of the then-serving members of the Board stating that in their good faith judgment, it would directly, materially and adversely affect the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided , however , that such right to delay a request together with the similar right pursuant to Section 2.4(b)(v) shall be exercised by the Company not more than once in any twelve (12) month period;

(viii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below; or

(ix) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

 

6


2.3 P IGGYBACK R EGISTRATIONS .

(a) The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company solely for cash (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding Special Registration Statements) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within ten (10) business days after the above-described notice from the Company, so notify the Company in writing and the Company will use its commercially reasonable efforts to cause the Registrable Securities so requested by such Holder to be included in such registration statement. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of such Holder’s Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.

(b) If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 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 Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities offered for sale by the Holders; and third, to any stockholder of the Company (other than a Holder) on a pro rata basis, provided , however , that no such reduction shall reduce the amount of securities of the selling Holders included in the registration below thirty percent (30%) of the total amount of securities included in such registration unless such offering is the Initial Offering, in which case, the selling Holders may be excluded. In no event will shares of any other selling stockholder be included in such registration that would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “Holder,”

 

7


and any pro rata reduction with respect to such “Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “Holder,” as defined in this sentence.

(c) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof.

2.4 S HORT F ORM R EGISTRATION . In the event the Company shall receive from any Holder or Holders of not less than twenty percent (20%) of the Registrable Securities a written request or requests that the Company effect a registration on Form S-3, Form S-2, or any successor or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will use its commercially reasonable efforts to:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) business days after receipt of such written notice from the Company; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4:

(i) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3, Form S-2 or any similar short form registration statement for the Holders pursuant to this Section 2.4;

(ii) if Form S-3/S-2 is not available to the Company for such offering by the Holders;

(iii) 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) at an aggregate price to the public of less than $5,000,000;

(iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.4, the Company gives notice to the Holders of the Company’s intention to file a registration statement for a public offering, other than pursuant to a Special Registration Statement within ninety (90) days;

(v) if the Company shall furnish to the Holders a certificate signed by 1) the Chairman of the Board or 2) a majority of the then-serving members of the Board, stating that in the good faith judgment of the Board, it would directly, materially and adversely effect

 

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the Company and its stockholders for such Form S-3 or S-2 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 or S-2 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided , however , that such right to delay a request together with the similar right pursuant to Section 2.2(c)(vii) shall be exercised by the Company not more than once in any twelve (12) month period; or

(vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

(c) Subject to the foregoing, the Company shall file a Form S-3 or Form S-2, as applicable, registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the requests of the Holders.

2.5 E XPENSES OF R EGISTRATION . Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2, 2.3 or 2.4 hereof shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered, pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not notified in writing by the Company prior to the time of such request, or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2, in which event such right shall be forfeited by all Holders. If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or to a demand registration.

2.6 O BLIGATIONS OF THE C OMPANY . Whenever required to effect the registration of any Registrable Securities, the Company shall, use it commercially reasonable efforts to:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto; provided , however , that at any time, upon written notice to the participating Holders and for a period not to exceed sixty (60) days thereafter (the “ Suspension Period ”), the Company may delay the filing or effectiveness of any registration statement or suspend the use or effectiveness of any registration statement (and the Initiating Holders hereby agree not to offer or sell any Registrable Securities pursuant to such registration statement during the Suspension Period) if the Company reasonably believes that the Company may, in the absence of such delay

 

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or suspension hereunder, be required under state or federal securities laws to disclose any corporate development the disclosure of which could reasonably be expected to have an adverse effect upon the Company, its stockholders, a potentially significant transaction or event involving the Company, or any negotiations, discussions, or proposals directly relating thereto. No more than two (2) such Suspension Periods shall occur in any twelve (12) month period. In the event that the Company shall exercise its rights hereunder, the applicable time period during which the registration statement is to remain effective shall be extended by a period of time equal to the duration of the Suspension Period. The Company may extend the Suspension Period for an additional consecutive sixty (60) days with the consent of the sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold by the Initiating Holders, which consent shall not be unreasonably withheld. If so directed by the Company, the Initiating Holders shall use their reasonable efforts to deliver to the Company (at the Company’s expense) or destroy all copies, other than permanent file copies then in such Initiating Holders’ possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.

(b) Prepare and file with the SEC 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 paragraph (a) above.

(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d) Register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided , however , 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.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such underwriting agreement.

(f) Cause all such Registrable Securities registered pursuant to this Agreement to be listed on a national securities exchange or trading system and each securities exchange and trading system on which similar securities issued by the Company are then listed.

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

 

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(h) Use its reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, those items required to be delivered by or on behalf of the Company to the underwriters pursuant to the underwriting agreement.

2.7 T ERMINATION OF R EGISTRATION R IGHTS . All registration rights granted under this Section 2 shall terminate and be of no further force and effect upon the earlier of: (a) five (5) years after the date of the Company’s Initial Offering or (b) the occurrence of an event contemplated by Subsection 3(g) of Section C of Article IV of the Restated Certificate. In addition, a Holder’s registration rights shall expire if all Registrable Securities held by and issuable to such Holder (and its affiliates) may be sold in a single transaction pursuant to Rule 144.

2.8 D ELAY OF R EGISTRATION ; F URNISHING I NFORMATION .

(a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

(b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities as shall be necessary in order to assure compliance with federal and applicable State Securities Laws.

2.9 I NDEMNIFICATION . In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the 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, the Exchange Act, any State Securities Law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any State Securities Law in connection with the offering covered by such registration statement; and the Company will pay, as incurred, to each such Holder, partner, officer, director, underwriter or controlling person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim ,

 

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damage, liability or action; provided , however , that the indemnity agreement contained in this Section 2.9(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, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder, which information relates to such person or entity or his or its relationship with the Company.

(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 qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder’s partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder to the Company specifically for use in connection with such registration, which information relates to such person or entity or his or its relationship with the Company; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided , however , that the indemnity agreement contained in this Section 2.9(b) 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 Holder, which consent shall not be unreasonably withheld.

(c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the

 

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indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9.

(d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability 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 Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law 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; provided , however , that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder.

(e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. 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 which 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.

2.10 A SSIGNMENT OF R EGISTRATION R IGHTS . The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities that (a) is a partner or retired partner of any Holder which is a partnership, (b) is a member or former member of any Holder which is a limited liability company, (c) is a Holder’s family member or trust for the benefit of an individual Holder, (d) acquires at least five percent (5%) of all Registrable Securities Deemed Outstanding (as adjusted for stock splits and combinations), or (e) acquires such Registrable Securities in a transfer permitted under Section 2.1(a)(ii); provided , however , (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree in writing to be subject to all restrictions set forth in this Agreement

2.11 A MENDMENT OF R EGISTRATION R IGHTS . Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder.

 

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2.12 L IMITATION ON S UBSEQUENT R EGISTRATION R IGHTS . Other than as provided in Section 5.10 hereof, after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a majority of the Registrable Securities Deemed Outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights pari passu or senior to those granted to the Holders hereunder, other than the right to a Special Registration Statement.

2.13 “M ARKET S TAND -O FF ” A GREEMENT . Each Holder hereby agrees that such Holder shall not sell, 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, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) not to exceed one hundred eighty (180) days for the Initial Offering and ninety (90) days for any subsequent public offering; following the effective date of the registration statement filed by the Company under the Securities Act in connection with an underwritten offering; provided , however , that all officers, directors, employees and 1% stockholders of the Company (those holding 1% or more of the Company’s Common Stock determined on an as-converted basis) enter into similar agreements. Notwithstanding anything herein to the contrary, the provisions of this Section 1.12 shall not apply to any shares purchased in the Initial Offering or in the secondary market following the Initial Offering.

2.14 A GREEMENT TO F URNISH I NFORMATION . Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the Holder’s obligations under Section 2.13 or that 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, each Holder 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 Section 2.13 and this Section 2.14 shall not apply to a Special Registration Statement. 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 the applicable period. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by Sections 2.13 and 2.14. The underwriters of the Company’s stock are intended third party beneficiaries of Sections 2.13 and 2.14 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder shall use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, an opinion, dated as of such date, of the counsel representing such Holder for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering that includes selling stockholders.

2.15 R ULE 144 R EPORTING . With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to:

 

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(a) Make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public to the extent required by applicable law;

(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, if any, and (iii) such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration, and which the Company is able to provide without unreasonable effort or expense.

SECTION 3. COVENANTS OF THE COMPANY.

3.1 B ASIC F INANCIAL I NFORMATION AND R EPORTING .

(a) The Company shall maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in substantial accordance with generally accepted accounting principles consistently applied.

(b) The Company shall furnish to each Holder of not less than one million (1,000,000) shares of the Preferred (or an equivalent amount of the Common Stock issued upon conversion) (each, a “ Major Investor ”), each Board member and each Board observer, as soon as practicable after the end of each calendar quarter, and in any event within thirty (30) days thereafter:

(i) a consolidated balance sheet of the Company as of the end of each such quarter, and a consolidated statement of income, a consolidated statement of cash flows and a statement of stockholders’ equity of the Company for such quarter and for the current fiscal year to date, prepared by management of the Company in substantial accordance with generally accepted accounting principles consistently applied and setting forth in each case, in comparative form, the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made; and

(ii) an updated capitalization table, certified by the Company’s Chief Executive Officer or Chief Financial Officer.

 

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(c) As soon as practicable after the end of each fiscal year of the Company and in any event within one hundred twenty (120) days thereafter, the Company shall furnish to each Holder, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders’ equity as of the end of such year, all such financial statements in reasonable detail, prepared in accordance with generally accepted accounting principles (“ GAAP ”), audited and certified by an accounting firm acceptable to the Board.

3.2 O PERATING B UDGET . The Company will cause its management to prepare and submit to the Board for its approval no later than thirty (30) days prior to the commencement of each fiscal year, an annual budget and plan for such fiscal year, which shall include the Company’s forecasted revenues, expenses, and cash position on a month-to-month basis for the upcoming fiscal year, together with management’s written discussion and analysis of such budget and plan. The budget shall be accepted as the budget for such fiscal year when it has been approved by the Board and, thereupon, a copy of such budget as so approved promptly shall be sent to each Major Investor. The Company shall review the budget periodically and shall promptly advise the Board and each Major Investor of all changes therein and all material deviations therefrom.

3.3 I NSPECTION . The Company shall permit each Holder of not less than two million (2,000,000) shares of the Preferred, at such Holder’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be reasonably requested by such Holder; provided , however , that the Company shall not be obligated pursuant to this Section 3.3 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information or would adversely affect the attorney-client privilege between the Company and its counsel.

3.4 C ONFIDENTIALITY OF R ECORDS . Each Investor agrees to use, and to use its best efforts to insure that its representatives use, the same degree of care as an Investor uses to protect its own confidential information to keep confidential any information furnished by the Company to such Investor and identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such confidential or proprietary information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section.

3.5 P AYMENT OF C ORPORATE T AXES ; C ORPORATE E XISTENCE AND L ICENSES ; M AINTENANCE OF P ROPERTIES . The Company shall:

(a) (i) Pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a lien, charge or encumbrance upon its property; (ii) withhold all monies required to be withheld by the Company from employees for income taxes, Social Security and unemployment insurance taxes; and (iii) complete and file, on a timely basis, all tax returns and

 

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reports required to be filed by it; provided , however , that the Company shall not be required to pay any tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting principles) deemed by the Company adequate with respect thereto;

(b) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and all of its corporate rights, franchises, licenses and permits that are material to its business; provided , however , that nothing in this subsection (b) shall (i) prevent the abandonment or termination of the Company’s or any subsidiary’s authorization to do business in any foreign state or jurisdiction, if, in the opinion of the Board, such abandonment or termination is in the best interest of the Company or such subsidiary, (ii) require compliance with any law so long as the validity or applicability thereof shall be disputed and contested in good faith, or (iii) prevent the Company from effecting a merger, consolidation or voluntary dissolution upon obtaining the required approval, if any, of such Board and/or the stockholders of the Company; and

(c) Maintain and keep, or cause to be maintained and kept, its property in working order and condition (subject to ordinary wear and tear), and from time to time make, or cause to be made, all repairs, renewals and replacements which, in the opinion of the management of the Company, are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided , however , that nothing in this subsection (c) shall prevent the Company or any subsidiary from selling or otherwise disposing of any property whenever in the good faith judgment of the Company’s management such property is obsolete, worn out, without economic value, or unnecessary for the conduct of the business of the Company or such subsidiary.

3.6 I NSURANCE . The Company shall keep all of its insurable property insured against loss or damage by fire and other risks. The Company shall bind D&O insurance with a carrier and in an amount satisfactory to the Board. In the event the Company merges with another entity and is not the surviving entity, or transfers all of its assets, the Company shall take reasonable efforts to ensure that the successors of the Company assume the Company’s obligations with respect to indemnification of Directors.

3.7 M AINTENANCE AND P ROTECTION OF I NTELLECTUAL P ROPERTY . The Company shall use its commercially reasonable efforts to maintain all Proprietary Rights and all applications and registrations therefor owned or held by the Company or hereafter owned or held by the Company in full force and effect in the United States and, except where application, registration, or maintenance of any registration or patent would not be, in the reasonable judgment of the Board, cost-effective, in other countries in which the Company shall engage in business, including, but not limited to, (a) the prosecution of applications to register or perfect rights or claims in and to any Proprietary Rights, (b) the registration of license agreements, the timely filing of affidavits of use, renewals, or other maintenance filings, and (c) the timely payment of filing, issue and maintenance fees. The Company shall not abandon or let lapse or pass to the public domain any of the Proprietary Rights now or hereafter owned or held by the Company that are material to its business, shall not encumber or license others to use the Proprietary Rights owned by it except in the ordinary course of the Company’s business, and

 

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shall maintain the confidentiality and trade secret status of all Proprietary Rights that are confidential except where and only to the extent that disclosure is necessary to obtain copyright registrations or patents, or is necessary or desirable in the prudent conduct of the Company’s business.

3.8 E MPLOYEE A GREEMENTS . The Company will cause (i) each person now or hereafter employed by it or any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a non-disclosure and proprietary rights assignment agreement and (ii) each Key Employee to enter into a one year non-competition and non-solicitation agreement, each substantially in the form approved by the Board. In addition, the Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, any of the above-referenced agreements or any restricted stock agreement between the Company and any Key Employee without the consent of the majority of those members of the Board elected solely by the holders of the Preferred. “ Key Employee ” means any executive-level employee (including Vice President level positions) who alone or in concert with others develops, invents, programs or designs any material intellectual property of the Company.

3.9 E MPLOYEE V ESTING . Unless approved by a majority of the members of the Board or duly appointed committee thereof, including at least one of the Series D Directors (as defined below), all future employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company’s capital stock following the date hereof shall be required to execute stock purchase or option agreements providing for (i) vesting of shares over a four-year period with the first 25% of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following 36 months and (ii) a 180-day lockup period in connection with the Company’s IPO. The Company shall retain a “right of first refusal” on employee transfers until the Company’s Initial Offering and the right to repurchase unvested shares at cost.

3.10 R ELATED P ARTY T RANSACTIONS . The Company will not enter into or be a party to any transaction with any director, officer or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such person, except for transactions contemplated by this Agreement and the Purchase Agreement, transactions resulting in payments to or by the Company in an amount less than $50,000 per year, or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the non-employee directors of the Board. The term “ non-employee director ” has the meaning assigned to such term in the Commission’s Rule 16b-3.

3.11 M ATTERS R EQUIRING M AJORITY OF THE B OARD A PPROVAL . Without the prior approval of at least a majority of the members of the Board or duly appointed committee thereof, the Company shall not:

(a) make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;

 

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(b) make, or permit any subsidiary to make, any loan or advance to any person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board;

(c) guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

(d) make any investment, through the direct or indirect holding of securities or otherwise, other than investments in prime commercial paper, money market funds, certificates of deposit in any United States bank having a net worth in excess of $100,000,000 or obligations issued or guaranteed by the United States of America, in each case having a maturity not in excess of two years;

(e) incur any aggregate indebtedness in excess of $150,000 that is not already included in a Board-approved budget, other than trade credit incurred in the ordinary course of business;

(f) enter into or be a party to any transaction with any director, officer or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such person;

(g) hire, terminate, or change the compensation of the executive officers, including approving any stock option or stock purchase plans;

(h) change the principal business of the Company, enter new lines of business, or exit the current line of business;

(i) sell, transfer, license, pledge or encumber material assets, material technology or intellectual property, other than inventory sold, and immaterial licenses granted, in the ordinary course of business;

(j) declare or pay any dividend or make any distribution on any shares of capital stock of the Company, other than payment in cash of the Accruing Dividends (as defined in the Restated Certificate); or

(k) increase the size of the stock option pool.

The approval required by subsection (j), above (regarding dividends), shall include the vote of at least one of the Series D Directors in the event that the payment of such dividends shall be in stock.

3.12 B OARD M ATTERS . Unless otherwise agreed by a vote of the majority of the members of the Board, the Board shall meet at least quarterly. Upon the request of any Series D Preferred stockholder or group of Series D Preferred stockholders entitled to appoint a director to the Board pursuant to that certain Third Amended and Restated Voting Agreement dated of even date herewith (the “ Series D Directors ”), each committee of the Board shall contain at least one Series D Director. The Company shall reimburse the Series D Directors for all reasonable out-of-pocket expenses incurred in performance of their duties as directors.

 

19


3.13 T ERMINATION OF C OVENANTS . All covenants of the Company contained in this Section 3 shall expire and terminate as to each Investor or Holder of Registrable Securities, as applicable, upon the earlier of (a) the effective date of the registration statement pertaining to the Initial Offering or (b) upon a Change in Control.

SECTION 4. PARTICIPATION RIGHTS.

4.1 S UBSEQUENT O FFERINGS . Each Investor holding not less than six hundred thousand (600,000) shares of the Preferred (or an equivalent amount of the Common Stock issued upon conversion) (each, a “ Participation Rights Investor ”) shall have a right to purchase such Participation Rights Investor’s pro rata share of all Equity Securities that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.8 hereof. Each Participation Rights Investor’s pro rata share is equal to the ratio of (a) the number of shares of the Company’s outstanding Common Stock (treating all shares of convertible preferred stock or warrants to acquire convertible preferred stock on an as-converted to common stock basis and including all shares of Common Stock issuable upon the exercise of outstanding warrants or options) which such Participation Rights Investor holds of record immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company’s outstanding Common Stock (treating all shares of convertible preferred stock or warrants to acquire convertible preferred stock on an as-converted to common stock basis and including all shares of Common Stock issuable upon the exercise of outstanding warrants or options) immediately prior to the issuance of such Equity Securities.

4.2 E XERCISE OF R IGHTS . If the Company proposes to issue any Equity Securities, it shall give each Participation Rights Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Participation Rights Investor shall have fifteen (15) business days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Participation Rights Investor that would cause the Company to be in violation of applicable federal or State Securities Laws by virtue of such offer or sale.

4.3 I SSUANCE OF E QUITY S ECURITIES TO O THER P ERSONS . If not all of the Participation Rights Investors elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Participation Rights Investors that have so elected (the “ Participating Investors ”) and offer the Participating Investors the right to acquire such unsubscribed shares. Each Participating Investor shall have five (5) business days after receipt of such notice to notify the Company of such Participating Investor’s election to purchase all or a portion thereof of the unsubscribed shares. If the Participation Rights Investors fail to exercise in full the participation rights set forth in Section 4.2 hereof and this Section 4.3, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Participation Rights Investors’ rights were not exercised, at a price and upon terms and

 

20


conditions no more favorable to the purchasers thereof than specified in the Company’s original notice of the sale of such Equity Securities to the Participation Rights Investors pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of such notice, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Investors in the manner provided above.

4.4 T ERMINATION A ND W AIVER O F P ARTICIPATION R IGHTS . The participation rights established by this Section 4 shall not apply to, and shall terminate upon the earlier of (a) the effective date of the registration statement pertaining to the Company’s Initial Offering, or (b) a Change in Control. The participation rights set forth in this Section 4 may be amended, or any provision waived, with the written consent of Participation Rights Investors holding a majority of the shares of Common Stock held by such Participation Rights Investors (treating all shares of convertible preferred stock or warrants to acquire convertible preferred stock on an as-converted to common stock basis), or as permitted by Section 5.5.

4.5 T RANSFER O F P ARTICIPATION R IGHTS . The participation rights set forth in this Section 4 are transferable, subject to the same limitations set forth in Section 2.10 hereof.

4.6 S ALE W ITHOUT N OTICE . Notwithstanding the forgoing, in lieu of giving notice to the Participation Rights Investors prior to the issuance of Equity Securities as provided in Section 4.2, the Company may elect to give notice to the Participation Rights Investors within thirty (30) days after the issuance of Equity Securities. Such notice shall describe the type, price and terms of the Equity Securities. Each Participation Rights Investor shall have twenty (20) days from the date of receipt of such notice to elect to purchase up to the number of shares that would, if purchased by such Participation Rights Investor, maintain such Participation Rights Investor’s pro rata share (as set forth in Section 4.1) of the Company’s Equity Securities. The closing of such sale shall occur within sixty (60) days of the date of notice to the Participation Rights Investors.

4.7 L OSS O F P ARTICIPATION R IGHTS . Unless either (i) a majority in interest of the Participation Rights Investors, voting together as a single class on an as-converted to Common Stock basis, or (ii) the Board (including the vote of the directors elected by the Preferred) elects otherwise, in the event a Participation Rights Investor fails to purchase its pro rata share pursuant to this Section 4, then such Participation Rights Investor shall no longer have any rights pursuant to this Section 4 relating to any subsequent offering of Equity Securities by the Company.

4.8 E XCLUDED S ECURITIES . The participation rights set forth in this Section 4 shall not apply to the following Equity Securities:

(a) shares of the Common Stock issued or issuable upon conversion of any shares of the Preferred Stock;

(b) shares of the capital stock of the Company issued in payment of the Series D Accruing Dividends (as defined in the Restated Certificate) or shares of the capital stock of the Company issued in payment of Accruing Dividends (as defined in the Restated Certificate) on shares of Preferred Stock outstanding as of the date hereof;

 

21


(c) shares of the Common Stock, including options, warrants or other rights to purchase up to such number of shares of the Common Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like), issued, sold or granted to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by a majority of the members of the Board;

(d) shares of the Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company;

(e) shares of the Common Stock or the Preferred Stock issued or issuable pursuant to the exercise of options, warrants or Convertible Securities outstanding as of the date hereof;

(f) shares of the Common Stock or Preferred Stock and/or options, warrants or other rights to purchase the Common Stock or the Preferred Stock issued or issuable for consideration other than cash pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by a majority of the members of the Board; and

(g) any equity securities issued or issuable in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, manufacturing, marketing or distribution arrangements or (ii) technology transfer or development arrangements; provided, however, that the issuance of shares therein has been approved by the Board; and

(h) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act.

SECTION 5. MISCELLANEOUS.

5.1 G OVERNING L AW ; C ONSENT TO J URISDICTION ; W AIVER OF J URY T RIAL . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of Michigan, without regard to its principles of conflicts of laws. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of Michigan located in Kalamazoo County and the United States District Court for the Western District of Michigan for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

22


5.2 S UCCESSORS AND A SSIGNS . Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided , however , that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price.

5.3 E NTIRE A GREEMENT . This Agreement, together with (i) that certain Third Amended and Restated Right of First Refusal and Co-Sale Agreement by and among the Company, the Key Holders (as defined therein) and the Investors dated as of the date hereof; (ii) that certain Third Amended and Restated Voting Agreement by and among the Company, the Key Holders (as defined therein) and the Investors dated as of the date hereof; (iii) only as to the Prior Investors holding Series A Preferred, that certain Series A Preferred Stock Purchase Agreement dated December 10, 2004; (iv) only as to the Prior Investors holding Series B Preferred, that certain Debt Conversion Agreement dated June 30, 2008; (v) only as to the Prior Investors holding Series B-1 Preferred, that certain Series B-1 Preferred Stock Purchase Agreement dated August 18, 2008; (vi) only as to the Prior Investors holding Series C Preferred, that certain Series C Preferred Stock Purchase Agreement dated December 20, 2013; and (vii) only as to the New Investors, that certain Series D Preferred Stock Purchase Agreement, of even date herewith, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

5.4 E FFECT ON P RIOR A GREEMENT . Upon execution of this Agreement by the Prior Investors holding a majority of the “Registrable Securities” under the Prior Agreement, the Prior Agreement shall automatically terminate and be of no further force and effect and shall be amended and restated in its entirety as set forth in this Agreement.

5.5 S EVERABILITY . In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

5.6 A MENDMENT AND W AIVER .

(a) Except as otherwise expressly provided herein, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least a majority of the Registrable Securities. Any such amendment or modification effected in accordance with this Section 5.5(a) shall be binding on all parties hereto, even if they do not execute such consent.

 

23


(b) Subject to Section 5.5(c) below, any party hereto may waive compliance with any agreements, covenants or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

(c) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the holders of at least a majority of the Registrable Securities. Any such waiver effected in accordance with this Section 5.5(c) shall be binding on all parties hereto, even if they do not execute such consent.

(d) For the purposes of determining the number of Holders or Investors entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company.

5.7 D ELAYS OR O MISSIONS . No delay or omission to exercise any right, power, or remedy accruing to any person or entity hereunder (including, without limitation, any Holder), upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. Any waiver, permit, consent, or approval of any kind or character on any such person’s or entity’s part of any breach, default or noncompliance under the Agreement or any waiver on such person or entity’s part 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, by law, or otherwise afforded to any such person or entity, shall be cumulative and not alternative.

5.8 N OTICES . All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth herein or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto.

5.9 A TTORNEYS ’ F EES . In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

 

24


5.10 T ITLES AND S UBTITLES . The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

5.11 A DDITIONAL I NVESTORS . Notwithstanding anything to the contrary contained herein, if the Company shall issue additional shares of the Preferred, any purchaser of such shares of the Preferred shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an “Investor,” a “Holder” and a party hereunder.

5.12 A GGREGATION OF S TOCK . All shares of Registrable Securities held or acquired by affiliated entities or persons, or persons (which, with respect to a partnership, shall include its general and limited partners, as well as the members or partners of any general partner of such partnership) or entities under common management or control shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

5.13 C OUNTERPARTS . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signatures or by .pdf signature.

S IGNATURES ON THE F OLLOWING P AGES

 

25


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE COMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Mina Sooch

Name: Mina Sooch
Its: President & CEO
THE INVESTORS :
E RIC A. A DAMY T RUST A-G C APITAL , LLC
By:

 

By:

/s/ James W F Brooks

Name: Eric A. Adamy Name: Jim Brooks
Title: Trustee Title: Manager
A MHERST F UND , LLC
By:

/s/ Matt Turner

/s/ Tushar Amin

Name: Matt Turner T USHAR A MIN
Title: President & CEO
A PJOHN G ROUP , LLC

A PJOHN V ENTURES A NNEX F UND , LP

    B Y : A PJOHN V ENTURES , LLC

    I TS : G ENERAL P ARTNER

By:

/s/ Donald R. Parfet

By:

/s/ Mina Sooch

Name: Donald R. Parfet Name: Mina Sooch
Title: Managing Director Title: Manager

A PJOHN V ENTURES F UND , LP

    B Y : A PJOHN V ENTURES , LLC

    I TS : G ENERAL P ARTNER

R ICHARD L. B EAL T RUST , D ATED 11/14/01 AS A MENDED
By:

/s/ Mina Sooch

By:

 

Name: Mina Sooch Name:

 

Title: Manager Title:

 

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE


 

/s/ Vishal Bhagat

C HARLES B ENNETT V ISHAL B HAGAT
T HE C HARLES B ISGAIER IRA R OLLOVER T HE C HARLES L. B ISGAIER T RUST D ATED N OVEMBER  8, 2000
By:

/s/ Charles Bisgaier

By:

/s/ Charles L. Bisgaier

Name: Charles Bisgaier Name: Charles L. Bisgaier
Title: Beneficiary Title: Trustee
B ISGAIER F AMILY , LLC
By:

/s/ Charles L. Bisgaier

 

Name: Charles L. Bisgaier W ILLIAM J. B OERSMA
Title: Manager
C HRISTOPHER A. B RANOFF T RUST U / A / D 6/26/00

/s/ John Bouwer

By:

/s/ Christopher A. Branoff

J OHN B OUWER Name: Christopher Branoff
Title: Trustee
BWA P RO NA I I NVESTMENT G ROUP , LLC C AMPBELL A CQUISITION C ORP .
By:

 

By:

 

Name: Kenneth W. Kousky Name:

 

Title: Executive Director, Blue Water Angels Title:

 

C APITAL M IDWEST F UND II, LP D AVID P. C LEVELAND R EVOCABLE T RUST D ATED 3/3/06
By:

/s/ Alvin Vitangcol

By:

/s/ David P. Cleveland

Name: Alvin Vitangcol Name: David P. Cleveland
Its: General Partner Title: Trustee

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


PENSCO TRUST CO FBO J OHN N. C OOPER II R OTH IRA
By:

/s/ John N. Cooper II

/s/ Paul D’Amato

Name: John N. Cooper II P AUL D’A MATO
Title:
D E H AAN /H ATHAWAY H OLDINGS , LLC
By:

/s/ David E. Hathaway

 

Name: David E. Hathaway M ARK D OBBINS
Title: Manager

M ICHELLE L. E LDRIDGE R EVOCABLE T RUST

D ATED J ULY  27, 2007

By:

/s/ Michelle L. Eldridge

/s/ John W. Garside Jr., TTEE

Name: Michelle L. Eldridge J OHN W. G ARSIDE J R ., T RUSTEE OF THE J OHN W. G ARSIDE , J R . R EVOCABLE T RUST U / A / D 2/03/97
Title: Trustee
GLT H OLDINGS , LLC

/s/ Julie Garside

By:

 

J ULIE G ARSIDE Name:

 

Title:

 

G RAND A NGELS C O -I NVESTMENT F UND I, LLC

By Grand Angels Company, LLC

Its Manager

J AY A DAM G UDEBSKI I RREVOCABLE T RUST D ATED J ANUARY  5, 2004
By:

/s/ Jody D. Vanderwel

By:

 

Name: Jody D. Vanderwel Name:

 

Title: President Title:

 

/s/ Arthur Hasse

/s/ David Huhn

A RTHUR H ASSE D AVID H UHN

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE


M ICHAEL J. J ANDERNOA T RUST UA 8/15/86, AS AMENDED AND RESTATED JDL E NTERTAINMENT , LLC
By:

/s/ Michael J. Jandernoa

By:

/s/ John Loeks

Name: Michael J. Jandernoa Name: John Loeks, Jr.
Title: Trustee Title: Member
W ILLIAM D. J OHNSTON T RUST UA 6/3/88 FBO W. J OHNSTON
By:

/s/ William D. Johnston TTEE

 

Name: William D. Johnston D AVID J. K ILLORAN , T RUSTEE OF THE D AVID J. K ILLORAN T RUST D ATED M ARCH 28, 2000, AS AMENDED FROM TIME TO TIME
Title: Trustee
L EE S HORE E QUITIES , LLC

 

By:

/s/ Craig T. Hall

D AVID K WAPPY Name: Craig T. Hall
Title: Managing Member
L EIGH F AMILY I NVESTMENTS , LLC R. L AWRENCE L EIGH T RUST
By:

/s/ R. Lawrence Leigh

By:

/s/ R. Lawrence Leigh

Name: R. Lawrence Leigh Name: R. Lawrence Leigh
Title: Manager Title: Trustee
R ICHARD M. AND M ARCIA M. L IEVENSE J AMES R. L UCIE I RREVOCABLE T RUST D ATED 12/21/2000

/s/ RM Lievense

Richard M. Lievense By:

/s/ S L Doctor

Name: Sandra Doctor

/s/ Marcia M. Lievense

Title: Trustee
Marcia M. Lievense

/s/ Stephanie Lucie

/s/ Jack Luderer

S TEPHANIE L UCIE J ACK L UDERER

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


J ULIETTE G. M AGERS IRA
By:

 

/s/ C. Lee McFall TTEE

Name:

 

C. L EE M C F ALL TTEE, T RUSTEE OF THE C. L EE M C F ALL
Title:

 

T RUST D TD 3-15-1991 AND RESTATED IN ITS E NTIRETY BY A
R ESTATED T RUST A GREEMENT D ATED A UGUST  30, 2001
M ICHIGAN E CONOMIC D EVELOPMENT C ORP . M ICHIGAN S TRATEGIC F UND
By:

/s/ Michael A. Finney

By:

/s/ Karla K. Campbell

Name:

 

Name: Karla Campbell
Title:

 

Title: Fund Manager
MPI R ESEARCH , I NC .
By:

/s/ Paul Sylvester

/s/ Patrick J. Mullen

Name: Paul Sylvester P ATRICK J. M ULLEN
Title: EVP & CFO
N OVOSOM V ERWALTUNGS G MB H ( FORMERLY N OVOSOM AG) M ARCIA H. O ETTING R EVOCABLE T RUST U / A / D 1/13/98
By:

/s/ Steffen Panzner

By:

 

Name: Dr. Steffen Panzner Name:

 

Title: CEO Title:

 

M ARY C. O’N EILL T RUST G REENLEAF T RUST AS T RUSTEE FOR C AROLINE E. O ROSZ
By:

 

By:

 

Name: Mary C. O’Neill Name:

 

Title: Trustee Title:

 

F LORENCE U PJOHN O ROSZ T RUST , DATED 11/29/85, AS FROM TIME TO TIME AMENDED P ALMERO G ROUP , LLC
By:

 

By:

/s/ Donald R. Parfet

Name:

 

Name: Donald R. Parfet
Title:

 

Title: Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


C HRISTOS T. P ANOPOULOS T RUST DATED 11/5/97

By:

 

/s/ Ann V. Parfet

Name:

 

A NN V. P ARFET
Title:

 

D ONALD R. P ARFET I RREVOCABLE 1992 T RUST FBO S YDNEY E. P ARFET W ALDORF U/A/D 12/18/92

/s/ Ann V. Parfet

A NN V AN D E W ATER P ARFET , T RUSTEE OF THE A NN V AN D E W ATER P ARFET 2006 R EVOCABLE T RUST , DATED M AY  5, 2006 By:

/s/ Karen A. Bouche

Name: Karen A. Bouche on behalf of Greenleaf Trust,
Title: Trustee
M ARSHALL & I LSLEY T RUST COMPANY , N.A., T RUSTEE FOR THE M ARTHA P ARFET T RUST FOR THE B ENEFIT OF D ONALD P ARFET U/A/D N OVEMBER  21, 1957

/s/ Donald R. Parfet

By:

/s/ David S. Keevins

D ONALD R. P ARFET , T RUSTEE OF THE D ONALD R. P ARFET 2006 T RUST , DATED M AY  1, 2006 Name: David S. Keevins
Title: VP, COO Cedar Street Advisors
W ILLIAM U. P ARFET R EVOCABLE L IVING T RUST D ATED M AY  23, 1984, AS AMENDED T HE J OERG P ICARD T RUST
By:

/s/ W. U. Parfet

By:

 

Name: William U. Parfet Name: Joerg Picard
Title: Trustee Title: Trustee
L OWELL P. R INKER AND K ATHLEEN M. R INKER

 

/s/ Lowell P. Rinker

J OHN P UISIS Lowell P. Rinker

/s/ Kathleen M. Rinker

Kathleen M. Rinker

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


/s/ Larry J. Robson

/s/ Wendi Rodrigueza

L ARRY J. R OBSON W ENDI R ODRIGUEZA

 

/s/ Ronald J. Shebuski

P ETER S EAVER R ONALD J. S HEBUSKI
S IGVION F UND I
By:

/s/ JP Fairbank

/s/ David W. Smith

Name: JP Fairbank D AVID W. S MITH
Title: MD
R EVOCABLE L IVING T RUST A GREEMENT OF J OSEPH T. S OBOTA U / A / D 7/27/74
By:

/s/ Joseph Sobota, M.D.

/s/ Joseph Sobota, M.D.

Name: Joseph Sobota, M.D. J OSEPH S OBOTA , M.D.
Title: Trustee

/s/ Arvinder S. Sooch

/s/ Mina Sooch

A RVINDER S. S OOCH , T RUSTEE OF THE A RVINDER S. S OOCH T RUST , DATED S EPTEMBER  20, 2006 M INA P ATEL S OOCH
G LENN D. S TEEG TTEE

 

By:

 

R OBERT A. S PROTTE Name: Glenn Steeg
Title: Trustee

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


/s/ Andrew L. Stern

/s/ Charles Stoddard

A NDREW L. S TERN C HARLES S TODDARD
T ARA V ENTURES I, LLC

/s/ Alan Supp

By:

/s/ Mina Sooch

A LAN S UPP Name: Mina Patel Sooch
Title: Manager

 

/s/ Eli Thomssen

N ICK T HAKORE E LI T HOMSSEN
E LI L. T HOMSSEN R EVOCABLE T RUST DATED J UNE  9, 1999, AND ANY AMENDMENTS THERETO
By:

/s/ Eli L. Thomssen

/s/ Amy E. Upjohn

Name: Eli L. Thomssen A MY E. U PJOHN R EVOCABLE T RUST , D ATED A UGUST  22, 1990
Title: Trustee
B RADLEY E. V ANDEN B ERG L IVING T RUST , D ATED J UNE  8, 1994

T HE W ENDY V AN P EENAN R EVOCABLE

T RUST

By:

/s/ Bradley E. VandenBerg

By:

/s/ Wendy Van Peenan

Name: Bradley E. VandenBerg Name: Wendy Van Peenan
Title: Trustee Title: Trustee
C. M ACKENZIE W ALDORF 2000 T RUST U/A/D 3/3/00

/s/ Thomas E. Vredevelt

By:

/s/ C. Mackenzie Waldorf

T OM V REDEVELT Name: C. Mackenzie Waldorf
Title: Trustee

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


W ESTERN M ICHIGAN U NIVERSITY R ESEARCH F OUNDATION

/s/ Sydney P. Waldorf

By:

/s/ Patti VanWalbeck

S YDNEY P. W ALDORF , T RUSTEE OF THE S YDNEY P ARFET W ALDORF 2000 T RUST , U / A / D 11/27/2000 Name: Patti VanWalbeck
Title: Assistant Treasurer
W ET D UCK , LLC
By:

 

/s/ Stephen Wonch

Name: Robert Kwappy S TEPHEN W ONCH
Title: Manager

/s/ James Woolliscroft

/s/ Andrew D. Worgess

J AMES W OOLLISCROFT A NDREW D. W ORGESS , T RUSTEE OF THE A NDREW D. W ORGESS T RUST U/A/D A PRIL 26, 2005

/s/ Rachel P. Worgess

R ACHEL P. W ORGESS , T RUSTEE OF THE R ACHEL P. W ORGESS T RUST U/A/D A PRIL  26, 2005

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
A DAMS S TREET 2010 D IRECT F UND , L.P.
By: ASP 2010 Direct Management, LLC its General Partner
By: Adams Street Partners, LLC its Managing Member
By:

/s/ Terry Gould

Name: Terry Gould
Title: Partner
A DAMS S TREET 2011 D IRECT F UND LP
By: ASP 2011 Direct Management LP its General Partner
By: ASP 2011 Direct Management LLC its General Partner
By: Adams Street Partners, LLC its Managing Member
By:

/s/ Terry Gould

Name:  Terry Gould
Title: Partner
A DAMS S TREET 2012 D IRECT F UND LP
By: ASP 2012 Direct Management LP its General Partner
By: ASP 2012 Direct Management LLC its General Partner
By: Adams Street Partners, LLC its Managing Member
By:

/s/ Terry Gould

Name: Terry Gould
Title: Partner
A DAMS S TREET 2013 D IRECT F UND LP
By: ASP 2013 Direct Management LP its General Partner
By: ASP 2013 Direct Management LLC its General Partner
By: Adams Street Partners, LLC its Managing Member
By:

/s/ Terry Gould

Name: Terry Gould
Title: Partner
A DAMS S TREET 2014 D IRECT F UND LP
By: ASP 2014 Direct Management LP its General Partner
By: ASP 2014 Direct Management LLC its General Partner
By: Adams Street Partners, LLC its Managing Member
By:

/s/ Terry Gould

Name: Terry Gould
Title: Partner

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
B LACK R OCK H EALTH S CIENCES T RUST
B Y : B LACK R OCK A DVISORS , LLC
I TS : I NVESTMENT A DVISER
By

/s/ Hongying Erin Xie

Name: Hongying Erin Xie
Title: Managing Director
B LACK R OCK H EALTH S CIENCES O PPORTUNITIES P ORTFOLIO , A SERIES OF B LACK R OCK F UNDS
B Y : B LACK R OCK A DVISORS , LLC
I TS : I NVESTMENT A DVISER
By

/s/ Hongying Erin Xie

Name: Hongying Erin Xie
Title: Managing Director
B LACK R OCK H EALTH S CIEN CES M ASTER U NIT T RUST
B Y : B LACK R OCK C APITAL M ANAGEMENT , I NC .
I TS : I NVESTMENT A DVISER
By

/s/ Hongying Erin Xie

Name: Hongying Erin Xie
Title: Managing Director

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
CDK A SSOCIATES , L.L.C.
By

/s/ Karen Cross

Name: Karen Cross
Its: Treasurer

/s/ Scott D. Morenstein

Scott D. Morenstein

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
F RAZIER H EALTHCARE VI, L.P.
By: FHM VI, LP, its general partner
By: FHM VI, LLC, its general partner
By

/s/ James Topper

Name: James Topper, M.D., Ph.D.
Its: General Partner

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
H OPEN L IFE S CIENCE F UND II, L.P.
By: Hopen LS GP II, LLC
Its: General Partner
By: Hopen LS Management, LLC
Its: Sole Member
By:

/s/ Mark Olesnavage

Name: Mark Olesnavage
Title: Managing Director

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J ANUS G LOBAL L IFE S CIENCES F UND , A SERIES OF J ANUS I NVESTMENT F UND
B Y : J ANUS C APITAL M ANAGEMENT LLC, ITS INVESTMENT ADVISOR
By

/s/ Andy Acker

Name: Andy Acker
Its: Portfolio Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
N EW E MERGING M EDICAL O PPORTUNITIES F UND II L.P.
By: Sectoral Asset Management Inc., its investment manager
By:

/s/ Michael Sjöström

Name: Michael Sjöström, CFA
Title: Chief Investment Officer
Address (NEMO II L.P.):
Codan Trust Company (Cayman) Limited
P.O. Box 2681
Cricket Square Hutchins Drive
Grand Cayman KY1-1111
Cayman Islands

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
O RBI M ED P RIVATE I NVESTMENTS V, LP
B Y : OrbiMed Capital GP V LLC, its General Partner
B Y : OrbiMed Advisors LLC, its Managing Member
By

/s/ Carl Gordon

Name: Carl Gordon
Its: Member

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
RA C APITAL H EALTHCARE F UND , LP
By

/s/ Peter Kolchinsky

Name: Peter Kolchinsky
Its: Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
V IVO V ENTURES F UND VII, L.P.
By:

Vivo Ventures VII, LLC

its General Partner

By:

/s/ Albert Cha

Name: Albert Cha
Title: Managing Partner
V IVO V ENTURES VII A FFILIATES F UND , L.P.
By:

Vivo Ventures VII, LLC

its General Partner

By:

/s/ Albert Cha

Name: Albert Cha
Title: Managing Partner

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
A MHERST F UND II
By:

/s/ Matt Turner

Name: Matt Turner
Its: President & CEO

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
C.SANDHU 2011 IRR.TR FBO CHILDREN JASDEEP SANDHU UAD 07/01/11
By

/s/ Chain S. Sandhu

Name: Chain S. Sandhu
Its: Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
C.SANDHU 2011 IRR.TR FBO CHILDREN JATINDER-BIR S. SANDHU UAD 07/01/11
By

/s/ Chain S. Sandhu

Name: Chain S. Sandhu
Its: Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
C HAIN S. S ANDHU
By:

/s/ Chain S. Sandhu

Name: Chain S. Sandhu
Its: Individual

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:

/s/ Dakshesh S. Patel

D AKSHESH S. P ATEL

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
F RANK K EARNY
By:

/s/ Frank Kearny

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J OHN R. L UDERER R OTH IRA (#691-81701)
By:

/s/ John R. Luderer 4/16/2014

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:

/s/ Jatinder-Bir Singh Sandhu

Jatinder-Bir Singh Sandhu

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J ASON R OSENFELT
By:

/s/ Jason Rosenfelt

Name: Jason Rosenfelt
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J OHN F LORSHEIM
By:

/s/ John Florsheim

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J OHN H ONKAMP
By:

/s/ John Honkamp

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
JSI 2 LLC
By

/s/ Jasdeep S. Sandhu

Name: Jasdeep S. Sandhu
Its: Manager

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
M AHENDRA S HAH
By:

/s/ Mahendra Shah

Name: Mahendra Shah
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
M ARK E. G URNEY
By:

/s/ Mark E. Gurney

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
N.C J OSEPH AND H ELEN L AI 98 R EVOCABLE T RUST
By:

/s/ N.C. Joseph Lai

Name: N.C. Joseph Lai 4/11/2014
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
R AVINDER S. S ANDHU
By:

/s/ Ravinder S. Sandhu

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:

/s/ Roger S. Newton

R OGER S. N EWTON

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
T HE S ANDEEP S HOKI M ULLICK R EVOCABLE L IVING T RUST D ATED N OVEMBER  13, 2012
By

/s/ Shoki Mullick

Name:
Its Trustee: Shoki Mullick

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
T ROUT C REEK V ENTURES , LP

By:

 

/s/ Paul S. D’Amato

Name:

  Paul S. D’Amato

Its:

  Managing Director

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:

/s/ Scott R. Pierre

S IGNED : S COTT R. P IERRE , T RUSTEE

V AN K AMPEN A SSET M ANAGEMENT C OMPANY LLC P ROFIT S HARING P LAN

FBO C HARLES A. L INDBERG

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
W ILLIAM H. A LVERSON
By:

/s/ William H. Alverson

Name:
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
T AMI F. W ORD
By:

/s/ Tami F. Word

Name: Tami F. Word
Its:

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 


The parties hereto have executed this T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS A GREEMENT as of the date set forth in the first paragraph hereof.

 

THE NEW INVESTORS:
J AY A DAM G UDEBSKI I RREVOCABLE T RUST D ATED J ANUARY  5, 2009
By:

/s/ Jay Gudebski

Name: Jay Gudebski
Its: Trustee

 

P RO NA I T HERAPEUTICS , I NC . T HIRD A MENDED AND R ESTATED I NVESTOR R IGHTS

A GREEMENT S IGNATURE P AGE

 

Exhibit 10.1

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of                     , 2015 is made by and between ProNAi Therapeutics, Inc., a Delaware corporation (the “ Company ”), and                     , a director, officer or key employee of the Company or one of the Company’s subsidiaries or other service provider who satisfies the definition of Indemnifiable Person set forth below (“ Indemnitee ”).

RECITALS

A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no relationship to the compensation of such representatives;

B. The members of the Board of Directors of the Company (the “ Board ”) have concluded that to retain and attract talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives and the representatives of its Subsidiaries and Affiliates, and to assume for itself maximum liability for Expenses and Other Liabilities in connection with claims against such representatives in connection with their service to the Company and its Subsidiaries and Affiliates;

C. Section 145 of the Delaware General Corporation Law (“ Section 145 ”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and

D. The Company desires and has requested Indemnitee to serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about inappropriate claims for damages arising out of or related to such services to the Company and/or the Subsidiaries or Affiliates of the Company.

AGREEMENT

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Definitions .

(a) Affiliate . For purposes of this Agreement, “ Affiliate ” of the Company means any corporation, partnership, limited liability company, joint venture, trust or other enterprise in respect of which Indemnitee is or was or will be serving as a director, officer, trustee,


manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the request, election or direction of the Company, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.

(b) Change in Control . For purposes of this Agreement, “ Change in Control ” means (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 Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding capital stock or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) 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 Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 80% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(c) Expenses . For purposes of this Agreement, “ Expenses ” means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, and other out-of-pocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding, or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a Proceeding.

(d) Indemnifiable Event . For purposes of this Agreement, “ Indemnifiable Event ” means any event or occurrence related to Indemnitee’s service for the Company or any Subsidiary or Affiliate as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.

(e) Indemnifiable Person . For the purposes of this Agreement, “ Indemnifiable Person ” means any person who is or was a director, officer, trustee, manager, member, partner, employee, attorney, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of the Company or a Subsidiary or Affiliate of the Company.

 

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(f) Independent Counsel . For purposes of this Agreement, “ Independent Counsel ” means legal counsel that has not performed services for the Company or Indemnitee in the five years preceding the time in question and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.

(g) Independent Director . For purposes of this Agreement, “ Independent Director ” means a member of the Board who is not a party to the Proceeding for which a claim is made under this Agreement.

(h) Other Liabilities . For purposes of this Agreement, “ Other Liabilities ” means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).

(i) Proceeding . For the purposes of this Agreement, “ Proceeding ” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.

(j) Subsidiary . For purposes of this Agreement, “ Subsidiary ” means any entity of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company.

2. Agreement to Serve . The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, the Company’s Certificate of Incorporation or Bylaws, governing law, or otherwise. Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.

3. Mandatory Indemnification .

(a) Agreement to Indemnify . In the event Indemnitee is a person who was or is a party to or witness in or is threatened to be made a party to or witness in any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) such Proceeding to the fullest extent not prohibited by the Delaware General Corporation Law (“ DGCL ”), as the same may be amended from time to time (but only to the extent that such amendment permits the Company to provide broader indemnification rights than the DGCL permitted prior to the adoption of such amendment).

 

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(b) Exception for Amounts Covered by Insurance and Other Sources . Notwithstanding the foregoing, the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to Indemnitee (or paid directly to a third party on Indemnitee’s behalf) by any directors and officers, or other type, of insurance maintained by the Company.

(c) Company Obligations Primary . The Company hereby acknowledges that Indemnitee may have rights to indemnification for Expenses and Other Liabilities provided by [name of VC or other sponsoring organization (“ Other Indemnitor ”)]. The Company agrees with Indemnitee that the Company is the indemnitor of first resort of Indemnitee with respect to matters for which indemnification is provided under this Agreement and that the Company will be obligated to make all payments due to or for the benefit of Indemnitee under this Agreement without regard to any rights that Indemnitee may have against the Other Indemnitor. The Company hereby waives any equitable rights to contribution or indemnification from the Other Indemnitor in respect of any amounts paid to Indemnitee hereunder. The Company further agrees that no reimbursement of Other Liabilities or payment of Expenses by the Other Indemnitor to or for the benefit of Indemnitee shall affect the obligations of the Company hereunder, and that the Company shall be obligated to repay the Other Indemnitor for all amounts so paid or reimbursed to the extent that the Company has an obligation to indemnify Indemnitee for such Expenses or Other Liabilities hereunder.

4. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which indemnification is prohibited by the provisions of the DGCL. In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.

5. Liability Insurance . So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the same amount as that provided to the Chairman of the Board or the Chief Executive Officer of the Company and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board or the Chief Executive Officer of the Company. The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the

 

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Company or the other party or parties thereto under any such insurance or other arrangement. In the event of a Change in Control subsequent to the date of this Agreement, or the Company’s becoming insolvent, including being placed into receivership or entering the federal bankruptcy process, the Company shall maintain in force any directors’ and officers’ liability insurance policies then maintained by the Company in providing insurance in respect of Indemnitee, for a period of six years thereafter.

6. Mandatory Advancement of Expenses . If requested by Indemnitee, the Company shall advance prior to the final disposition of the Proceeding all Expenses reasonably incurred by Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event. Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the DGCL, and no additional form of undertaking with respect to such obligation to repay shall be required. The advances to be made hereunder shall be paid by the Company to Indemnitee or directly to a third party designated by Indemnitee within thirty (30) days following delivery of a written request therefor by Indemnitee to the Company. Indemnitee’s undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon. In the event that Indemnitee’s request for the advancement of expenses shall be accompanied by an affidavit of counsel to Indemnitee to the effect that such counsel has reviewed such Expenses and that such Expenses are reasonable in such counsel’s view, then such expenses shall be deemed reasonable in the absence of clear and convincing evidence to the contrary.

7. Notice and Other Indemnification Procedures .

(a) Notification . Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. However, a failure so to notify the Company promptly following Indemnitee’s receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure.

(b) Insurance and Other Matters . If, at the time of the receipt of a notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the issuers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.

(c) Assumption of Defense . In the event the Company shall be obligated to advance the Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein. Such defense by the Company may include the representation of two or more

 

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parties by one attorney or law firm as permitted under the ethical rules and legal requirements related to joint representations. Following delivery of written notice to Indemnitee of the Company’s election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. If (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have notified the Board in writing that Indemnitee has reasonably concluded that there is likely to be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitee’s counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement. Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitee’s expense.

(d) Settlement . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent; provided, however, that if a Change in Control has occurred subsequent to the date of this Agreement, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. Neither the Company nor any Subsidiary or Affiliate shall enter into a settlement of any Proceeding that might result in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitee’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding. The Company shall promptly notify Indemnitee upon the Company’s receipt of an offer to settle, or if the Company makes an offer to settle, any Proceeding, and provide Indemnitee with a reasonable amount of time to consider such settlement, in the case of any such settlement for which the consent of Indemnitee would be required hereunder. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is a party with respect to other parties (including the Company) without the written consent of Indemnitee if any portion of the settlement is to be funded from insurance proceeds unless approved by a majority of the Independent Directors, provided that this sentence shall cease to be of any force and effect if it has been determined in accordance with this Agreement that Indemnitee is not entitled to indemnification hereunder with respect to such Proceeding or if the Company’s obligations hereunder to Indemnitee with respect to such Proceeding have been fully discharged.

8. Determination of Right to Indemnification .

(a) Success on the Merits or Otherwise . To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses actually and reasonably incurred in connection therewith.

 

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(b) Indemnification in Other Situations . In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if Indemnitee has not failed to meet the applicable standard of conduct for indemnification.

(c) Forum . Indemnitee shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such election will be made from among the following:

a. Those members of the Board who are Independent Directors even though less than a quorum;

b. A committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or

c. Independent Counsel selected by Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion.

If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of Independent Counsel as the forum.

The selected forum shall be referred to herein as the “Reviewing Party”. Notwithstanding the foregoing, following any Change in Control subsequent to the date of this Agreement, the Reviewing Party shall be Independent Counsel selected in the manner provided in c. above.

(d) As soon as practicable, and in no event later than thirty (30) days after receipt by the Company of written notice of Indemnitee’s choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider. The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than thirty (30) days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and Indemnitee. All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.

(e) Delaware Court of Chancery . Notwithstanding a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery, for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement.

(f) Expenses . The Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims of Indemnitee in any such Proceeding was frivolous or made in bad faith.

 

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(g) Determination of “Good Faith” . For purposes of any determination of whether Indemnitee acted in “good faith” Indemnitee shall be deemed to have acted in good faith if in taking or failing to take the action in question Indemnitee relied on the records or books of account of the Company or a Subsidiary or Affiliate, including financial statements, or on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate in the course of their duties, or on the advice of legal counsel for the Company or a Subsidiary or Affiliate, or on information or records given or reports made to the Company or a Subsidiary or Affiliate by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or a Subsidiary or Affiliate. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of expenses, the Reviewing Party or court shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled. The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.

9. Exceptions . Any other provision herein to the contrary notwithstanding,

(a) Claims Initiated by Indemnitee . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (1) with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (2) where the Board has consented to the initiation of such Proceeding, or (3) with respect to Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or

(b) Actions Based on Federal Statutes Regarding Profit Recovery and Return of Bonus Payments . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of (i) any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from

 

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the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

(c) Unlawful Indemnification . The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Other Liabilities if such indemnification is prohibited by law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal.

10. Non-exclusivity . The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.

11. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

12. Supersession, Modification and Waiver . This Agreement supersedes any prior indemnification agreement between the Indemnitee and the Company, its Subsidiaries or its Affiliates. If the Company and Indemnitee have previously entered into an indemnification agreement providing for the indemnification of Indemnitee by the Company, parties entry into this Agreement shall be deemed to amend and restate such prior agreement to read in its entirety as, and be superseded by, this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.

13. Successors and Assigns . The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

 

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14. Notice . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 14. Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Company’s General Counsel.

15. No Presumptions . For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, 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 applicable law or otherwise. In addition, neither the failure of the Company or a 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 Company or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Section 8(e) of this Agreement shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.

16. Survival of Rights . The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

17. Subrogation and Contribution.

(a) In the event of payment under this Agreement, the Company 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 Company effectively to bring suit to enforce such rights.

(b) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s)

 

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giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

18. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

19. Counterparts . This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

20. Headings . The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

21. Governing Law . This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely with Delaware.

22. Consent to Jurisdiction . The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.

[ Signature Page Follows ]

 

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The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

 

PRONAI THERAPEUTICS, INC.
By:

 

Name:

 

Its:

 

INDEMNITEE

 

[Name]
Address:

 

 

 

Exhibit 10.2

PRONAI THERAPEUTICS, INC.

2008 STOCK PLAN

1. P URPOSES OF THE P LAN . 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. D EFINITIONS . 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; 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.

The Administrator may, in its sole discretion and without Service Provider consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code.

 

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

(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 ProNAi Therapeutics, 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) 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.

(o) Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(p) Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

(q) Option ” means a stock option granted pursuant to the Plan.

 

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(r) Option Agreement ” means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement is subject to the terms and conditions of the Plan.

(s) Optioned Stock ” means the Common Stock subject to an Option or a Stock Purchase Right.

(t) Optionee ” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(u) Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(v) Plan ” means this 2008 Stock Plan.

(w) Restricted Stock ” means Shares issued pursuant to a Stock Purchase Right or Shares of restricted stock issued pursuant to an Option.

(x) Restricted Stock Purchase Agreement ” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to Shares purchased under a Stock Purchase Right. Each Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the notice of grant.

(y) Securities Act ” means the Securities Act of 1933, as amended.

(z) Service Provider ” means an Employee, Director or Consultant.

(aa) Share ” means a share of the Common Stock, as adjusted in accordance with Section 12 below.

(bb) Stock Purchase Right ” means a right to purchase Common Stock pursuant to Section 11 below.

(cc) Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. S TOCK S UBJECT TO THE P LAN .

(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 2,300,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 2,300,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

(b) If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, 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

 

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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 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.

4. A DMINISTRATION OF THE P LAN .

(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 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;

(vii) 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;

(viii) to amend the terms of any one or more Options or Stock Purchase Rights without the affected Service Provider’s consent if necessary to maintain the qualified status of such Option as an Incentive Stock Option or to bring an Option or Stock Purchase Right into compliance with Code Section 409A and the related guidance thereunder; and

(ix) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.

 

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(c) Effect of Administrator’s Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.

5. E LIGIBILITY . Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. L IMITATIONS .

(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 or its right or the Company’s right to terminate such relationship at any time, with or without cause, and with or without notice.

7. T ERM OF P LAN . 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. T ERM OF O PTION . 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.

 

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9. O PTION E XERCISE P RICE AND C ONSIDERATION .

(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.

(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 pursuant to a merger or other corporate transaction.

(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 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.

 

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10. E XERCISE OF O PTION .

(a) Procedure for Exercise; Rights as a Stockholder.

(i) 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.

(ii) 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.

(iii) 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.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her or its 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). If, on the date of termination, the Optionee is not vested as to his or her or its 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). If, on the date of termination, the Optionee is not vested as to his or her or its 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.

 

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(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.

11. S TOCK P URCHASE R IGHTS .

(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 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

 

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Company for any reason (including death or disability). 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.

(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 or its 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. L IMITED T RANSFERABILITY OF O PTIONS AND S TOCK P URCHASE R IGHTS . 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. A DJUSTMENTS ; D ISSOLUTION OR L IQUIDATION ; M ERGER OR C HANGE IN C ONTROL .

(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.

(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

 

9


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 this Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, 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 of Optioned Stock 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 of Optioned Stock 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. T IME OF G RANTING O PTIONS AND S TOCK P URCHASE R IGHTS . 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. A MENDMENT AND T ERMINATION OF THE P LAN .

(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.

(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.

 

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(d) Section 409A of the Code. To the extent that the Board determines that any Option or Stock Purchase Right granted under the Plan is subject to Section 409A of the Code, the corresponding Option Agreement or Restricted Stock Purchase Agreement evidencing such Option or Stock Purchase Right shall incorporate the terms and conditions necessary to avoid the consequences described in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and all Option Agreements and Restricted Stock Purchase Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the effective date of the Plan. Notwithstanding any provision of the Plan to the contrary, in the event that following the effective date of the Plan the Board determines that any Option or Stock Purchase Right may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the effective date of this Plan), the Board may adopt such amendments to the Plan and the applicable Option Agreements or Restricted Stock Purchase Agreements or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt such Options and Stock Purchase Rights from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to each such Option and Stock Purchase Right, or (2) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.

16. C ONDITIONS U PON I SSUANCE OF S HARES .

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option 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, the Administrator may require the person exercising such Option 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. I NABILITY TO O BTAIN A UTHORITY . 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. R ESERVATION OF S HARES . The Company, during the term of the 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. S TOCKHOLDER A PPROVAL . 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.

 

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20. I NFORMATION TO O PTIONEES . 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.

 

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PRONAI THERAPEUTICS, INC.

FIRST AMENDMENT TO 2008 STOCK PLAN

T HIS F IRST A MENDMENT TO 2008 S TOCK P LAN (this “ Amendment ”) is made effective as of the 23 rd day of June, 2011 (the “ Effective Date ”).

B ACKGROUND

WHEREAS, the Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) have previously approved and adopted the 2008 Stock Plan (the “ Plan ”); and

WHEREAS, the Board and the Stockholders have approved an amendment to the Plan, as provided herein.

N OW , T HEREFORE , the Plan is hereby amended as follows:

T ERMS AND C ONDITIONS

1. A MENDMENT TO S ECTION  3(a). As of the Effective Date, Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

“(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 4,300,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 4,300,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.”

2. C ONSTRUCTION . Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan. The terms of this Amendment amend and modify the Plan as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Plan, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Plan not specifically modified by this Amendment are preserved.

3. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile signature.

S IGNATURES ON THE F OLLOWING P AGE

 

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IN WITNESS WHEREOF, this First Amendment to 2008 Stock Plan is made effective as of the date first set forth above.

 

T HE C OMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Charles Bisgaier

Name: Charles Bisgaier
Title: President and Interim CEO

S IGNATURE P AGE TO F IRST A MENDMENT TO 2008 S TOCK P LAN


PRONAI THERAPEUTICS, INC.

SECOND AMENDMENT TO 2008 STOCK PLAN

T HIS F IRST A MENDMENT TO 2008 S TOCK P LAN (this “ Amendment ”) is made effective as of the 29 th day of March, 2013 (the “ Effective Date ”).

B ACKGROUND

WHEREAS, the Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) have previously approved and adopted the 2008 Stock Plan (the “ Plan ”); and

WHEREAS, the Board has approved an amendment to the Plan, as provided herein.

N OW , T HEREFORE , the Plan is hereby amended as follows:

T ERMS AND C ONDITIONS

1. A MENDMENT TO S ECTION  3(a). As of the Effective Date, Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

“(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 7,900,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 7,900,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.”

2. C ONSTRUCTION . Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan. The terms of this Amendment amend and modify the Plan as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Plan, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Plan not specifically modified by this Amendment are preserved.

3. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile signature.

S IGNATURES ON THE F OLLOWING P AGE

 

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IN WITNESS WHEREOF, this Second Amendment to 2008 Stock Plan is made effective as of the date first set forth above.

 

T HE C OMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Mina Sooch

Name: Mina Sooch
Title: President and CEO

S IGNATURE P AGE TO F IRST A MENDMENT TO 2008 S TOCK P LAN


PRONAI THERAPEUTICS, INC.

THIRD AMENDMENT TO 2008 STOCK PLAN

T HIS T HIRD A MENDMENT TO 2008 S TOCK P LAN (this “ Amendment ”) is made effective as of the 12 th day of December 2013 (the “ Effective Date ”).

B ACKGROUND

WHEREAS, the Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) have previously approved and adopted the 2008 Stock Plan (the “ Plan ”); and

WHEREAS, the Board has approved an amendment to the Plan, as provided herein.

N OW , T HEREFORE , the Plan is hereby amended as follows:

T ERMS AND C ONDITIONS

1. A MENDMENT TO S ECTION  3(a). As of the Effective Date, Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

“(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 11,775,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 11,775,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.”

2. C ONSTRUCTION . Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan. The terms of this Amendment amend and modify the Plan as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Plan, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Plan not specifically modified by this Amendment are preserved.

3. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile signature.

S IGNATURES ON THE F OLLOWING P AGE

 

1


IN WITNESS WHEREOF, this Third Amendment to 2008 Stock Plan is made effective as of the date first set forth above.

 

T HE C OMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Mina Sooch

Name: Mina Sooch
Title: President and CEO

S IGNATURE P AGE TO T HIRD A MENDMENT TO 2008 S TOCK P LAN


PRONAI THERAPEUTICS, INC.

FOURTH AMENDMENT TO 2008 STOCK PLAN

T HIS F OURTH A MENDMENT TO 2008 S TOCK P LAN (this “ Amendment ”) is made effective as of the 10 th day of April, 2014 (the “ Effective Date ”).

B ACKGROUND

WHEREAS, the Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) have previously approved and adopted the 2008 Stock Plan (the “ Plan ”); and

WHEREAS, the Board has approved an amendment to the Plan, as provided herein.

N OW , T HEREFORE , the Plan is hereby amended as follows:

T ERMS AND C ONDITIONS

1. A MENDMENT TO S ECTION  3(a). As of the Effective Date, Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

“(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 20,775,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 20,775,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.”

2. C ONSTRUCTION . Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan. The terms of this Amendment amend and modify the Plan as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Plan, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Plan not specifically modified by this Amendment are preserved.

3. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile signature.

S IGNATURES ON THE F OLLOWING P AGE

 

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IN WITNESS WHEREOF, this Fourth Amendment to 2008 Stock Plan is made effective as of the date first set forth above.

 

T HE C OMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Mina Sooch

Name: Mina Sooch
Title: President and CEO

S IGNATURE P AGE TO F OURTH A MENDMENT TO 2008 S TOCK P LAN


PRONAI THERAPEUTICS, INC.

FIFTH AMENDMENT TO 2008 STOCK PLAN

T HIS F IFTH A MENDMENT TO 2008 S TOCK P LAN (this “ Amendment ”) is made effective as of the 10 th day of September, 2014 (the “ Effective Date ”).

B ACKGROUND

WHEREAS, the Board of Directors (the “ Board ”) and stockholders (the “ Stockholders ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) have previously approved and adopted the 2008 Stock Plan (the “ Plan ”); and

WHEREAS, the Board and the Stockholders have approved an amendment to the Plan, as provided herein.

N OW , T HEREFORE , the Plan is hereby amended as follows:

T ERMS AND C ONDITIONS

1. A MENDMENT TO S ECTION  3(a). As of the Effective Date, Section 3(a) of the Plan is hereby deleted in its entirety and replaced with the following:

“(a) Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 35,775,000 Shares. In no event shall the number of Shares issued pursuant to Incentive Stock Options exceed 35,775,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.”

2. C ONSTRUCTION . Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Plan. The terms of this Amendment amend and modify the Plan as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Plan, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Plan not specifically modified by this Amendment are preserved.

3. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile signature.

S IGNATURES ON THE F OLLOWING P AGE

 

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IN WITNESS WHEREOF, this Fifth Amendment to 2008 Stock Plan is made effective as of the date first set forth above.

 

T HE C OMPANY :
P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Nick Glover

Name: Nick Glover, Ph.D.
Title: President and Chief Executive Officer

S IGNATURE P AGE TO F IFTH A MENDMENT TO 2008 S TOCK P LAN


PRONAI THERAPEUTICS, INC.

2008 STOCK PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the 2008 Stock Plan shall have the same defined meanings in this Stock Option Agreement (this “ Option Agreement ”).

 

I. NOTICE OF STOCK OPTION GRANT

«Name»

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:

 

Optionholder:

 

Date of Grant:

 

Vesting Commencement Date:

 

Number of Shares Subject to Option:

 

Exercise Price (Per Share):

 

Total Exercise Price:

 

Expiration Date:

 

 

Type of Grant:

¨        Incentive Stock Option 1

¨        Nonstatutory Stock Option

Exercise Schedule: Same as Vesting Schedule
Vesting Schedule:

[1/4 of the shares vest 1 year after the Vesting Commencement Date.

1/48 of the shares vest monthly thereafter over the next three years.]

Payment:

By one or a combination of the following methods of payment ( described in the Stock Option Agreement):

 

¨        Cash or check

 

¨        Bank draft or money order payable to the Company

 

¨        Pursuant to a Regulation T Program (cashless exercise) if the shares are publicly traded

 

¨        Delivery of already-owned shares if shares are publicly traded

 

¨        Net exercise

Termination Period: This Option shall be exercisable for three 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.

 

1   If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.

 

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II. AGREEMENT

1. G RANT OF O PTION .

(a) The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant in part I of this Option Agreement (“ Optionee ”), an option (this “ 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.

(b) 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 ”).

2. E XERCISE OF O PTION .

(a) 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.

(b) Method of Exercise.

(i) This Option shall be exercisable by delivery of an exercise notice in the form attached as E XHIBIT  A (the “ Exercise Notice ”) which shall state the election to exercise this Option, the number of Shares with respect to which this 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.

(ii) No Shares shall be issued pursuant to the exercise of this Option unless such issuance and such exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which this Option is exercised with respect to such Shares.

3. O PTIONEE S R EPRESENTATIONS . In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, 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 or its Investment Representation Statement in the form attached hereto as E XHIBIT  B .

4. L OCK -U P P ERIOD .

(a) 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

 

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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.

(b) 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 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 period. Optionee agrees that any transferee of this Option or shares acquired pursuant to this Option shall be bound by this Section.

5. M ETHOD OF P AYMENT . Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee:

(a) cash or check;

(b) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or

(c) 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 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.

6. R ESTRICTIONS ON E XERCISE . 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.

7. N ON -T RANSFERABILITY OF O PTION . 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.

 

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8. T ERM OF O PTION . 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.

9. T AX O BLIGATIONS .

(a) 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.

(b) 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, 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 Optionee.

10. E NTIRE A GREEMENT ; G OVERNING L AW . 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 Option is governed by the internal substantive laws but not the choice of law rules of Michigan.

11. N O G UARANTEE OF C ONTINUED S ERVICE . 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 OPTION, 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.

 

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12. A CKNOWLEDGEMENTS .

(a) Optionee acknowledges receipt of a copy of the Plan and represents that he, she or it 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.

(b) Notwithstanding the Board of Directors’ good faith determination of the fair market value of the Common Stock of the Company, the taxing authorities may assert that the fair market value of the Shares on the date of award was greater than the exercise price per share.

(c) Optionee acknowledges that under Section 409A of the Code, if the exercise price per share of this Option is less than the fair market value of the Common Stock of the Company on the date of this Option, this Option may be treated as a form of deferred compensation and Optionee may be subject to an additional 20% tax, plus interest and possible penalties. Optionee is encouraged to consult a tax advisor regarding the potential impact of Section 409A of the Code.

(d) Optionee acknowledges that the Administrator, in the exercise of its sole discretion and without Optionee’s consent, may amend or modify this Option in any manner and delay the payment of any amounts payable pursuant to this Option to the minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.

 

O PTIONEE : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name:
Date:

 

Title:
Resident Address:

 

Date:

 

 

 

5


E XHIBIT A

2008 STOCK PLAN

EXERCISE NOTICE

P RO NA I T HERAPEUTICS , I NC .

 

 

Attention: Secretary

1. E XERCISE OF O PTION . Effective as of today, [            ], the undersigned (“ Optionee ”) hereby elects to exercise Optionee’s option to purchase [            ] shares of the Common Stock (the “ Shares ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) under and pursuant to the 2008 Stock Plan (the “ Plan ”) and the Stock Option Agreement dated             (the “ Option Agreement ”).

2. D ELIVERY OF P AYMENT . Purchaser 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. R EPRESENTATIONS OF O PTIONEE . 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. R IGHTS AS S TOCKHOLDER . 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. C OMPANY S R IGHT OF F IRST R EFUSAL . 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 (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).

 

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(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 (the “ Purchase Price ”) for the Shares purchased by the Company or its assignee(s) under this Section 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, 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 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 notwithstanding, the transfer of any or all of the Shares during Optionee’s lifetime or on Optionee’s death by will or intestacy to Optionee’s immediate family or a trust for the benefit of Optionee’s immediate family shall be exempt from the provisions of this Section. “ 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, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.

(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.

6. T AX C ONSULTATION . 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.

 

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7. R ESTRICTIVE L EGENDS AND S TOP -T RANSFER O RDERS .

(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.

 

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8. S UCCESSORS AND A SSIGNS . 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. I NTERPRETATION . 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. G OVERNING L AW ; S EVERABILITY . This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of Michigan. 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. E NTIRE A GREEMENT . 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:
O PTIONEE : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name:
Date:

 

Title:
Resident Address:

 

Date:

 

 

 

4


E XHIBIT B

INVESTMENT REPRESENTATION STATEMENT

 

OPTIONEE: «NAME»
COMPANY: PRONAI THERAPEUTICS, 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

 

5


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.

(d) 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.

(e) 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.

 

Signature of Optionee
O PTIONEE :

 

Date:

 

 

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PRONAI THERAPEUTICS, INC.

2008 STOCK PLAN

STOCK OPTION AGREEMENT—EARLY EXERCISE

Unless otherwise defined herein, the terms defined in the 2008 Stock Plan shall have the same defined meanings in this Stock Option Agreement (this “ Option Agreement ”).

 

I. NOTICE OF STOCK OPTION GRANT

«Name»

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:

 

Optionholder:

 

Date of Grant:

 

Vesting Commencement Date:

 

Number of Shares Subject to Option:

 

Exercise Price (Per Share):

 

Total Exercise Price:

 

Expiration Date:

 

 

Type of Grant: ¨ Incentive Stock Option 1 ¨ Nonstatutory Stock Option
Exercise Schedule: Same as Vesting Schedule
Vesting Schedule:

[1/4 of the shares vest 1 year after the Vesting Commencement Date.

1/48 of the shares vest monthly thereafter over the next three years.]

Payment:

By one or a combination of the following methods of payment ( described in the Stock Option Agreement):

 

¨        Cash or check

 

¨        Bank draft or money order payable to the Company

 

¨        Pursuant to a Regulation T Program (cashless exercise) if the shares are publicly traded

 

¨        Delivery of already-owned shares if shares are publicly traded

 

¨        Net exercise

Termination Period: This Option shall be exercisable for three 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.

 

1   If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.

 

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II. AGREEMENT

1. G RANT OF O PTION .

(a) The Administrator of the Company hereby grants to the Optionee named in the Notice of Grant in Part I of this Option Agreement (“ Optionee ”), an option (this “ 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.

(b) 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 ”).

2. E XERCISE OF O PTION . This Option shall be exercisable during its term in accordance with the provisions of Section 10 of the Plan as follows:

 

  (a) Right to Exercise.

(i) Subject to subsections 2(a)(ii) and 2(a)(iii) below, this Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Grant. Alternatively, at the election of the Optionee, this Option may be exercised in whole or in part at any time as to Shares that have not yet vested. Vested Shares shall not be subject to the Company’s repurchase right (as set forth in the Restricted Stock Purchase Agreement, attached hereto as E XHIBIT  C-1 ).

(ii) As a condition to exercising this Option for unvested Shares, the Optionee shall execute the Restricted Stock Purchase Agreement.

(iii) This Option may not be exercised for a fraction of a Share.

 

  (b) Method of Exercise.

(i) This Option shall be exercisable by delivery of an exercise notice in the form attached as E XHIBIT  A (the “ Exercise Notice ”), which shall state the election to exercise this Option, the number of Shares with respect to which this 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.

(ii) No Shares shall be issued pursuant to the exercise of this 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 Optionee on the date on which this Option is exercised with respect to such Shares.

 

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3. O PTIONEE S R EPRESENTATIONS . In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, 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 or its Investment Representation Statement in the form attached hereto as E XHIBIT  B .

4. Lock-Up Period.

(a) 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) during the one hundred eighty (180) day period (or such longer period as may be requested in writing by the representative of the underwriters of Common Stock (or other securities) of the Company in connection with NASD Rule 2711(f)(4)) following the effective date of the first registration statement of the Company filed under the Securities Act (the “ Lock-Up Period ”).

(b) Optionee agrees to execute and deliver such other agreements (including the underwriter’s standard form of “lock-up” or “market standoff” agreement) 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 the event Optionee refuses to execute any such agreement, Optionee hereby agrees to comply with all of the transfer restrictions set forth above in this Section for an additional 60 days beyond the Lock-Up Period otherwise call for above. 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 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 the Lock-Up Period. Optionee agrees that any transferee of the Option or shares acquired pursuant to the Option shall be bound by this Section.

5. M ETHOD OF P AYMENT . Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee:

(a) cash;

(b) check;

 

3


(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or

(d) surrender of other shares which, (i) in the case of shares acquired from the Company, either directly or indirectly, have been owned by 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.

6. R ESTRICTIONS ON E XERCISE . 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.

7. N ON -T RANSFERABILITY OF O PTION . 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.

8. T ERM OF O PTION . 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.

9. T AX O BLIGATIONS .

(a) 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 the Shares if such withholding amounts are not delivered at the time of exercise.

(b) Notice of Disqualifying Disposition of ISO Shares. If this 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, and (2) the date one year after the date of exercise, 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 Optionee.

10. E NTIRE A GREEMENT ; G OVERNING L AW . 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 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 Michigan.

 

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11. N O G UARANTEE OF C ONTINUED S ERVICE . OPTIONEE 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 OPTION 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.

12. A CKNOWLEDGEMENTS .

(e) Optionee acknowledges receipt of a copy of the Plan and represents that he, she or it 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.

(f) Notwithstanding the Board of Directors’ good faith determination of the fair market value of the Common Stock of the Company, the taxing authorities may assert that the fair market value of the Shares on the date of award was greater than the exercise price per share.

(g) Optionee acknowledges that under Section 409A of the Code, if the exercise price per share of this Option is less than the fair market value of the Common Stock of the Company on the date of this award, this Option may be treated as a form of deferred compensation and Optionee may be subject to an additional 20% tax, plus interest and possible penalties. Optionee is encouraged to consult a tax advisor regarding the potential impact of Section 409A of the Code.

(h) Optionee acknowledges that the Administrator, in the exercise of its sole discretion and without Optionee’s consent, may amend or modify this Option in any manner and delay the payment of any amounts payable pursuant to this Option to the minimum extent necessary to meet the requirements of Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance as the Company deems appropriate or advisable.

 

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O PTIONEE : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name:
Date:

 

Title:
Resident Address:

 

Date:

 

 

 

6


E XHIBIT A

2008 STOCK PLAN

EXERCISE NOTICE

 

P RO NA I T HERAPEUTICS , I NC .

 

 

Attention: Secretary

1. E XERCISE OF O PTION . Effective as of today, [                    ], the undersigned (“ Optionee ”) hereby elects to exercise Optionee’s option to purchase [                ] shares of the Common Stock (the “ Shares ”) of P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) under and pursuant to the 2008 Stock Plan (the “ Plan ”) and the Stock Option Agreement dated                     (the “ Option Agreement ”).

2. D ELIVERY OF P AYMENT . 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. R EPRESENTATIONS OF O PTIONEE . 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. R IGHTS AS S TOCKHOLDER . 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. C OMPANY S R IGHT OF F IRST R EFUSAL . 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 (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 (each a “ 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).

 

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(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 (the “ Purchase Price ”) for the Shares purchased by the Company or its assignee(s) under this Section 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 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, 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 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 notwithstanding, the transfer of any or all of the Shares during Optionee’s lifetime or on Optionee’s death by will or intestacy to 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. “ 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, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.

(g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) 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.

6. T AX C ONSULTATION . 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.

 

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7. R ESTRICTIVE L EGENDS AND S TOP -T RANSFER O RDERS .

(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 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 OF 180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF THE COMPANY’S SECURITIES (OR FOR SUCH LONGER PERIOD AS PREVIOUSLY AGREED TO BY THE HOLDER OF THE SHARES) AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY.

(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 unvested Shares or 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.

 

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8. S UCCESSORS AND A SSIGNS . 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. I NTERPRETATION . 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. G OVERNING L AW ; S EVERABILITY . This Exercise Notice is governed by the internal substantive laws, but not the choice of law rules, of Michigan.

11. E NTIRE A GREEMENT . The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Restricted Stock Purchase Agreement, 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:
O PTIONEE : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name:
Date:

 

Title:
Resident Address:

 

Date:

 

 

 

4


E XHIBIT B

INVESTMENT REPRESENTATION STATEMENT

 

OPTIONEE: «NAME»
COMPANY: PRONAI THERAPEUTICS, 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

 

1


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.

(d) 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.

(e) 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.

 

Signature of Optionee
O PTIONEE :

 

Date:

 

 

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E XHIBIT C-1

PRONAI THERAPEUTICS, INC.

2008 STOCK PLAN

RESTRICTED STOCK PURCHASE AGREEMENT

THIS RESTRICTED STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made between «NAME» (“ Purchaser ”) and P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) or its assignees of rights hereunder as of «DATE». Unless otherwise defined herein, the terms defined in the 2008 Stock Plan (the “ Plan ”) shall have the same defined meanings in this Agreement.

B ACKGROUND

Pursuant to the exercise of the option granted to Purchaser under the Plan and pursuant to the Option Agreement dated «DATE» by and between the Company and Purchaser with respect to such grant (the “ Option ”), which Plan and Option Agreement are hereby incorporated by reference, Purchaser has elected to purchase «NUMBER» of those shares of Common Stock which have not become vested under the vesting schedule set forth in the Option Agreement (the “ Unvested Shares ”). The Unvested Shares and the shares subject to the Option Agreement, which have become vested are sometimes collectively referred to herein as the “ Shares .”

As required by the Option Agreement, as a condition to Purchaser’s election to exercise the option, Purchaser must execute this Agreement, which sets forth the rights and obligations of the parties with respect to Shares acquired upon exercise of the Option.

N OW , T HEREFORE , in consideration of the foregoing and the terms and conditions set forth herein, the parties hereby agree as follows:

T ERMS AND C ONDITIONS

1. R EPURCHASE O PTION .

(a) If Purchaser’s status as a Service Provider is terminated for any reason, including for death and Disability, the Company shall, upon the date of such termination (as reasonably fixed by the Company), have an irrevocable, exclusive option to repurchase (the “ Repurchase Option ”) any Unvested Shares at the price paid by Purchaser for such Shares (the “ Repurchase Price ”). The Company may exercise its Repurchase Option as to any or all of the Unvested Shares at any time following Purchaser’s termination; provided , however , that without requirement of further action on the part of either party hereto, the Company’s Repurchase Option shall be deemed to have been automatically exercised as to all Unvested Shares at 5:00 p.m. EST on the date that is 60 days following the date of Purchaser’s termination, unless the Company declines in writing to exercise its Repurchase Option prior to such time; provided , further , notwithstanding the above, the Company’s Repurchase Option shall not be deemed to have been automatically exercised, and shall instead be deemed to become temporarily unexercisable as of such time and date, in any case where such automatic exercise would result

 

1


in a violation of applicable law by reason of the Company having insufficient assets to meet its obligations or otherwise, including, without limitation, a violation of any provision of Section 160 of the Delaware General Corporation Law. The Repurchase Option shall once again be deemed exercisable (or, as provided above, exercised) as soon as a violation of applicable law would not result from its exercise.

(b) If the Company decides not to exercise its Repurchase Option, it shall notify Purchaser in writing within 60 days of Purchaser’s termination. If the Company decides to exercise its Repurchase Option, within 90 days from Purchaser’s termination as a Service Provider, the Company shall deliver payment to Purchaser, with a copy to the Escrow Agent (as defined in Section 2 hereof), by any of the following methods, in the Company’s sole discretion: (i) delivering to Purchaser or Purchaser’s executor a check in the amount of the aggregate Repurchase Price, (ii) canceling an amount of Purchaser’s indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) any combination of (i) and (ii) such that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of the payment of the aggregate Repurchase Price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and all related rights and interests therein, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company. In the event that Purchaser’s continuous status as a Service Provider terminates, and the Company neither notifies Purchaser within 60 days thereafter of the Company’s decision not to exercise its Repurchase Option, nor delivers payment of the Repurchase Price to Purchaser within 90 days thereafter, then the sole remedy of Purchaser thereafter shall be to receive the Repurchase Price from the Company in the manner set forth above, and in no case shall Purchaser have any claim of ownership as to any of the Unvested Shares.

(c) Whenever the Company shall have the right to repurchase Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or stockholders of the Company or other persons or organizations to exercise all or a part of the Company’s Repurchase Option under this Agreement and purchase all or a part of such Unvested Shares.

(d) The Company or its assignee must notify Purchaser that it does not elect to exercise the Repurchase Option conferred above by giving the requisite written notice within 60 days following Purchaser’s termination as a Service Provider to the Company. If the Company or its assignee gives such requisite notice, the Repurchase Option shall terminate.

(e) The Repurchase Option shall terminate in accordance with the vesting schedule contained in Purchaser’s Option Agreement.

(f) In the event that the Company’s Repurchase Option is exercised, whether automatically in the manner provided for above or pursuant to written notice, then upon and following such exercise, the only remaining right of Purchaser under this Agreement shall be the right to receive the Repurchase Price, and Purchaser shall have no right whatsoever to receive the Unvested Shares. In the event that the Company’s Repurchase Option is terminated, whether by written notice from the Company to Purchaser within 60 days following the termination of Purchaser’s service to the Company; or by reason of the automatic termination to avoid a

 

2


violation of applicable law described above, then upon and following such termination, the only remaining right of Purchaser under this Agreement shall be the right to receive the Unvested Shares, and Purchaser have no right whatsoever to receive the Repurchase Price.

2. T RANSFERABILITY OF THE S HARES ; E SCROW .

(a) Purchaser hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares as to which the Repurchase Option has been exercised from Purchaser to the Company.

(b) To insure the availability for delivery of Purchaser’s Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby appoints the Secretary, or any other person designated by the Company as escrow agent (the “ Escrow Agent ”), as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested Shares, if any, repurchased by the Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the Escrow Agent, the share certificates representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as E XHIBIT  C-2 . The Unvested Shares and stock assignment shall be held by the Escrow Agent in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as E XHIBIT  C-3 hereto, until the Company exercises its Repurchase Option, until such Unvested Shares are vested, or until such time as this Agreement no longer is in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly deliver to Purchaser the certificate or certificates representing such Shares in the Escrow Agent’s possession belonging to Purchaser, and the Escrow Agent shall be discharged of all further obligations hereunder; provided, however, that the Escrow Agent shall nevertheless retain such certificate or certificates as Escrow Agent if so required pursuant to other restrictions imposed pursuant to this Agreement.

(c) The Escrow Agent shall be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the exercise of its judgment.

(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all the provisions hereof and the Exercise Notice executed by Purchaser with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement.

3. O WNERSHIP , V OTING R IGHTS , D UTIES . This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein.

4. L EGENDS . The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable federal and state securities laws):

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF

 

3


REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

5. A DJUSTMENT FOR S TOCK S PLIT . All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares, which may be made by the Company pursuant to Section 13 of the Plan after the date of this Agreement.

6. N OTICES . Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at their respective principal executive offices.

7. S URVIVAL OF T ERMS . This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and legal successors.

8. S ECTION  83( B ) E LECTION .

(a) Purchaser hereby acknowledges that Purchaser has been informed that, with respect to the exercise of an Option for Unvested Shares, an election (the “ Election ”) may be filed by Purchaser with the Internal Revenue Service, within thirty (30) days of the purchase of the exercised Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the exercised Shares and their Fair Market Value on the date of purchase. In the case of a Nonstatutory Stock Option, this will result in a recognition of taxable income to Purchaser on the date of exercise, measured by the excess, if any, of the Fair Market Value of the exercised Shares, at the time the Option is exercised over the purchase price for the exercised Shares. Absent such an Election, taxable income will be measured and recognized by Purchaser at the time or times on which the Company’s Repurchase Option lapses. In the case of an Incentive Stock Option, such an Election will result in a recognition of income to Purchaser for alternative minimum tax purposes on the date of exercise, measured by the excess, if any, of the Fair Market Value of the exercised Shares, at the time the option is exercised, over the purchase price for the exercised Shares. Absent such an Election, alternative minimum taxable income will be measured and recognized by Purchaser at the time or times on which the Company’s Repurchase Option lapses. Purchaser is strongly encouraged to seek the advice of his or her or its own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) of the Code. A form of Election under Section 83(b) is attached hereto as E XHIBIT  C-4 for reference.

(b) PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER’S BEHALF.

9. R EPRESENTATIONS . Purchaser has reviewed with Purchaser’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions

 

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contemplated by this Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he (and not the Company) shall be responsible for his own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

10. G OVERNING L AW . This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of Michigan.

11. R EPRESENTATION . Purchaser represents that Purchaser has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Agreement.

IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.

 

P URCHASER : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name:
Date:

 

Title:
Resident Address:

 

Date:

 

 

 

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E XHIBIT C-2

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED I, «Name», hereby sell, assign and transfer unto P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) «Number» («Number») shares of the Common Stock of the Company standing in my name of the books of the Company represented by Certificate No.    herewith and do hereby irrevocably constitute and appoint the Company’s Secretary to transfer the such stock on the books of the within named corporation with full power of substitution in the premises.

This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between the Company and the undersigned dated                     (the “ Agreement ”).

 

 

Dated:

 

INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its “repurchase option,” as set forth in the Agreement, without requiring additional signatures on the part of Purchaser.

 

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E XHIBIT C-3

JOINT ESCROW INSTRUCTIONS

 

P RO NA I T HERAPEUTICS , I NC .

 

 

Dear Corporate Secretary:

As Escrow Agent for both P RO NA I T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”), and the undersigned purchaser of stock of the Company (“ Purchaser ”), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (the “ Agreement ”) between the Company and the undersigned, in accordance with the following instructions:

1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the “ Company ”) exercises the Company’s repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.

2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver the stock assignments, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company’s repurchase option.

3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you.

4. Upon written request of Purchaser, but no more than once per calendar year, unless the Company’s repurchase option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company’s repurchase option. Within 120 days after cessation of Purchaser’s continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company’s repurchase option.

 

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5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.

6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.

7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.

10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.

13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are

 

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authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days’ advance written notice to each of the other parties hereto.

16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.

17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

18. These Joint Escrow Instructions shall be governed by the internal substantive laws, but not the choice of law rules, of Michigan.

 

Very truly yours,
PRONAI THERAPEUTICS, INC.
By:

 

 

Title:

 

 

PURCHASER:
(Signature)
(Typed or Printed Name)

 

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ESCROW AGENT:

[Corporate Secretary]

 

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E XHIBIT C-4

ELECTION UNDER SECTION 83(b)

OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income or alternative minimum taxable income, as the case may be, for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer’s receipt of the property described below

1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:

 

NAME OF TAXPAYER: «Name» SPOUSE:
  ADDRESS:
  IDENTIFICATION NO. OF TAXPAYER: SPOUSE:
  TAXABLE YEAR:

2. The property with respect to which the election is made is described as follows:                  shares (the “ Shares ”) of the Common Stock of P RO NA I T HERAPEUTICS , I NC . (the “ Company ”).

3. The date on which the property was transferred is:                     .

4. The property is subject to the following restrictions:

The Shares may not be transferred and are subject to forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain conditions contained in such agreement.

5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $        .

6. The amount (if any) paid for such property is: $        .

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.

 

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The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.

 

Dated:                     ,         

 

                    , Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:                     ,         
Spouse of Taxpayer

 

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PRONAI THERAPEUTICS, INC.

2008 STOCK PLAN

RESTRICTED STOCK PURCHASE AGREEMENT

Unless otherwise defined herein, the terms defined in the 2008 Stock Plan (the “ Plan ”) will have the same defined meanings in this Restricted Stock Purchase Agreement (this “ Agreement ”).

 

I. NOTICE OF GRANT OF STOCK PURCHASE RIGHT

Name:

The undersigned Purchaser has been granted a right to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Agreement, as follows:

 

Date of Grant:
Vesting Commencement Date:
Exercise Price Per Share: $
Total Number of Shares:
Expiration Date:

YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.

Non-Transferability of Stock Purchase Right .

The Stock Purchase Right evidenced by this Agreement 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 Purchaser only by Purchaser. The terms of the Plan and this Agreement will be binding upon the executors, administrators, heirs, successors and assigns of Purchaser.

 

II. AGREEMENT

1. S ALE OF S TOCK . The Company hereby agrees to sell to the individual named in the Notice of Grant of Stock Purchase Right (“ Purchaser ”), and Purchaser hereby agrees to purchase the number of Shares set forth in the Notice of Grant of Stock Purchase Right, at the exercise price per share set forth in the Notice of Grant of Stock Purchase Right (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 Agreement, the terms and conditions of the Plan will prevail.

 

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2. P AYMENT OF P URCHASE P RICE . Purchaser herewith delivers to the Company the aggregate Exercise Price for the Shares by cash or check, together with any and all withholding taxes due in connection with the purchase of the Shares.

3. P URCHASER S R EPRESENTATIONS . In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time the Stock Purchase Right evidenced by this Agreement is exercised, Purchaser will, if required by the Company, concurrently with the exercise of all or any portion of this Stock Purchase Right, deliver to the Company his or her Investment Representation Statement in the form attached hereto as E XHIBIT B .

4. R EPURCHASE O PTION .

(a) In the event Purchaser’s continuous status as a Service Provider terminates for any or no reason (including death or Disability), the Company will, upon the date of such termination (as reasonably fixed and determined by the Company), have an irrevocable, exclusive option for a period of ninety (90) days from such date to repurchase up to that number of Shares which constitute the Unreleased Shares (as defined in Section 5) at the Exercise Price per share (the “ Repurchase Price ”) (the “ Repurchase Option ”).

(b) The Repurchase Option will be exercised by the Company by delivering written notice to Purchaser or Purchaser’s executor (with a copy to the Escrow Holder (as defined in Section 7)) AND, at the Company’s option, (i) by delivering to Purchaser or Purchaser’s executor a check in the amount of the aggregate Repurchase Price, or (ii) by the Company canceling an amount of Purchaser’s indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price in any of the ways described above, the Company will become the legal and beneficial owner of the Unreleased Shares being repurchased and all rights and interests therein or relating thereto, and the Company will have the right to retain and transfer to its own name the number of Unreleased Shares being repurchased by the Company.

(c) Whenever the Company will have the right to repurchase the Unreleased Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company’s Repurchase Option to purchase all or a part of the Unreleased Shares. If the Fair Market Value of the Unreleased Shares to be repurchased on the date of such designation or assignment (the “ Repurchase FMV ”) exceeds the aggregate Repurchase Price of the Unreleased Shares, then each such designee or assignee will pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of Unreleased Shares to be purchased.

 

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(d) If the Company or its assignee does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following Purchaser’s termination as a Service Provider, the Repurchase Option will terminate.

5. R ELEASE OF S HARES F ROM R EPURCHASE O PTION .

(a) Subject to any accelerated vesting provisions in the Plan, [1/4 th of the Shares subject to the Repurchase Option will be released on the first anniversary of the Vesting Commencement Date and 1/48 of the Shares subject to the Repurchase Option will be released monthly thereafter] (as set forth in the Notice of Grant of Stock Purchase Right), subject to Purchaser continuing to be a Service Provider through each such date.

(b) Any of the Shares which have not yet been released from the Company’s Repurchase Option are referred to herein as “Unreleased Shares.”

(c) The Shares which have been released from the Company’s Repurchase Option will be delivered to Purchaser at Purchaser’s request (see Section 7).

6. R ESTRICTION ON T RANSFER . Except for the escrow described in Section 7 or transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein will be transferred, encumbered or otherwise disposed of in any way until the release of such Shares from the Company’s Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution.

7. E SCROW OF S HARES .

(a) To ensure the availability for delivery of Purchaser’s Unreleased Shares upon exercise of the Repurchase Option by the Company, Purchaser will, upon execution of this Agreement, deliver and deposit with an escrow agent designated by the Company (the “ Escrow Agent ”) the share certificates representing the Unreleased Shares, together with the Assignment Separate from Certificate (the “ Stock Assignment ”) duly endorsed in blank, attached hereto as E XHIBIT  A-1 . The Unreleased Shares and Stock Assignment will be held by the Escrow Agent, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as E XHIBIT  A-2 hereto, until such time as the Company’s Repurchase Option expires.

(b) The Escrow Agent will not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow and while acting in good faith and in the exercise of its judgment.

(c) If the Company or any assignee exercises its Repurchase Option hereunder, the Escrow Agent, upon receipt of written notice of such option exercise from the proposed transferee, will take all steps necessary to accomplish such transfer.

(d) When the Repurchase Option has been exercised or expires unexercised or a portion of the Shares has been released from such Repurchase Option, upon Purchaser’s request the Escrow Agent will promptly cause a new certificate to be issued for such released Shares and will deliver such certificate to the Company or Purchaser, as the case may be.

 

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(e) Subject to the terms hereof, Purchaser will have all the rights of a shareholder with respect to such Shares while they are held in escrow, including without limitation, the right to vote the Shares and receive any cash dividends declared thereon. If, from time to time during the term of the Company’s Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which Purchaser is entitled by reason of Purchaser’s ownership of the Shares will be immediately subject to this escrow, deposited with the Escrow Agent and included thereafter as “Shares” for purposes of this Agreement and the Company’s Repurchase Option.

8. C OMPANY S R IGHT OF F IRST R EFUSAL . Subject to Section 6, before any Shares held by Purchaser 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) will have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the “ Right of First Refusal ”).

(a) Notice of Proposed Transfer. The Holder of the Shares will 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 will 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 (the “ Purchase Price ”) for the Shares purchased by the Company or its assignee(s) under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board of Directors of the Company in good faith.

(d) Payment. Payment of the Purchase Price will be made, at the option of the Company or its assignee(s), (i) by cash or check, (ii) 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 (iii) 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, 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 ninety (90) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable

 

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securities laws and the Proposed Transferee agrees in writing that the provisions of this Section will 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 will be given to the Company, and the Company and/or its assignees will 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 notwithstanding, the transfer of any or all of the Shares during Purchaser’s lifetime or on Purchaser’s death by will or intestacy to Purchaser’s immediate family or a trust for the benefit of Purchaser’s immediate family will be exempt from the provisions of this Section, provided that Purchaser notifies the Company in writing within thirty (30) days of said transfer. “Immediate Family” as used herein will mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient will receive and hold the Shares so transferred subject to the provisions of this Agreement, including but not limited to this Section 8 and Section 4, and there will be no further transfer of such Shares except in accordance with the terms of this Section.

(g) Termination of Right of First Refusal. The Right of First Refusal will 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.

9. R ESTRICTIVE L EGENDS ; S TOP -T RANSFER O RDERS ; R EFUSAL TO T RANSFER .

(a) Purchaser understands and agrees that the Company will 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 applicable 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 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, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE RESTRICTED STOCK PURCHASE AGREEMENT 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, RIGHT OF FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE SHARES.

 

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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTION ON TRANSFER FOR A PERIOD OF 180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE COMPANY’S INITIAL UNDERWRITTEN PUBLIC OFFERING 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. Purchaser 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 will 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 Agreement 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 will have been so transferred.

10. L OCK -U P P ERIOD .

(a) Purchaser hereby agrees that Purchaser will 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, including, without limitation, the Shares) 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 Purchaser (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 a registration statement of the Company filed under the Securities Act.

(b) Purchaser 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, Purchaser will 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 will 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 period. Purchaser agrees that any transferee of any Option will be bound by this Section.

 

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11. T AX C ONSEQUENCES .

(a) Set forth below is a brief summary as of the date of grant of the Stock Purchase Right evidenced by this Agreement of some of the federal tax consequences of exercise of this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.

(b) Generally, no income will be recognized by Purchaser in connection with the exercise of the stock purchase right for shares subject to the Repurchase Option, if an election under Section 83(b) of the Code is filed with the Internal Revenue Service within thirty (30) days of the date of exercise of the right to purchase stock. The form for making this election is attached as E XHIBIT  A-3 hereto. Otherwise, as the Company’s repurchase right lapses, Purchaser will recognize compensation income in an amount equal to the difference between the Fair Market Value of the stock at the time the Company’s repurchase right lapses and the amount paid for the stock, if any (the “ Spread ”). If Purchaser is an Employee or former Employee, the Spread will be subject to tax withholding by the Company, and the Company will be entitled to a tax deduction in the amount at the time Purchaser recognizes ordinary income with respect to a Stock Purchase Right. Purchaser agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Purchaser) for the satisfaction of all Federal, state, and local income and employment tax withholding requirements applicable to the purchase of Shares hereunder. Purchaser 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 purchase.

(c) The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Purchaser to satisfy such tax withholding obligation, in whole or in part by one or more of the following (without limitation): (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of such Shares otherwise deliverable to Purchaser such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld.

(d) PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER’S BEHALF.

12. N O G UARANTEE OF C ONTINUED S ERVICE . PURCHASER ACKNOWLEDGES AND AGREES THAT THE RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO SECTION 5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AT THE WILL OF THE COMPANY

 

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(NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER 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 WILL NOT INTERFERE WITH PURCHASER’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE PURCHASER’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

13. N OTICES . Any notice, demand or request required or permitted to be given by either the Company or Purchaser pursuant to the terms of this Agreement will be in writing and will be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder will be sent to the Company’s address with a copy to the other party not sending the notice.

14. N O W AIVER . Either party’s failure to enforce any provision or provisions of this Agreement will not in any way be construed as a waiver of any such provision or provisions, nor prevent that party from thereafter enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and will not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.

15. S UCCESSORS AND A SSIGNS . The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser’s heirs, executors, administrators, successors and assigns.

16. I NTERPRETATION . Any dispute regarding the interpretation of this Agreement will be submitted by Purchaser or by the Company forthwith to the Administrator which will review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator will be final and binding on all parties.

17. G OVERNING L AW ; S EVERABILITY . This Agreement is governed by the internal substantive laws but not the choice of law rules, of Michigan.

18. E NTIRE A GREEMENT . The Plan is incorporated herein by reference. This Agreement (including the exhibits referenced herein), the Plan, 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 Purchaser with respect to the subject matter hereof, and may not be modified adversely to Purchaser’s interest except by means of a writing signed by the Company and Purchaser.

 

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19. R EPRESENTATIONS . By Purchaser’s signature below, Purchaser represents that Purchaser is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant of Stock Purchase Right.

IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.

 

P URCHASER : T HE C OMPANY :
PRONAI THERAPEUTICS, INC.

 

By:

 

Name: Robert Forgey
Date:

 

Title: President
Resident Address:

 

Date:

 

 

 

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E XHIBIT A-1

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED I, «Name», hereby sell, assign and transfer unto ProNAi T HERAPEUTICS , I NC ., a Delaware corporation (the “ Company ”) «Number» («Number») shares of the Common Stock of the Company standing in my name of the books of the Company represented by Certificate No.      herewith and do hereby irrevocably constitute and appoint the Company’s Secretary to transfer the such stock on the books of the within named corporation with full power of substitution in the premises.

This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between the Company and the undersigned dated                      (the “ Agreement ”).

 

 

Dated:

 

INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its “repurchase option,” as set forth in the Agreement, without requiring additional signatures on the part of Purchaser.

 

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E XHIBIT A-2

JOINT ESCROW INSTRUCTIONS

 

                    ,         
P RO NA I T HERAPEUTICS , I NC .

 

 

Attention: [Corporate Secretary]

Dear [Corporate Secretary]:

As Escrow Agent for both ProNAi Therapeutics, Inc., a Delaware corporation (the “ Company ”) and the undersigned purchaser of stock of the Company (“ Purchaser ”), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (the “ Agreement ”) between the Company and the undersigned, in accordance with the following instructions:

1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the “ Company ”) exercises the Company’s repurchase option set forth in the Agreement (the “ Repurchase Option ”), the Company will give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.

2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company’s Repurchase Option.

3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser will exercise all rights and privileges of a shareholder of the Company while the stock is held by you.

4. Upon written request of Purchaser, but no more than once per calendar year, unless the Company’s Repurchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the

 

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Company’s Repurchase Option. Within ninety (90) days after cessation of Purchaser’s continuous employment by or services to the Company, or any parent or subsidiary of the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company’s Repurchase Option.

5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you will deliver all of the same to Purchaser and will be discharged of all further obligations hereunder.

6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.

7. You will be obligated only for the performance of such duties as are specifically set forth herein and may rely and will be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You will not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys will be conclusive evidence of such good faith.

8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you will not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9. You will not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.

10. You will not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11. You will be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12. Your responsibilities as Escrow Agent hereunder will terminate if you will cease to be an officer or agent of the Company or if you will resign by written notice to each party. In the event of any such termination, the Company will appoint a successor Escrow Agent.

13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto will join in furnishing such instruments.

 

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14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes will have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you will be under no duty whatsoever to institute or defend any such proceedings.

15. Any notice required or permitted hereunder will be given in writing and will be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days advance written notice to each of the other parties hereto.

 

THE COMPANY: P RO NA I T HERAPEUTICS , I NC .

 

 

Attention: [Corporate Secretary]
PURCHASER:
Address
ESCROW P RO NA I T HERAPEUTICS , I NC .
AGENT:

 

 

Attention: [Corporate Secretary]

16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.

17. This instrument will be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

18. The Restricted Stock Purchase Agreement is incorporated herein by reference. These Joint Escrow Instructions, the 2008 Stock Plan, and the Restricted Stock Purchase Agreement (including the exhibits referenced therein) 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 Escrow Agent, Purchaser and the Company with respect to the subject matter hereof, and may not be modified except by means of a writing signed by the Escrow Agent, Purchaser and the Company.

 

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19. These Joint Escrow Instructions will be governed by, and construed and enforced in accordance with, the laws of the State of Michigan.

 

Very truly yours,
PRONAI THERAPEUTICS, INC.
By:

 

 

Title:

 

 

PURCHASER:
(Signature)
(Typed or Printed Name)

 

ESCROW AGENT:
[Corporate Secretary]

 

4


E XHIBIT A-3

ELECTION UNDER SECTION 83(b)

OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income or alternative minimum taxable income, as the case may be, for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer’s receipt of the property described below

1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:

 

NAME OF TAXPAYER: «Name» SPOUSE:
  ADDRESS:
  IDENTIFICATION NO. OF TAXPAYER: SPOUSE:
  TAXABLE YEAR:

2. The property with respect to which the election is made is described as follows:                  shares (the “ Shares ”) of the Common Stock of P RO NA I T HERAPEUTICS , I NC . (the “Company”).

3 . The date on which the property was transferred is:                     .

4 . The property is subject to the following restrictions:

The Shares may not be transferred and are subject to forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain conditions contained in such agreement.

5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $        .

6. The amount (if any) paid for such property is: $        .

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.

 

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The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.

 

Dated:                     ,         

 

The undersigned spouse of taxpayer joins in this election.                     ,Taxpayer
Dated:                     ,         
Spouse of Taxpayer

 

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EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

 

PURCHASER: «NAME»
COMPANY: PRONAI THERAPEUTICS, INC.
SECURITY: COMMON STOCK
AMOUNT :
DATE :

In connection with the purchase of the above-listed Securities, the undersigned Purchaser represents to the Company the following:

(a) Purchaser 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. Purchaser is acquiring these Securities for investment for Purchaser’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) Purchaser 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 Purchaser’s investment intent as expressed herein. In this connection, Purchaser understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Purchaser’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 (1) year or any other fixed period in the future. Purchaser 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. Purchaser further acknowledges and understands that the Company is under no obligation to register the Securities. Purchaser understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company. Purchaser understands that the certificate evidencing the Securities will be imprinted with any legend required under applicable state securities laws.

(c) Purchaser 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 Stock Purchase Right to Purchaser, the

 

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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 (3) month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.

(d) In the event that the Company does not qualify under Rule 701 at the time of grant of the Stock Purchase Right, 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 (1) 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 (2) years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.

(e) Purchaser 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. Purchaser understands that no assurances can be given that any such other registration exemption will be available in such event.

 

Signature of Purchaser
P URCHASER :

 

Date:

 

 

2

Exhibit 10.8

SEPARATION AND RELEASE AGREEMENT

THIS SEPARATION AND RELEASE AGREEMENT (this “ Agreement ”) is made as of September 12, 2014 (the “ Agreement Date ”) by and between P RO NA I T HERAPEUTICS , I NC . , a Delaware corporation, whose address is 46701 Commerce Center Drive, Plymouth, Michigan 48170 (the “ Company ”) and M INA P. S OOCH whose address is                      (“ Employee ”).

BACKGROUND

Employee has been employed as the Chief Business Officer and Vice President of Business Development of the Company pursuant to the terms and conditions set forth in that certain letter agreement describing Employee’s employment terms dated as of May 12, 2014, between the Company and Employee (the “ Employment Terms Letter ”).

The Company and Employee (collectively, the “ Parties ” and each, without distinction, a “ Party ”) have mutually agreed to terminate the existing employment relationship on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of this Agreement and the mutual promises set forth in this Agreement, the Parties agree as follows:

TERMS AND CONDITIONS

ARTICLE 1.

EMPLOYMENT TERMINATION, PAYMENTS AND RESIGNATION

1.1 T ERMINATION OF E MPLOYMENT . Employee and the Company acknowledge and agree that Employee’s employment with the Company shall terminate as of September 12, 2014 (the “ Termination Date ”). Until the Termination Date, the Company shall continue to pay Employee her salary, less deductions required or authorized by law, including any applicable 401(k) deductions.

1.2 S EPARATION C ONSIDERATION . As consideration for Employee’s agreements and releases set forth herein, following the later to occur of the (i) execution of this Agreement and expiration of the Revocation Period (as defined below) and (ii) the Termination Date, and recognizing that without execution of this Agreement, Employee would not be entitled to any additional compensation beyond wages due, the Company agrees to (i) pay Employee an amount equal to (A) nine (9) months of your then-current Base Salary, subject to payroll deductions and all required withholdings, (B) fully and complete vesting of all of the Stock Options (as such term is defined in the Employment Terms Letter), and (C) extend the exercise period for the Stock Options to a period equal to one (1) year following the date that the Revocation Period set forth in the this Agreement expires without Employee’s revocation of this Agreement. By signing this Agreement you hereby acknowledge that the extension of the exercise period for the Stock Options to the applicable expiration date will result in each of the Stock Options failing to qualify as ISOs (as such term is defined in the Employment terms letter).

1.3 E XPENSE R EIMBURSEMENT . Employee will submit her final documented employee expense reimbursement statement reflecting all business expenses incurred by Employee through the Termination Date, if any, to the Company within thirty (30) days of the Termination Date. The Company will reimburse Employee for these expenses pursuant to its regular business practice.

1.4 C ONFLICT WITH O THER A GREEMENTS . In the event of any conflict of the provisions between this Agreement, the Employee Terms Letter, the Consulting Agreement (as such term is defined in the Employment Terms Letter) and the agreements related to the Stock Options, the provisions set forth in this Agreement shall control. In the event of any conflict between this Agreement and the provisions of that certain the Invention Assignment Agreement (as such term defined in the Employment Terms Letter), the terms and conditions of the Invention Assignment Agreement shall control.

 

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1.5 A CKNOWLEDGEMENT . Except as provided in this Article 1, the Parties acknowledge and agree that Employee is not, and shall not after the Termination Date, be eligible for any additional payment by the Company of any bonus, salary, vacation pay, retirement pension, severance pay, back pay, or other remuneration or compensation of any kind in respect of employment by the Company. Employee acknowledges that as of the Termination Date, she has used all accrued vacation and that Company has no obligation to pay her any amount for accrued but unused vacation time or other paid time off. Employee hereby confirms to the Company that Exhibit 1 to the Invention Assignment Agreement contains a complete list of all Inventions (as defined in the Invention Assignment Agreement) or improvements to which Employee claims ownership and desires to remove from the operation of the Inventions Assignment Agreement. Employee further agrees that the Invention Assignment Agreement remains in full force and effect and Employee hereby reaffirms her obligations arising under the terms of the Invention Assignment Agreement. Employee agrees to return to the Company all Company Documents and Materials (as defined in the Invention Assignment Agreement), apparatus, equipment and other physical property in Employee’s possession within two (2) days of the Termination Date and in the manner directed by the Chairman of the Company’s Board of Directors.

1.6 R ESIGNATION . Effective as of the Termination Date, Employee resigns from every office of the Company held by Employee.

1.7 C OOPERATION AND A SSISTANCE . Following the Termination Date, Employee agrees shall furnish such information and assistance to the Company as may be reasonably required by the Company in connection with any issues or matters of which Employee had knowledge during her employment with the Company. Effective as of the Termination Date, Employee agrees not to initiate communication for one year with any employees, consultants, potential strategic partners, customers, vendors, agents, representatives, investors, potential investors or creditors of the Company concerning the Company and promptly deliver to the attention of the Chairman of the Board via email to                      all correspondence and any inquiries that Employee receives (including the contents of any telephone calls or emails received by Employee) from any third party concerning the Company. Notwithstanding the forgoing, Employee shall be permitted to communicate with the limited partners of Apjohn Ventures Annex Fund, LP or Apjohn Ventures Fund, LP or the members of Apjohn Group, LLC with respect to matters involving the Company.

ARTICLE 2.

RELEASE AND NON-DISPARAGEMENT

2.1 E MPLOYEE R ELEASE OF C LAIMS . In consideration for the separation consideration set forth in this Agreement, Employee, on behalf of herself, her heirs, executors, legal representatives, spouse and assigns (“ Employee Releasing Parties ”), hereby fully and forever releases the Company and its respective past and present officers, directors, employees, investors, stockholders, administrators, subsidiaries, affiliates, predecessor and successor corporations and assigns, attorneys and insurers (the “ Company’s Released Parties ”) of and from any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the date the Consulting Agreement is terminated, including, without limitation, any and all claims:

2.1.1. which arise out of, or result from, or occurred in connection with Employee’s employment by or consulting to the Company or any of its affiliated entities, the termination of that employment or consulting relationship, any events occurring in the course of that employment or consultancy, or any events occurring prior to the execution of this Agreement;

2.1.2. any and all claims for breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; legal malpractice, or negligent or intentional interference with contract or prospective economic advantage;

2.1.3. relating to discrimination, retaliation, termination in violation of public policy or defamation;

 

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2.1.4. relating to (i) wrongful discharge of employment; any and all claims for wrongful discharge of employment, and/or (ii) violation of any federal, state or municipal statute relating to employment or employment discrimination, including, without limitation, (A) Title VII of the Civil Rights Act of 1964, as amended, (B) the Civil Rights Act of 1866, as amended, (C) the Civil Rights Act of 1991, as amended, (D) the Employee Retirement and Income Security Act of 1974, as amended, (E) the Age Discrimination in Employment Act of 1967, as amended (the “ ADEA ”), including, without limitation, by the Older Workers’ Benefit Protection Act, as amended (“ OWBPA ”), (F) the OWBFA, (G) the Americans with Disabilities Act of 1990, as amended, (H) any applicable state Persons with Disabilities Civil Rights Act, as amended, and (I) any applicable state Whistleblowers Protection Act, as amended;

2.1.5. any and all claims for back pay or other unpaid compensation;

2.1.6. any and all claims relating to equity of the Company, other than related to Stock Options; and

2.1.7. any and all claims for attorneys’ fees and costs.

Employee hereby agrees that the release set forth in this Agreement shall be and remain in effect in all respects as a complete general release as to the matters released. Employee represents and agrees that Employee has not filed any lawsuit, arbitration, or other claim against any of the Company’s Released Parties. Employee states that it knows of no violation of state, federal, or municipal law or regulation by any of the Company’s Released Parties, and knows of no ongoing or pending investigation, charge, or complaint by any agency charged with enforcement of state, federal, or municipal law or regulation. Pursuant to and as a part of Employee’s release and discharge of the Company’s Released Parties, as set forth herein, Employee agrees to the fullest extent permitted by law, not to sue or file a complaint, action, or demand for arbitration against any of the Company’s Released Parties in any forum or assist or otherwise participate willingly or voluntarily in any claim, arbitration, suit, action, investigation, or other proceeding of any kind that relates to any matter that involves any of the Company’s Released Parties, and that occurred up to and including this Agreement. Employee agrees that she shall not receive any damages, recovery and/or relief of any type related to any released claim(s), whether pursued by Employee, any governmental agency, other person or group. Nothing in the foregoing shall prevent Employee from commencing an action or proceeding to enforce Employee’s rights arising under this Agreement or under the Stock Options. Employee hereby represents, as of the date hereof, that Employee is not aware of any basis for a claim against any of the Company’s Released Parties.

2.2 A CKNOWLEDGMENT OF W AIVER OF C LAIMS UNDER ADEA. Employee acknowledges that she is waiving and releasing any rights she may have under the OWBPA and the ADEA, and that this waiver and release is knowing and voluntary. Employee acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that she has been advised by this writing that (a) she should consult with an attorney prior to executing this Agreement; (b) she has at least twenty-one (21) days within which to consider this Agreement and that if she signed this Agreement before expiration of that twenty-one (21) calendar day period, she did so knowingly and voluntarily and with the intent of waiving her right to utilize the full twenty-one (21) calendar day consideration period; and (c) she has seven (7) days following her execution of this Agreement to revoke the Agreement (the “ Revocation Period ”). Communication of any such revocation by Employee to the Company shall be provided in writing and mailed by certified or registered mail with return receipt requested and shall be addressed to the Company at its principal corporate offices to the attention of its Chairman of the Board of Directors. This Agreement shall not be effective until the Revocation Period has expired.

2.3 E FFECTIVE D ATE . This Agreement shall be effective upon the full execution by the Parties and, if applicable, the expiration of the Revocation Period.

2.4 N O A DMISSION OF L IABILITY . The Parties hereby acknowledge that neither this Agreement nor any statement contained herein shall be deemed to constitute an admission of liability on the part of the parties herein released.

 

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2.5 R ESTRICTIONS R EASONABLE . Employee acknowledges and agrees that the time limitation and geographic scope on the restrictions in this Article 2, as applicable, are reasonable. Employee also acknowledges and agrees that (i) the limitations in this Article 2 are reasonably necessary for the protection of the Company, (ii) through this Agreement, Employee shall receive adequate consideration for any loss of opportunity associated with the provisions herein, and (iii) the provisions of this Article 2 provide a reasonable way of protecting the Company’s business value that was imparted to Employee. In the event that any term, word, clause, phrase, provision, restriction or section of this Article 2 is more restrictive than permitted by the law of the jurisdiction in which the Company seeks enforcement thereof, the provisions of this Article 2 shall be limited only to that extent that a judicial determination finds the same to be unreasonable or otherwise unenforceable.

2.6 N ON -D ISPARAGEMENT .

2.6.1. For a period of one (1) year after the date of this Agreement, each Party covenants and agrees that such Party shall not make or cause to be made any statements, observations, opinions or communicate any information (whether in written or oral form) that defames, slanders or is likely in any way to harm the reputation of the other Party or any of its subsidiaries, affiliates, directors, or officers or tortiously interfere with any of the other Party’s respective business relationships. Each Party acknowledges and agrees that any violation of the covenant contained in this Section will result in irreparable damage to the other Party and that the other Party shall be entitled to injunctive and other equitable relief. In addition, each Party agrees that should it become necessary for the other Party to enforce any of the covenants contained in this Section through any legal, administrative or alternative dispute resolution proceeding, the Party breaching any of the covenants shall reimburse the other Party for any and all reasonable fees and expenses (legal costs, attorneys’ fees and otherwise) incurred by such Party in successfully enforcing such covenants and/or prosecuting any such proceeding or appeal therefrom to successful conclusion.

2.6.2. In the event that either Party is ordered by a court of competent jurisdiction or is compelled by subpoena to disclose any information on the other Party, such Party may disclose that information without liability under Section 2.6.1; provided, however, that the disclosing Party gives the other Party written notice of the information to be disclosed as far in advance of its disclosure as is practicable.

2.6.3. Each Party understands and agrees that the other Party could not be reasonably or adequately compensated in damages in an action at law for breach of the Party’s obligations under this Section 2.6. Accordingly, each Party specifically agrees that the other Party shall be entitled to temporary and permanent injunctive relief, specific performance, and other equitable relief to enforce the provisions of this Section 2.6. This provision with respect to injunctive relief shall not, however, diminish the right of the Party to claim and recover damages or other remedies in addition to equitable relief.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

3.1 R EPRESENTATIONS AND W ARRANTIES OF E MPLOYEE . Employee warrants and represents to the Company that she:

3.1.1. has been advised to consult with legal counsel in entering into this Agreement;

3.1.2. has entirely read this Agreement;

3.1.3. has voluntarily executed this Agreement without any duress or undue influence and with the full intent of releasing all claims;

3.1.4. has received no promise, inducement or agreement not herein expressed with respect to this Agreement or the terms of this Agreement;

3.1.5. understands and agrees that in the event any injury, loss, or damage has been sustained by her which is not now known or suspected, or in the event that the losses or damage now known or suspected have

 

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present or future consequences not now known or suspected, this Agreement shall nevertheless constitute a full and final release as to the parties herein released, and that this Agreement shall apply to all such unknown or unsuspected injuries, losses, damages or consequences; and

3.1.6. expressly acknowledges that her entry into this Agreement is in exchange for consideration in addition to anything of value to which she is already entitled.

3.2 A UTHORITY . The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Employee represents and warrants that she has the capacity to act on her own behalf and on behalf of all who might claim through her to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein.

3.3 N O O THER R EPRESENTATIONS . Neither Party has relied upon any representations or statements made by the other Party hereto which are not specifically set forth in this Agreement.

ARTICLE 4.

MISCELLANEOUS

4.1 C ONFIDENTIALITY . The Parties each agree to use their best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (collectively, the “ Separation Information ”). The Parties agree to take every reasonable precaution to prevent disclosure of any Separation Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Separation Information. The Parties agree to take every precaution to disclose Separation Information only to those employees, officers, directors, attorneys, accountants, governmental entities (including the potential filing of this Agreement with the applicable rules and regulations of the SEC), and family members who have a reasonable need to know of such Separation Information. Notwithstanding the foregoing, Employee may reveal to potential employers only those Sections of this Agreement that would restrict her activities or ability to disclose information with respect to any such future employer.

4.2 S EVERABILITY . Should any provision of this Agreement be declared or be determined by any arbitrator or court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term, or provision shall be deemed not to be a part of this Agreement.

4.3 E NTIRE A GREEMENT . This Agreement together with the Employment Terms Letter, the stock option agreements related to the Stock Options, and the Invention Assignment Agreement represent the entire agreement and understanding between the Company and Employee concerning Employee’s separation from the Company, and supersedes and replaces any and all prior agreements and understandings concerning Employee’s relationship with the Company and her compensation by the Company.

4.4 A SSIGNMENT . This Agreement may not be assigned by Employee or the Company without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by the Company to a corporation controlling, controlled by or under common control with the Company without the consent of Employee. This Agreement shall inure to the benefit of, and be binding upon, each Party’s respective heirs, legal representatives, successors and assigns.

4.5 N O O RAL M ODIFICATION . This Agreement may only be amended by a writing signed by Employee and the Company.

4.6 G OVERNING L AW ; C ONSENT TO J URISDICTION , W AIVER OF J URY T RIAL . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan, without regard to its principles of conflicts of laws. Each of the Parties irrevocably submits to the exclusive jurisdiction of the state and federal courts of the State of Michigan for the purpose of any suit, action, proceeding or judgment relating to or

 

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arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each Party anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the Parties irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each Party irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

4.7 C OUNTERPARTS / F ACSIMILE S IGNATURE . This Agreement may be executed in one or more counterparts and by facsimile, each of which shall constitute an original and all of which together shall constitute one and the same instrument. Signatures of the Parties transmitted by facsimile or via .pdf format shall be deemed to be their original signatures for all purposes.

S IGNATURES ON THE F OLLOWING P AGE

 

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The Parties have executed this Separation and Release Agreement as of the date set forth below.

 

P RO NA I T HERAPEUTICS , I NC .
By:

/s/ Nicholas Glover

/s/ Mina Sooch

Name: Nicholas Glover M INA P. S OOCH
Title: President and Chief Executive Officer
Date:

9-12-14

ELECTION TO EXECUTE PRIOR TO EXPIRATION OF

TWENTY-ONE DAY CONSIDERATION PERIOD

(To be signed only if Separation and Release Agreement is signed

prior to expiration of 21 days after it is presented to employee)

I understand that I have up to twenty-one (21) days within which to consider and execute the foregoing Separation and Release Agreement. However, after having had sufficient time to consider the matter and to consult with counsel, I have freely and voluntarily elected to execute the Separation and Release Agreement before the twenty-one (21) day period has expired.

 

/s/ Mina Sooch

M INA P. S OOCH
Date:

9-12-14

 

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Exhibit 10.9

MICHIGAN LIFE SCIENCE AND INNOVATION CENTER LEASE

In consideration of the rents and covenants set forth below, Michigan Life Science and Innovation Center, LLC hereby leases to Tenant (as hereinafter defined), and Tenant hereby leases from Landlord, the Leased Premises (as hereinafter defined) upon the following terms and conditions:

ARTICLE 1 - FUNDAMENTAL LEASE PROVISIONS

The provisions in this Article shall be referred to in this Lease as the “ Fundamental Lease Provisions .” Unless otherwise defined herein, capitalized terms used in this Lease shall have the meanings listed in the Fundamental Lease Provisions.

 

Execution Date: March 9, 2012
Commencement Date: May 1, 2012
Landlord: Michigan Life Science and Innovation Center, LLC
Landlord’s Address:

201 South Division, Suite, Suite 430

Ann Arbor, Michigan 48104

Tenant: ProNAi Therapeutics, Inc.
Tenant’s Address:

46701 Commerce Center Drive

Plymouth, MI 48116

Land: The real property commonly known 46701 Commerce Center Drive Plymouth, Michigan, as more particularly described on Exhibit A attached hereto.
Building: The building located on the Land.
Leased Premises: Approximately 955 rentable square feet (includes common area factor of 1.4) of laboratory space commonly known as Office Suite C, all in the Building and as shown on the sketch attached hereto as Exhibit B .
Tenant’s Proportionate Share: Not applicable
Initial Term: 6 month period ending October 31, 2012


Renewal Terms: Month-to-month basis following the initial term
Lease Year: Each twelve month period commencing on the Commencement Date and each anniversary thereof; provided, however, that if the Commencement Date falls on other than the first day of a calendar month, each Lease Year commence on the first day of the calendar month first following the Commencement Date.
Base Rent: $32 per rentable square foot of laboratory space, each as subject to increase as provided in Section 3.1(b) below. Initial monthly rent is $2,000 for the first 6 months through October 31, 2012. Beginning November 1, 2012 the monthly rent is $2,546.67 per month.
Security Deposit: $2,500 due on the Commencement Date
Permitted Use: [Pharmaceutical research and development, and uses incidental thereto.]

References in this Article 1 to other Sections are for convenience and designate some of the other Articles where references to the Fundamental Lease Provisions appear. Each reference in this Lease to any of the Fundamental Lease Provisions contained in this Article 1 shall be construed to incorporate all of the terms provided under such Fundamental Lease Provision. In the event of any conflict between any Fundamental Lease Provision and the balance of this Lease, the latter shall control.

ARTICLE 2 - GRANT OF LEASE; TERM

2.1 Grant of Lease . In consideration of the payments of rent and other amounts to be made by Tenant and the covenants and conditions to be kept and performed by Tenant, all as set forth in this Lease, Landlord leases the Leased Premises to Tenant, together with the non-exclusive right to (a) use the interior and exterior common and public areas and facilities, including the surface parking facilities appurtenant to the Building (collectively, the “ Common Areas ”) as may be designated by Landlord for the use in common by all of the tenants of the Building, and (b) access on the fee basis established by the Landlord or its agent from time to time to use the vivarium space and facilities located in the Building (the “ Vivarium ”).

2.2 Term .

(a) The Initial Term shall be as set forth in the Fundamental Lease Provisions. Notwithstanding the foregoing, Landlord shall have no obligation to deliver the Leased Premises for occupancy to Tenant until the applicable governmental authority shall have issued a certificate of occupancy and any other applicable approvals necessary to allow for the Permitted Use after prosecution of Tenant’s improvements thereto as hereinafter provided.

(b) Provided Tenant is not then in default under this Lease beyond (notice and cure periods), Tenant shall have the option to extend the Initial Term by each of the Renewal Term(s) described in the Fundamental Lease Provisions by giving Landlord notice of its election

 

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to extend the term of this Lease by such Renewal Term not less than one hundred and eighty (180) days prior to expiration of the Initial Term or the then running Renewal Term, as the case may be. The terms and conditions of this Lease shall apply during each Renewal Term.

(c) The Initial Term, as it may be extended by one or more Renewal Terms, shall be hereinafter referred to as the “ Lease Term .”

ARTICLE 3 - BASE RENT AND OTHER PAYMENTS

3.1 Base Rent .

(a) Tenant shall pay Landlord monthly installments of Base Rent for the Leased Premises, initially in the amount(s) set forth in the Fundamental Lease Provisions, in advance, commencing on the Commencement Date and continuing on the first day of each calendar month during the Lease Term. If the Commencement Date is a day other than the first day of a calendar month, Tenant shall, on the Commencement Date, pay Landlord a fraction of the Base Rent equal to the number of days remaining in such month, divided by the total number of days in such month.

(b) As of the commencement of the second Lease Year and continuing with the commencement of each Lease Year thereafter during the Lease Term, the Base Rent shall increase by the same percentage increase, if any, in the consumer price index issued by the Bureau of Labor Statistics, United States Department of Commerce, for all urban consumers, Detroit-Ann Arbor, all items (1982-84 = 100) (or if such index is no longer published, any index similarly providing an indicator of inflation) over twelve (12) month period ending three (3) months prior to the end of the Lease Year ending immediately prior to the Lease Year to which such increase would apply. The increase will be the higher percentage of either 2% or the CPI rate described in this section.

3.2 Utilities Cost; Additional Rent .

For purposes of this Lease, Tenant’s payment of Base Rent shall include Tenant’s Proportionate Share of Expenses and Taxes (as each term is defined below) (the “ Additional Rent ”). For purposes of this Section:

Expenses ” shall mean the actual cost incurred by Landlord with respect to the operation, maintenance, repair and replacement and administration of the Land and the Building, including, without limitation or duplication, (A) the costs incurred for air conditioning; mechanical ventilation; heating; cleaning; rubbish removal from Common Areas; snow removal; parking lot maintenance and repairs; general landscaping and maintenance; window washing, electric current for the Common Areas; reasonable management fees not to exceed 3% of gross rents (which services shall be provided to Tenant on Landlord’s behalf through one or more third parties engaged by Landlord or Landlord’s agent for such purpose); repairs, replacement, and maintenance of the Land and the Building; fire, extended coverage, boiler, sprinkler, apparatus, general liability and property damage insurance (including loss of rental income insurance); supplies; sales, use and other similar taxes; water rates and sewer charges; and any other costs,

 

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charges and expenses which, under generally accepted accounting principles and practices, consistently applied, would be regarded as maintenance; repair and operating expenses, and (B) an allocable portion of the cost of capital improvement items made to the Building by Landlord after the Commencement Date which are reasonably calculated to reduce Expenses, such cost to be amortized over the reasonably established useful life of the capital improvement on a straight-line basis; provided, however, that to the extent that any utilities are separately metered to the Leased Premises and/or any services are contracted for directly by Tenant, then any charges for such items shall not be included in “Expenses.” Landlord shall provide Tenant with a budget of Landlord’s reasonable estimate of Expenses not less than ninety (90) days prior to each calendar year, in reasonable detail. Expenses shall not include depreciation or amortization of the Building or equipment in the Building except as provided herein, loan principal payments, costs of alterations of tenants’ premises, leasing commissions, interest expenses on long-term borrowings or advertising costs. Expenses shall also not include (a) repairs or other work occasioned by (i) fire, earthquake, windstorm, or other casualty of the type which Landlord has insured or is required to insure pursuant to the terms of this lease, or for which Landlord is entitled to reimbursement, whether or not collected, from third parties, or (ii) the exercise of the right of eminent domain; (b) marketing costs, leasing commissions, finders’ fees, attorney’s fees, costs, and disbursements and other expenses incurred in connection with negotiations or disputes with tenants, other occupants, prospective tenants or other occupants, or the sale or refinancing of the Building, or legal fees incurred in connection with this lease; (c) expenses, including permits, license, design, space planning, and inspection costs, incurred in tenant build-out, renovating or otherwise improving or decorating, painting or redecorating space for tenants or other occupants of space; (d) Landlord’s costs of electricity and other services sold or provided to tenants in the Building and for which Landlord is entitled to be reimbursed, whether or not collected, by such tenants as a separate additional charge or rental over and above the basic rent or escalation payment payable under the lease with such tenant; (e) except as otherwise expressly permitted above, costs incurred by Landlord for alterations which are considered capital improvements and replacements under generally accepted accounting principles consistently applied, and all other costs of a capital nature, including, but not limited to, capital improvements, capital repairs, capital equipment and capital tools all determined in conformity with generally accepted accounting principles consistently applied; (f) expenses in connection with non-Building standard services or benefits of a type which are not provided to Tenant but which are provided to other tenants or occupants of the Building, or for which Tenant is charged directly but which are provided to another tenant or occupant of the Building without direct charge; (g) costs incurred due to violation by Landlord or any tenant or other occupant of the terms and conditions of any lease or other rental agreement covering space in the Building; (h) amounts paid to subsidiaries or other affiliates of Landlord (i.e., persons or companies controlled by, under common control with, or which control, Landlord) for services on or to the Land, the Building or the premises (or any portion thereof), to the extent only that the

 

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costs of such services exceed competitive costs of such services were they not so rendered by a subsidiary or other affiliate of Landlord;(i) bad debt expenses, payments of principal, interest, late fees, prepayment fees or other charges on any debt or amortization payments on any mortgage or mortgages executed by Landlord covering the Land or the Building (or any portion thereof) now or in the future, rental concessions or negative cash flow guaranties, or rental payments under any ground or underlying lease or leases;(j) Landlord’s general administrative overhead expenses for services not specifically performed for the Building, or salaries of any officer or employee of Landlord (or any subsidiary or affiliate of Landlord) above the grade of building manager; (k) all items and services for which Tenant pays directly to third parties or for which tenants reimburse Landlord; (1) advertising and promotional expenditures, and costs of signs in or on the Building identifying the owner of the Building or any other tenant of the Building; (m) any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority; (n) costs for relating to sculpture, paintings, or other art; (o) rentals and other related expenses incurred in the leasing of air conditioning systems, elevators, or other equipment ordinarily considered to be of a capital nature, except equipment which is used in providing janitorial services and which is not affixed to the Building; (p) building, project, asset or other management fees in an aggregate amount in excess of the comparable market rates for such services in the area in which the Building is located; (q) costs incurred to comply with, any laws, statutes, ordinances, codes or other governmental rules, regulations or requirements, or with the requirements of any board of fire underwriters or other similar body now or hereafter constituted, in effect and applicable to the Building as of the date of this Lease; (r) any costs necessitated by or resulting from the negligence of Landlord, its agents, employees and/or independent contractors; (s) charitable or political contributions; (t) expenses in connection with claims for personal injury or property damage alleged to have arisen from or in connection with the existence, condition or operation of the Building, including without limitation costs incurred in connection with the defense of such claims; (u) costs associated with the operation of the business of the partnership or entity which constitutes Landlord, or the operation of any parent, subsidiary or affiliate of Landlord, as the same are distinguished from the costs of operation of the Building, including without limitation partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, and costs of any disputes between Landlord and its employees or disputes of Landlord with third-party building management; (v) costs incurred in connection with investigating, assessing, removing, encapsulating or otherwise remediating or abating asbestos or other hazardous or toxic materials or other forms of contamination in or on the Building or on or under the real property or any part thereof (including without limitation groundwater contamination); (w) costs incurred in connection with compliance with Americans with Disabilities Act, as such Act may hereafter be amended; (x) costs of signs in or on the Building identifying the owner of the Building or signs (other than the Building directory in the lobby of the Building) identifying other tenants of the Building or their employees, divisions, subsidiaries, subtenants or assignees.

 

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Taxes ” shall mean the amount incurred by Landlord of all ad valorem real property taxes and assessments, special or otherwise, levied upon or with respect to the Land and the Building, or the rent and additional charges payable hereunder, imposed by any taxing authority having jurisdiction and shall also include all taxes, levies and charges which may be assessed, levied or imposed in replacement of, or in addition to, all or any part of ad valorem real property taxes as revenue sources, and which in whole or in part are measured or calculated by or based upon the Land and/or the Building, the freehold and/or leasehold estate of Landlord or Tenant, or the rent and other charges payable hereunder. Taxes shall also include any expenses incurred by Landlord in determining or attempting a successful reduction of Taxes. Notwithstanding anything herein contained to the contrary, if the Building is separately assessed for real estate tax purposes, the Taxes shall include such separately assessed Taxes plus an allocable portion of the Taxes on the Common Areas (as reasonably determined by Landlord) and if the Building is not so separately assessed, Landlord shall allocate the Taxes among the Building and other buildings on the Development on a reasonable and equitable basis (including the Taxes allocable to the Common Areas).

3.3 Place and Manner of Payment . Tenant shall make all payments of Base Rent, Additional Rent and all other payments due Landlord under this Lease at the address for Landlord set forth in the Fundamental Lease Provisions, or at such other place as Landlord may designate to Tenant by notice.

3.4 Late Charge . If any installment of the Base Rent, Additional Rent or any other payment provided for under this Lease which is payable by Tenant is not received by Landlord within ten (10) days after written notice to Tenant, Tenant shall immediately pay Landlord an amount equal to five percent (5%) of the overdue amount as a late charge (the “ Late Charge ”). Landlord and Tenant agree that the Late Charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of any such late payment by Tenant. Acceptance of the Late Charge by Landlord shall not constitute a waiver of Tenant’s default with respect to the overdue amount, nor prevent Landlord from exercising any other rights and remedies available to Landlord under this Lease.

3.5 Interest on Overdue Amounts . The Base Rent, Additional Rent and all other amounts due Landlord under this Lease which are not paid within ten (10) days after written notice to Tenant shall bear interest at a per annum rate (the “ Default Rate ”) equal to the “prime rate” (or substantial equivalent) announced from time to time (as adjusted monthly) by Comerica Bank (or any successor financial institution), plus two percent (2%), from the date due until paid; provided, however, that if the Default Rate shall exceed the lawful rate of interest which Landlord is entitled to charge under applicable Michigan law, then the per annum rate of interest on any such overdue amounts shall be the maximum rate permitted by applicable law.

3.6 Advances by Landlord . In the event that Tenant shall fail to timely pay any amount due Landlord under this Lease other than the Base Rent within ten (10) days after written

 

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notice to Tenant, Landlord, at its option, may advance such payment on behalf of Tenant (each an “ Advance ”). Tenant shall pay Landlord the amount of any Advance, together with interest thereon at the Default Rate from the date of such advance by Landlord until repayment thereof by Tenant. Tenant shall make such repayment not later than the first day of the calendar month following the date of such Advance.

3.7 Security Deposit . Upon the Execution Date, Tenant shall deposit with Landlord the Security Deposit as security for Tenant’s faithful performance of Tenant’s obligations hereunder. If Tenant fails to timely pay rent or other charges due hereunder, or otherwise defaults with respect to any provisions of this Lease beyond applicable notice and cure periods hereunder, Landlord may use, apply, or retain all or any portion of the Security Deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Landlord may become obligated by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby. Landlord shall have no obligation to apply the Security Deposit against any amount due or owing from Tenant under this Lease or against any Advance made by Landlord, nor shall the rights and remedies of Landlord under this Lease be affected in any manner by the fact that Landlord holds the Security Deposit. If, however, Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall within ten (10) business days after written demand therefor, deposit with Landlord an amount sufficient to restore the Security Deposit to the full amount stated above, and Tenant’s failure to do so shall constitute a default under this Lease. Landlord shall not be required to keep the security deposit separate from its general accounts or to pay interest thereon, unless otherwise required by applicable law. If Tenant performs all of Tenant’s obligations hereunder, the Security Deposit, or so much thereof after application thereof by Landlord in accordance with this Section 3.7, as has not been applied by Landlord, shall be returned, in cash, without payment of interest or other increment for its use, to Tenant at the expiration of the Lease Term. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit.

3.8 Other Taxes . Tenant shall pay prior to delinquency, all taxes assessed against and levied or assessed by municipal, county, state, federal or other taxing or assessing authority upon, against or with respect to (a) the Leased Premises or any leasehold interest, (b) all furniture, fixtures, equipment and any personal property of any kind owned by Tenant or any previous tenant and occupant, and placed, installed or located in, within, upon or about the Leased Premises or the Building, (c) all alterations, additions or improvements of whatsoever kind or nature, if any, made to the Leased Premises or the Building by Tenant, or any previous tenant or occupant of the Leased Premises, and (d) rents or other charges payable by Tenant to Landlord, irrespective of whether any of the terms described in clauses (a) through (d) above are assessed against real or personal property, and irrespective of whether any of such items are assessed to or against Landlord or Tenant. Tenant shall cause said trade fixtures, furnishings, equipment, and all other personal property to be assessed and billed separately from the real property of Landlord, including, without limitation, all improvements made within the Leased Premises by or on behalf of Tenant at Tenant’s expense as provided in M.C.L.A. §211.8(h), as amended. Accordingly, Tenant shall report such leasehold improvements as personal property in the statement of assessable property that Tenant is required to file by M.C.L.A. §211.19, as amended, and shall cooperate with Landlord in ensuring that such leasehold improvements are not assessed as real property. Notwithstanding the foregoing, to the extent that Landlord shall have paid any of the foregoing taxes and assessments directly to the applicable taxing authority, any such payment shall constitute an Advance hereunder.

 

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3.9 Nature of Lease . This Lease shall be deemed and construed to be a “gross lease”. Tenant shall be solely responsible for and shall promptly pay all necessary fees, deposits and charges, including use and/or connection fees, hook-up fees, stand by fees, and/or penalties for discontinued or interrupted service, for any service or utility used in or upon or furnished to the Leased Premises, irrespective of whether Landlord has paid for these services in advance, or otherwise.

ARTICLE 4 - USE, CARE AND OCCUPANCY OF THE LEASED PREMISES

4.1 Use and Purpose . Unless Landlord shall otherwise consent in writing (which consent shall not be unreasonably withheld), Tenant shall use the Leased Premises solely for the Permitted Use and in a manner consistent with the zoning ordinance applicable to the Land.

4.2 Care of Leased Premises . Tenant shall not perform any acts or carry on any practices within the Leased Premises that may damage the Leased Premises.

4.3 Compliance with Law . Tenant shall, at Tenant’s sole expense, comply in all material respects with all applicable laws, ordinances, orders, rules, regulations, of any governmental authorities and with any directive of any public officer which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Leased Premises, or the use or occupation thereof including, without limitation, any governmental law or statute, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect relating to the environment, health or safety, including, without limitation, the safe and lawful use and storage of biomedical and nuclear products, materials and devices used by Tenant in its operations, as well as the legal removal of any “medical waste,” “biological waste,” “nuclear waste” or otherwise hazardous material from the Leased Premises, but only to the extent any such alterations, modifications or improvements are required as a result of any leasehold improvements, alterations or additions made to the Leased Premises by or on behalf of Tenant or the particular business operations or use of Tenant in the Leased Premises. Tenant shall not use or permit the Leased Premises to be used in any manner that will result in waste or the creation of a nuisance, and Tenant shall maintain the Leased Premises free of any objectionable noises, odors or disturbances. To the extent the Tenant makes use of the Vivarium, Tenant shall comply with all applicable laws relating to the import, handling, use and disposal of animals and animal products. Notwithstanding the foregoing, in no event shall Tenant have liability or indemnity obligation under this Section 4.3, with respect to any condition existing prior to the date hereof.

4.4 Prohibited Use . Tenant shall not do or permit anything to be done in or about the Leased Premises which will in any way obstruct or interfere with the rights of other tenants of the Building, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Leased Premises or commit or suffer to be committed any waste in, on or about the Leased Premises. If anything done, omitted to be done or suffered to be done by Tenant, or kept or suffered by Tenant to be kept in, upon or about the Leased Premises shall cause the rate of fire or other insurance on the Building in companies acceptable to Landlord to be increased beyond the minimum rate from time to time applicable to the Building, Tenant shall pay Landlord the amount of any such increases on demand.

 

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4.5 Permits and Licenses . Tenant shall, at its sole cost and expense, be solely responsible to apply for, and secure, any building permit or permission of any duly constituted authority for the purpose of doing any of the things which Tenant is required or permitted to do under the provisions of this Lease.

4.6 Environmental Compliance . Tenant hereby agrees that:

(a) Tenant shall, at its sole cost and expense at all times during the Term, comply in all respects with the Relevant Environmental Laws (as hereinafter defined) in its use and operation of the Leased Premises, and in its storage or use of any Hazardous Substances.

(b) Tenant shall notify Landlord promptly and in reasonable detail in the event that Tenant becomes aware of or suspects (i) the presence of any Hazardous Substance (as hereinafter defined) on the Leased Premises (other than any Permitted Hazardous Substance (as hereinafter defined)), (ii) the presence of Asbestos (as hereinafter defined) on the Leased Premises, or (iii) a violation of the Relevant Environmental Laws on the Leased Premises.

(c) If Tenant uses or permits the Leased Premises to be used so as to subject Tenant, Landlord or any occupant of the Leased Premises to a claim of violation of the Relevant Environmental Laws (unless contested in good faith by appropriate proceedings), Tenant shall immediately cease or cause cessation of such use or operations and shall remedy and fully cure any conditions arising therefrom, at its sole cost and expense.

(d) At its sole cost and expense, Tenant shall keep the Leased Premises free of any liens imposed pursuant to the Relevant Environmental Laws by reason of acts or omissions of Tenant, its employees, officers, directors, contractors, agents, customers, guests and invitees.

(e) Tenant shall indemnify, save and hold Landlord harmless from and against any claim, liability, loss, damage or expense (including, without limitation, reasonable attorneys’ fees and disbursements) arising out of any violation of the covenants of Tenant contained in this Section by Tenant, or out of any violation of the Relevant Environmental Laws by Tenant, its owners, employees, agents, contractors, customers, guests and invitees, which indemnity obligation shall survive the expiration or termination of this Lease.

(f) In the event that Tenant fails to comply with the any of the foregoing requirements of this Section, after the expiration of the cure period permitted under the Relevant Environmental Laws, if any, Landlord may, but shall not be obligated to, exercise its right to do one or more of the following: (i) elect that such failure constitutes an Event of Default; and (ii) take any and all actions, at Tenant’s sole cost and expense, that Landlord deems necessary or desirable to cure any such noncompliance. Any costs incurred by Landlord pursuant to this subsection shall constitute an Advance.

Nothing contained in this Article 4 shall be construed to subject Tenant to any liability or indemnity obligation with respect to any condition existing prior to the date hereof.

 

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Capitalized terms used in this Section and not otherwise defined herein shall have the following meanings:

Asbestos ” means that term as it is defined under the Relevant Environmental Laws, and shall include, without limitation, asbestos fibers and friable asbestos, as such terms are defined under the Relevant Environmental Laws.

Hazardous Substance ” means any of the following as defined by the Relevant Environmental Laws: solid wastes; biological, medical or nuclear waste or materials; toxic or hazardous substances, petroleum products or derivatives, wastes, or contaminants (including, without limitation, polychlorinated biphenyls (“PCBs”), paint containing lead, and urea-formaldehyde foam insulation; and discharges of sewage or effluent.

Relevant Environmental Laws ” means all applicable federal, state and local laws, rules, regulations, orders, judicial determinations, and decisions or determinations by any judicial, legislative or executive body of any governmental or quasi-governmental entity, as they may be amended from time to time, whether presently existing or hereinafter enacted, adopted or ordered with respect to: (a) the existence on, discharge from or to, or removal from all or any portion of the Leased Premises of any Hazardous Substance; and (b) the effects on the environment of all or any portion of the Leased Premises, or of any activity now, previously, or hereafter conducted on the Leased Premises.

Permitted Hazardous Substance ” means any Hazardous Substance which is necessary and commercially reasonable for the provision of any good or service related to the Permitted Use.

4.7 Quiet Enjoyment . Upon timely payment of all amounts due Landlord under this Lease and performance of the covenants and agreements herein contained, in the manner and at the time set therefor, Tenant shall, and may peacefully and quietly have, hold and occupy the Leased Premises during the Lease Term.

ARTICLE 5 - MAINTENANCE AND SERVICES

5.1 Landlord’s Obligations .

(a) Landlord shall, and at its sole cost and expense, make all necessary capital and non-capital repairs, and replacements to (i) the foundations, outer wall, roof and other structural components of the Building, (ii) the Common Areas, and (iii) Building mechanical, electrical, plumbing, elevator and HVAC systems servicing the Building. Landlord shall additionally make certain minor ordinary course repairs to the Leased Premises, including ceiling tile replacement, light bulb replacement in the Common Areas, door repairs and repair of window treatment mechanicals. Notwithstanding the foregoing or anything contained elsewhere in this Lease to the contrary, in the event that Landlord shall reasonably determine that Tenant, or Tenant’s owners, agents, contractors, directors, officers, employees, guests, invitees, customers or licensees, shall have committed waste upon, abused or otherwise damaged any of, the structures, systems, improvements or other components of the Building or the Leased Premises described in, or contemplated by, this subsection, Landlord shall cause them to be repaired or replaced, as necessary, and the cost thereof shall constitute an Advance.

 

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(b) Landlord shall arrange for and supervise rubbish removal, snow removal, lawn and landscaping service, maintenance and repair for the Common Areas, including the sidewalks, driveways and parking area, as applicable, serving the Building.

(c) Landlord shall provide Tenant with such number of keys and electronic key cards for the Leased Premises and the Building as Tenant shall reasonably require for its owners and employees. Within ten (10) days after receipt of an invoice therefor from Landlord, Tenant shall reimburse Landlord for any cost incurred by Landlord to replace any lost key or electronic key card and failure to timely do so shall constitute an Advance. Upon not less than one business days’ notice to Landlord, Landlord will deactivate any electronic key card specifically identified by Tenant as having been lost. Upon expiration or earlier termination of this Lease, Tenant shall return all such keys and electronic key cards to Landlord. In addition, Tenant shall have the right to install any additional security system for the Leased Premises at its sole cost and expense and any such installation shall constitute an Alteration (as defined in Section 6.2 hereof) for purposes of this Lease; provided Landlord’s prior written consent for the additional security system shall (i) be deemed to have been granted and (ii) not be conditioned upon a requirement for Tenant to remove the same.

(d) Tenant acknowledges that it has inspected the Leased Premises and the mechanical, electrical, plumbing and heating, ventilation and air conditioning systems serving the Leased Premises and agrees to accept the same in their “as is” condition, without warranty of any kind.

5.2 Tenant’s Obligations .

(a) Except as specifically provided in the foregoing Section, Tenant shall, at its sole cost and expense continuously keep and maintain the Leased Premises in a clean and safe condition and maintain the same in good repair, including, without limitation, janitorial service. In the event that Tenant has failed in any respect to observe and perform the covenant contained in the foregoing sentences of this Section, Landlord may (but shall not be obligated to) within ten (10) days after written notice from Landlord to Tenant, cause the Leased Premises to be maintained or repaired, and the cost thereof shall constitute an Advance.

(b) Tenant shall, at its sole cost and expense, install or cause to be installed voice and data cabling in the Leased Premises, as well as any auxiliary cooling for Tenant’s computer servers. Landlord shall provide access to the Leased Premises to Tenant and Tenant’s contractors prior to the Commencement Date for such purpose provided that neither Tenant nor its contractor’s shall unreasonably interfere with the performance by Landlord or its contractors in completing the obligations of Landlord under Section 5.1(d) hereof. During such time as Tenant or any of its contractors are in the Leased Premised prior to the Commencement Date (i) they shall not unreasonably interfere with any use of the Building by Landlord or any other tenant in the Building, (ii) Tenant shall be liable for any damage, loss or injury caused by any or such persons or to the Leased Premises and the Building, and (c) Tenant shall save, defend, indemnify and hold Landlord harmless from any such damage, loss or injury, including, without

 

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limitation, costs and expenses of investigating, defending and settling or litigating any claim, including reasonable attorneys’ fees and disbursements, arising out of the presence of such persons in the Leased Premised or the Building prior to the Commencement Date.

5.3 Utilities .

(a) Subject to the Tenant’s obligations under Section 3.2 hereof, Landlord shall ensure the delivery of and pay the cost of all utilities for the Building, including electricity, gas, hot and cold water. Tenant, however, shall be solely responsible for the installation and payment for telephone, cable, internet (whether dial-up, DSL, cable modem or other service) and other utility services installed for the Leased Premises or the occupants thereof; including, without limitation, fees and taxes thereon. Tenant shall also, at its sole cost and expense, provide janitorial services for the Leased Premises.

(b) Except as otherwise set forth in this Lease, Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other service being furnished to the Leased Premises, and no such failure or interruption shall entitle Tenant to any abatement of, set off or reduction in the amounts payable to Landlord hereunder or otherwise entitle Tenant to terminate this Lease. Notwithstanding anything contained in this Lease to the contrary, if (i) an interruption or curtailment, suspension or stoppage of an Essential Service (as said term is hereinafter defined) shall occur, except any of the same due to any negligent or wrongful act or neglect of Tenant or Tenant’s agents, employees or contractors (any such interruption of an Essential Service being hereinafter referred to as a “ Service Interruption ”), and (ii) such Service Interruption continues for more than two (2) full business days after Landlord shall have received notice thereof from Tenant, and (iii) as a result of such Service Interruption, the conduct of Tenant’s normal operations in the Leased Premises are materially adversely affected, then there shall be an abatement of one day’s Base Rent and Additional Rent for each day during which such Service Interruption continues after such two (2) business days. For purposes hereof; the term “ Essential Services ” shall mean the following services: heat or cooling (during the appropriate season), access to the Leased Premises, water and sewer/septic service and electricity.

(c) Landlord shall keep and maintain the Leased Premises at a commercially reasonable temperature to comply with ASHRAE standards for office and laboratory occupancy, as applicable, between the hours of 8 a.m. to 6 p.m. on weekdays that are not official national or state holidays. Tenant acknowledges and understands that the temperature within the Leased Premises is centrally controlled and timed and is measured by sensors in the Leased Premises that are subject to manual override with respect to timing. Landlord agrees that so long as Tenant does not operate its business within the Leased Premises in more than a single shift that runs between such times, Tenant shall have the right to override the timing controls during off hours and on weekends to ensure that the Leased Premises are at a commercially reasonable temperature. However, in the event that Tenant shall maintain more than one operating shift, Tenant acknowledges and agrees that Landlord may charge Tenant for the additional utility charges incurred by Landlord to maintain the Leased Premises at a commercially reasonable temperature to comply with ASHRAE standards for office and laboratory occupancy, as applicable, during off hours and weekends.

 

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5.4 Force Majeure . Notwithstanding anything contained in this Article 5 or in the Lease to the contrary, Landlord shall not be liable to Tenant, nor shall the Base Rent or the Additional Rent abate, for failure or delay in furnishing water, heat, air-conditioning, electricity or maintenance service, when such failure or delay is occasioned by repairs, renewals or improvements or by any strike, lockout, work stoppage, labor controversy, accident, casualty or by any other cause beyond the reasonable control of Landlord. Such failure or delay shall not be deemed an act of eviction (constructive or otherwise) against Tenant nor shall such failure or delay in any way operate as a release from the prompt and punctual performance of Tenant’s duties and obligations under this Lease.

5.5 Access to Leased Premises . Landlord may enter the Leased Premises after business hours, upon twenty-four (24) hour notice to Tenant (and at any time and without notice in case of emergency), for the purposes of (a) inspect the Leased Premises, (b) exhibiting the Leased Premises to prospective purchasers, lenders or, within one hundred eighty (180) days of the end of the Term, prospective, (c) determining whether Tenant is complying with all of its obligations hereunder, (d) supplying janitorial service and any other services to be provided by Landlord to Tenant hereunder, (e) post notices of non-responsibility, and (f) make repairs required of Landlord under the terms hereof or repairs to any adjoining space or utility services or make repairs, alterations or improvements to any other portion of the Building. For such purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on or about the Leased Premises (excluding Tenant’s vaults, safes, storage facilities for sensitive materials, confidential patient files and similar areas designated in writing by Tenant in advance); and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in any emergency in order to obtain entry to the Leased Premises. If, as a result of any such inspection or for any reason, Landlord reasonably determines that Tenant has failed to meet its obligations under Section 5.2 hereof, Landlord shall so notify Tenant and Tenant shall immediately commence to cure any such failure. In the event Tenant refuses or neglects to commence and complete such cure within a reasonable time, Landlord may make or cause to be made such repairs. In such event, Landlord’s cost to make such repairs shall constitute an Advance.

ARTICLE 6 - LEASEHOLD IMPROVEMENTS; ALTERATIONS; SIGNAGE

6.1 Leasehold Improvements . At its sole cost and expense, Tenant shall make the improvements to the Leased Premises detailed on Exhibit C attached hereto. In making such improvements, the Tenant shall submit plans for such improvements to the Landlord for approval, which approval shall not be unreasonably withheld or delayed. The Tenant shall use a contractor to make such improvements using a contractor approved by the Landlord, which approval shall not be unreasonably withheld or delayed. Tenant shall make or cause to be made such improvements promptly, in a good workmanlike manner, in compliance with all applicable permits and authorizations and building and zoning laws and all laws, in accordance with the orders, rules and regulations of the Board of Fire Insurance Underwriters and any other body hereafter exercising similar functions having or asserting jurisdiction over the Leased Premises, and according to the plans approved by Landlord. All such improvements shall become the property of Landlord at the expiration or termination of the Lease Term and shall be surrendered with the Leased Premises; provided, however, that Landlord may condition its consent to any such improvements to a condition requiring Tenant to remove any such improvements upon the

 

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expiration or termination of the Lease Term and restoring the Leased Premises to the condition which existed on the date Tenant took possession, subject to normal wear and tear and casualty and condemnation. In the event that Tenant desires to cause such improvements to be made prior to the Commencement Date and provided the Leased Premises is not otherwise occupied, Tenant is hereby granted a license to enter into the Leased Premises for such purpose, subject to the obligations of Tenant under Section 6.3 hereof.

6.2 Alterations .

(a) With the prior written consent of Landlord, Tenant may from time to time, at its sole cost and expense and after giving Landlord copies of all architectural plans and specifications and related governmental permits, make alterations, replacements, additions, changes, and improvements (collectively referred to in this Article as “ Alterations ”) in and to the interior of the Leased Premises as it may find necessary or convenient for operating the Leased Premises for the Permitted Use. Landlord may condition such consent as Landlord reasonably determines, including, without limitation, a condition requiring Tenant to remove any such Alteration upon the expiration or termination of the Lease Term and restoring the Leased Premises to the condition which existed on the date Tenant took possession, subject to normal wear and tear. Landlord shall give Tenant notice at the time of granting any such consent indicating whether Landlord will require Tenant to remove any such Alteration upon the expiration or termination of the Lease Term. Notwithstanding the foregoing, Tenant shall be permitted, without Landlord’s consent, to make alterations of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpet, so long as such alterations (i) are not visible from the exterior of the Leased Premises and (ii) do not affect the roof or any structural element of the Building, or the mechanical, electrical, plumbing, heating, ventilating, air-conditioning and fire protection systems of the Building.

(b) All Alterations made on the Leased Premises shall become the property of Landlord at the expiration or termination of the Lease Term and shall be surrendered with the Leased Premises. Notwithstanding the foregoing, so long as Tenant is not in default under this Lease at the time of such expiration or termination, Tenant may remove its trade fixtures (including, without limitation, data cabling) from the Leased Premises, subject, however to the obligation of Tenant to repair any damage by its removal of any such trade fixtures, which obligation shall survive such expiration or termination.

(c) Notwithstanding anything contained herein to the contrary, Tenant shall, at its sole cost and expense, make any non-structural alteration and Landlord shall make all structural or capital alterations to or on the Leased Premises, or any part thereof that may be necessary or required by reason of any law, rule, regulation or order promulgated by any competent government authority.

(d) Tenant shall make or cause to be made any Alteration promptly and in a good workmanlike manner, in compliance with all applicable permits and authorizations and building and zoning laws and all laws, in accordance with the orders, rules and regulations of the Board of Fire Insurance Underwriters and any other body hereafter exercising similar functions having or asserting jurisdiction over the Leased Premises.

 

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(e) Tenant may contract with Landlord to complete construction of any Alteration and Landlord shall provide Tenant with a bid for the cost thereof prepared by Landlord’s construction contractor(s). Alternatively, Tenant may obtain additional bids if it so chooses and engage its own contractor, provided Landlord receives copies of the bids and approves Tenant’s contractor and proposed materials, in writing, prior to the commencement of the work relating to such Alteration. Landlord shall not be responsible for the quality or nature of the work performed by any contractor engaged by Tenant. Tenant shall indemnify and hold Landlord harmless from and against any damage to the Building, or any other loss, cost, expense or other liability suffered by Landlord by reason of the act or omission of any contractor so engaged by Tenant.

6.3 Liens . Tenant shall do all things reasonably necessary to prevent the filing of any construction, mechanics’ or other liens or encumbrances against the Building or the Land, or any part thereof, or upon any interest of Landlord or any mortgagee of the Land and/or the Building, by reason of work, labor, services, or materials supplied or claimed to have been supplied to Tenant, or anyone holding the Leased Premises, or any part thereof; through or under Tenant. If any such lien or encumbrance shall at any time be filed against the Leased Premises, or any portion thereof, Tenant shall either cause same to be discharged of record within thirty (30) days after the date of filing of same or, if Tenant in good faith determines that such lien should be contested, Tenant shall furnish such security as Landlord shall determine to be necessary and/or required to prevent any foreclosure proceedings against the Leased Premises, or any portion thereof, during the pendency of such contest, and Tenant shall cause the title insurance company or companies insuring the respective interests in the Leased Premises of Landlord and/or Landlord’s mortgagee(s) in any portion of the Leased Premises to remove such lien as a matter affecting title to the Leased Premises. If after ten days’ written notice to Tenant, Tenant shall fail to discharge any such lien or encumbrance within such period or fail to furnish such security, then, in addition to any other right or remedy of Landlord resulting from said default of Tenant, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by giving security or in such other manner as is, or may be, prescribed by law, and all costs, expenses, and other sums of money spent by Landlord in connection therewith shall constitute an Advance. All materialmen, contractors, artisans, mechanics, laborers, and any other persons now or hereafter contracting with Tenant for the furnishing of any labor, services, materials, supplies, or equipment with respect to any portion of the Leased Premises, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for same. Tenant shall indemnify and defend Landlord from and against any liability, loss, damage, costs, attorneys’ fees, and any other expense incurred as a result of claims of lien by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant, which indemnity obligation shall survive the expiration or termination of this Lease. Tenant shall give Landlord notice of the intended commencement date at least ten (10) days prior to the commencement of any work for which a claim of lien may be filed to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord’s interest in the Leased Premises and Landlord shall have the right to enter the Leased Premises and post such notices at any reasonable time.

6.4 Signage . Landlord shall, at its sole cost and expense, include Tenant’s name in the Building directory. Landlord shall also place the suite number and Tenant name or in the

 

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immediate vicinity of the entry door to the Leased Premises. Tenant shall not have the right to install any other sign without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Any sign that Tenant is permitted to install shall fully comply with all present and future laws, ordinances, orders, rules, regulations and requirements of any governmental entity having jurisdiction over the Leased Premises, as well as the building and use restrictions applicable to the Leased Premises.

ARTICLE 7 - INSURANCE

7.1 Tenant’s Insurance . Tenant covenants and agrees that from and after taking possession of the Leased Premises, Tenant shall carry and maintain, at its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for:

(a) Comprehensive general liability insurance with limits of not less than One Million Dollars ($1,000,000) combined single limit per occurrence, and Two Million Dollars ($2,000,000) annual aggregate. If such insurance coverage has a deductible clause, the deductible amount shall not exceed Five Thousand Dollars ($5,000) per occurrence including loss adjustment expense, and Tenant shall be liable for such deductible amount.

(b) Worker’s compensation insurance or self insurance as required by the State of Michigan and employer’s liability insurance in amounts as reasonably determined by Tenant and reported to Landlord upon the execution of this Lease and upon any change in such amounts during the Lease Term.

(c) Insurance covering all leasehold and non-structural improvements located on the Leased Premises and all furniture, fixtures, equipment, inventory, merchandise, and personal property (including, without limitation, signs and plate glass) from time to time in, on or upon the Leased Premises, in an amount not less than one hundred percent (100%) of their full replacement value, providing protection against any peril included within the classification “All Risk”, together with insurance, if pertinent, against sprinkler damage. Any policy proceeds shall be used for the repair or replacement of the property damaged or destroyed.

Tenant’s obligation to maintain the insurance provided for in this Section may be brought within the coverage of any “blanket policy” or policies of insurance carried and maintained by Tenant provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policies of insurance. In the event that Tenant shall fail to pay the premiums due for the insurance policies required by this Section, Landlord shall have the right, but not the obligation, to pay the same in which case any such payment shall constitute an Advance.

7.2 Policy Form .

(a) All policies of insurance required by the foregoing Section shall be issued by reputable and financially sound insurance companies reasonably satisfactory to Landlord having an A.M. Best Company rating of not less than “A” which are qualified to do business in the State of Michigan. All such policies shall be issued in the names of Tenant, and name Landlord and, if requested by Landlord, Landlord’s mortgagee(s) as additional insureds and loss payees so that such policies shall be for the mutual and joint benefit and protection of Landlord,

 

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Tenant and any such mortgagee. Tenant shall deliver executed copies of such policies of insurance or certificates thereof to Landlord prior to Landlord’s execution of this Lease. Thereafter, Tenant shall deliver executed copies of renewal policies or certificates thereof to Landlord within thirty (30) days prior to the expiration of the term of each such policy. As often as any such policy shall expire or terminate, Tenant shall procure and maintain renewal or additional policies in like manner and to like extent. All policies of insurance delivered by Tenant to Landlord shall contain a provision that the company writing said policy will give to Landlord and any mortgagee of Landlord not less than thirty (30) days’ notice in advance of any modification, cancellation, lapse, or reduction in the amounts of insurance, and shall further contain an agreement that any loss otherwise payable thereunder shall be payable notwithstanding any act or negligence of Landlord or Tenant which might, absent such agreement, result in a forfeiture of all or part of the payment of such loss. All general liability, property damage, and other casualty policies shall be written on an occurrence basis as primary policies, not contributing with or in excess of coverage that Landlord may carry.

7.3 Landlord’s Insurance .

(a) At all times from and after Tenant takes possession of the Leased Premises, Landlord shall maintain or cause to be maintained a policy or policies of insurance covering any peril generally included in the classification “all risk”, covering the Leased Premises, in an amount which is the greater of one hundred percent (100%) of its full replacement value (exclusive of the cost of excavations, foundations and footings) or such greater amount as Landlord’s mortgagee may require Landlord to maintain.

(b) Landlord shall obtain comprehensive general liability insurance with single limit coverage of up to $1,000,000 per occurrence, and Two Million Dollars ($2,000,000) annual aggregate.

(c) Landlord’s obligation to maintain the insurance provided for in this Section may be brought within the coverage of any “blanket policy” or policies of insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policies of insurance.

7.4 Subrogation Waiver . Landlord (for itself and its insurer) hereby waives any rights, including rights of subrogation, and Tenant (for itself and its insurer) hereby waives any rights, including rights of subrogation, each may have against the other on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, to their respective property, the Leased Premises or its contents that are caused by or result from risks insured against under any insurance policies carried by the parties hereto and in force at the time of any such damage or which would have been covered by insurance required to be carried under this Lease. The foregoing waivers of subrogation shall be operative only so long as available in the State of Michigan and so long as no policy of insurance is invalidated thereby.

7.5 Insurance Use Restrictions . Tenant agrees that it will not carry any stock or goods or do anything in, on or about the Leased Premises that will substantially increase the insurance rates upon the building of which the Leased Premises are a part.

 

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7.6 Indemnification .

(a) Tenant shall indemnify Landlord for, defend Landlord against, and save Landlord harmless from, any liability, loss, cost, injury, or damage to the extent resulting from the use, misuse, occupancy, or possession of the Leased Premises by Tenant or Tenant’s agents, employees, licensees, customers, invitees, and guests. Tenant shall, at its cost and expense, defend Landlord against any and all such actions, claims and demands and shall indemnify Landlord for all costs, expenses and liabilities it may incur in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses. Landlord shall not in any event whatsoever be liable for any injury or damage to the Leased Premises or to Tenant or to any other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons or to any property of any such persons; provided, however, that Landlord shall be so liable to the extent any such injury arises out of the negligence or willful misconduct of Landlord or persons acting by or on behalf of Landlord. Except in the case of such negligence or willful misconduct, Tenant shall not make any claim or demand upon or institute any action against Landlord as a result of such injury or damage. The foregoing indemnity shall survive the expiration or earlier termination of the term of this Lease.

(b) Landlord shall indemnify Tenant for, defend Tenant against, and save Tenant harmless from, any liability, loss, cost, injury, or damage to the extent resulting from the use, misuse, occupancy, possession or disuse of the Leased Premises by Landlord or Landlord’s agents, guest, clients, employees, licensees, invitees. Landlord shall, at its cost and expense, defend Tenant against any and all such actions, claims and demands and shall indemnify Tenant for all costs, expenses and liabilities it may incur in connection therewith, including, without limitation, reasonable attorneys’ fees and expenses. Tenant shall not in any event whatsoever be liable for any injury or damage to the Leased Premises or to Landlord or to any other persons claiming through or under Landlord, or their respective agents, employees, licensees, invitees, guests or other such persons or to any property of any such persons; provided, however, that Tenant shall be so liable to the extent any such injury arises out of the negligence or willful misconduct of Tenant or persons acting by or on behalf of Tenant Except in the case of such negligence or willful misconduct, Landlord shall not make any claim or demand upon or institute any action against Tenant as a result of such injury or damage. The foregoing indemnity shall survive the expiration or earlier termination of the term of this Lease.

ARTICLE 8 - DAMAGE TO OR CONDEMNATION OF THE LEASED PREMISES

8.1 Damage to the Leased Premises .

(a) If by reason of fire or other casualty the Leased Premises are damaged and Landlord reasonably determines that either twenty five percent (25%) or more of the area of the Leased Premises or of the Building have become untenantable as a result, which determination shall be made and notice thereof given to Tenant within thirty (30) days of such fire or other casualty, then either Landlord or Tenant may, within thirty (30) days after such fire or casualty, give the other notice of its election to terminate this Lease, in which event this Lease shall terminate effective as of the date of such fire or casualty. Upon such termination, Landlord and Tenant shall each thereafter be released from any further liability accrued under this Lease. Tenant shall pay Landlord the Base Rent and the Additional Rent up to such date; provided,

 

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however, that Tenant shall receive a proportionate refund from Landlord of any prepaid Base Rent or Additional Rent. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then Landlord shall repair or restore such damage, this Lease continuing in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Leased Premises from time to time.

(b) If by reason of fire or other casualty the Leased Premises are damaged and Landlord determines that less than twenty-five percent (25%) of the area of the Leased Premises and the Building are damaged but all or some portion of the Leased Premises are untenantable as a result, Landlord shall, at its sole cost and expense, promptly restore that portion of the Leased Premises to a condition substantially similar to that existing at the Commencement Date. Similarly, Tenant shall, upon completion of Landlord’s restoration or, to the extent practicable, in concert therewith, restore the remainder of the Leased Premises to such condition at its sole cost and expense. If such repairs cannot, in Landlord’s reasonable estimation, be made within one hundred eighty (180) days, Landlord and Tenant shall each have the option of giving the other, at any time within ninety (90) days after such damage, notice terminating this Lease as of the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the Leased Premises shall terminate as of the date of such damage as if such date had been originally fixed in this Lease for the expiration of the Lease Term. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then Landlord shall repair or restore such damage, this Lease continuing in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Leased Premises from time to time.

(c) Subject to subsection (a) of this Section, notwithstanding the partial or total destruction of the Leased Premises and any part thereof, there shall be no abatement of the Base Rent, the Additional Rent or of any other obligation of Tenant hereunder by reason of such damage or destruction except to the extent Landlord is covered by and receives payment under a policy of insurance covering rent loss in the event of casualty. In the event Landlord receives any such payment, Landlord shall give Tenant notice of the amount of such payment on a per month basis and the amount of the Base Rent shall be reduced by the amount of such monthly payment. In the event any such insurance benefit is reduced, eliminated or expires, Landlord shall so notify Tenant and any abatement of the Base Rent shall be equally reduced or eliminated, as the case may be.

(d) In the event Landlord elects or is required to repair or restore the Leased Premises after any casualty, and such repair or restoration activities require the removal of Tenant’s property, including furniture and trade fixtures or equipment which might otherwise impede or obstruct the repair or restoration of the Leased Premises, Landlord shall have the right, at Tenant’s sole cost and expense, to remove, store and replace (after completion of such repairs or restoration) such furniture, trade fixtures and equipment on behalf of Tenant. Tenant shall pay Landlord the cost of any such removal, storage or replacement, in whole or in part, within ten (10) days after receipt of an invoice therefor from Landlord. The failure of Tenant to pay any such invoice within such ten (10) day period shall constitute an Advance in the amount of such invoice.

 

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8.2 Condemnation .

(a) In the event that the entire Leased Premises is taken by any public authority under the power of eminent domain or sold for public or quasi-public use in lieu of condemnation, then this Lease shall terminate as of the effective date of such taking. Tenant shall pay Landlord the Base Rent and Additional Rent up to such date; provided, however, that Tenant shall receive a proportionate refund from Landlord of any prepaid Base Rent and Additional Rent up to such date. Upon such termination, Landlord and Tenant shall each thereafter be released from any further liability accrued under this Lease.

(b) In the event that (i) Landlord reasonably determines (which determination shall be set forth in a notice from Landlord to Tenant given within thirty (30) days after a final determination that such taking or sale will occur) that less than all, but thirty-five percent (35%) or more, of the area of the Building is taken under eminent domain or sold for public or quasi-public use in lieu of condemnation, or (ii) by reason of any appropriation or taking, regardless of the amount so taken, the remainder of the Land is not one undivided parcel of property, either Landlord or Tenant shall have the right to terminate this Lease by giving the other notice thereof to the other within thirty (30) days after the date of such notice. In the event that either party hereto so elects to terminate this Lease, Tenant shall immediately pay Landlord the Base Rent and the Additional Rent up to the effective date of such taking; provided, however, that Tenant shall receive a proportionate refund from Landlord of any prepaid portion of the Base Rent and the Additional Rent up to such date. In the event neither party elects to terminate this Lease, Tenant shall continue in possession of the remainder of the Leased Premises, and all of the terms and conditions of this Lease shall continue in full force and effect, except that the Base Rent and the Tenant’s Proportionate Share shall be reduced in proportion to the area of that portion of the Leased Premises taken, and Landlord shall, at its own cost and expense and as expeditiously as practicable, make all repairs or alterations to the Leased Premises necessary to constitute the remainder of the Leased Premises a complete architectural unit substantially similar, excepting size, to the Leased Premises before such taking. Tenant hereby waives any statutory rights of termination that may arise by reason of any partial taking of the Leased Premises under the power of eminent domain.

(c) All damages awarded for any taking under the power of eminent domain or as consideration for a sale in lieu of condemnation, whether for all or a part of the Leased Premises, shall belong to and be the property of Landlord; provided, however, that Landlord shall not be entitled to any award or consideration made to Tenant for loss of business or removal of furniture, fixtures and other equipment installed on the Leased Premises by Tenant.

(d) In the event Landlord elects or is required to repair or restore the Leased Premises after any such taking, and such repair or restoration activities require the removal of Tenant’s property, including furniture and trade fixtures or equipment which might otherwise impede or obstruct the repair or restoration of the Leased Premises, Landlord shall have the right, at Tenant’s sole cost and expense, to remove, store and replace (after completion of such repairs or restoration) such furniture, trade fixtures and equipment on behalf of Tenant. Tenant shall pay

 

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Landlord the cost of any such removal, storage or replacement, in whole or in part, within ten (10) days after receipt of an invoice therefor from Landlord. The failure of Tenant to pay any such invoice within such ten (10) day period shall constitute an Advance in the amount of such invoice.

(e) For purposes of this Section only, a voluntary sale or conveyance under threat and in lieu of condemnation shall be deemed an appropriation or taking under the power of eminent domain.

(f) Landlord and Tenant shall promptly notify the other of any notice Landlord and Tenant shall receive of any threatened condemnation or other action under the power of eminent domain involving the Leased Premises.

ARTICLE 9 - ASSIGNMENT AND SUBLETTING; SUBORDINATION

9.1 Landlord’s Consent Required . For purposes of this Article, the terms “assign” and “assignment” shall include and mean any act attempting to, or document purporting to, assign, transfer, sublet, enter into license or concession agreements for, change ownership of, mortgage or hypothecate this Lease or Tenant’s interest in and to the Leased Premises or any part thereof. Tenant shall not assign this Lease or all or any portion of Tenant’s interest in and to the Leased Premises without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, but may be conditioned upon receipt by Landlord of notice requesting such consent, which notice shall set forth the terms of any such assignment or sublet and provide credit information on any proposed assignee in form and substance satisfactory to Landlord. Any attempted assignment without such consent shall be void, and shall constitute a breach of this Lease. For purposes hereof, a change in the majority ownership of and/or the power to vote the majority of the outstanding voting securities of Tenant occurring in one or a series of related transactions shall constitute an assignment of this Lease.

9.2 Assumption of Obligations . Any assignment to which Landlord has consented shall be by an instrument in writing and any assignee, transferee, licensee, concessionaire, or mortgagee shall agree for the benefit of Landlord to be bound by, assume and perform all of the terms, covenants and conditions of this Lease.

9.3 Assignment to Affiliate . Notwithstanding anything to the contrary contained in this Article, Tenant shall have the right to assign this Lease, or sublet the Leased Premises or any portion thereof, without the consent of Landlord, to any corporation (a) with which it may merge or consolidate, (b) which is a parent or subsidiary of Tenant, or (c) which is the successor corporation to Tenant in the event of a corporate reorganization or sale of all or substantially all its stock/interest or assets, provided that said assignee assumes, in full, the obligations of Tenant under this Lease and Tenant remains primarily liable under this Lease.

9.4 Hypothecation of Lease . Without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, Tenant may not mortgage, pledge or otherwise encumber its leasehold estate hereunder, and any attempt to mortgage, pledge or otherwise encumber such estate shall be null and void and of no force and effect.

 

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9.5 No Release of Tenant . Regardless of Landlord’s consent, no subletting or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the rent and other charges to be paid, and to perform all other obligations to be performed, by Tenant hereunder. The acceptance of rent by Landlord from any other person or entity shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Tenant or any successor Tenant, in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee. Landlord may consent to subsequent assignments of this Lease or sublet of the Leased Premises, or amendments or modifications to this Lease with assignees of Tenant, upon notice to Tenant, or any successor of Tenant, but without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this Lease.

9.6 Excess Rent . In the event that Tenant shall sublease all or any portion of the Leased Premises as permitted by this Article, and the rent payable under any such sublease shall exceed the Base Rent payable hereunder, Tenant shall pay Landlord such excess with each installment of Base Rent due under this Lease; provided, however, that in the event any such sublease is only of a portion of the Leased Premises, any such excess shall be determined by pro rating the Base Rent on the basis of the portion so subleased.

9.7 Subordination . At Landlord’s option, this Lease shall be subordinate to any superior lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Leased Premises and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof In furtherance thereof, Tenant hereby agrees, upon request by Landlord, to execute and deliver an agreement so subordinating this Lease and attorning to the holder of any such superior interest. Landlord shall use commercially reasonable efforts to cause any such holder to agree not to disturb the tenancy of Tenant under this Lease upon default by Landlord of the terms of any instrument evidencing such superior interest. Notwithstanding the foregoing, Tenant’s obligations under this Section are conditioned on the holder of each of Landlord’s mortgages providing to Tenant a non-disturbance agreement in form reasonably acceptable to Tenant.

ARTICLE 10 - DEFAULT; REMEDIES

10.1 Events of Default . The occurrence of any one or more of the following events shall constitute material default by Tenant under this Lease (each an “ Event of Default ”):

(a) The failure by Tenant to make any payment when due of Base Rent, Additional Rent or any other payment required to be made by Tenant hereunder, where such failure shall continue for a period of five (5) business days; provided, however, that Tenant shall be entitled to an additional ten (10) days’ grace not more often than once each calendar year during the Term.

(b) Except as otherwise provided in this Lease, the failure by Tenant to observe or perform any of the covenants, conditions, or provisions of this Lease to be observed or performed by Tenant, other than described in the foregoing clause (a), where such failure shall continue for a period of thirty (30) days after notice thereof from Landlord to Tenant; provided,

 

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however, that if the nature of Tenant’s noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion and the final determination thereof within not more than ninety (90) days.

(c) Tenant shall abandon the Leased Premises by failing to conduct normal business operations within the Leased Premises for more than thirty (30) consecutive days.

(d) (i) The making by Tenant of any general arrangement or general assignment for the benefit of creditors; (ii) Tenant becomes a “debtor” as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets or of Tenant’s interest in this Lease, where possession is not restored to Tenant within thirty (30) days; (iv) the attachment, execution, or other judicial seizure of substantially all of Tenant’s assets or of Tenant’s interest in this Lease, where such seizure is not discharged within thirty (30) days; or (v) this Lease or the leasehold estate created hereby any estate of Tenant hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated, bonded or stayed within sixty (60) days. In the event that any provision of this subsection (d) is contrary to any applicable law, such provision shall be of no force or effect.

10.2 Remedies . Upon the occurrence of an Event of Default, Landlord may at any time thereafter, with reasonable notice, but without demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default:

(a) Terminate Tenant’s right to possession of the Leased Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Leased Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default including, without limitation, the cost of recovering possession of the Leased Premises, expenses of re-letting, including reasonable and necessary renovation and alteration of the Leased Premises, reasonable attorneys’ fees and expenses, any real estate commission actually paid, and the present value of the unpaid Base Rent for the balance of the Lease Term determined on the basis of a discount rate equal to seven percent (7%) per annum.

(b) Maintain Tenant’s right to possession of the Leased Premises by any lawful means, in which case this Lease and the term hereof shall continue in effect whether or not Tenant shall have vacated or abandoned the Leased Premises In such event Landlord shall be entitled to enforce all of Landlord’s rights and remedies under the Lease, including the right to recover the rent as it becomes due hereunder.

(c) Pursue any other remedy now or hereafter available to Landlord under this Lease or under the laws or judicial decisions of the State of Michigan.

10.3 Remedies Cumulative . The rights and remedies whether herein or anywhere else in this Lease provided shall be cumulative, and the exercise of any one right or remedy, or any single or partial exercise of any such right or remedy, shall not preclude the exercise of or act as

 

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a waiver of any other right or remedy of Landlord hereunder, or which may be existing at law, or in equity or by statute or otherwise; provided, however, that any liquidated damages provided for herein shall be Landlord’s sole remedy for the Event of Default for which such damages are provided.

10.4 Indemnity for Default . In addition to the foregoing, Tenant, and its successors and assigns, shall at all times indemnify Landlord for, defend Landlord against and save Landlord harmless from any liability, loss, cost, injury, damage or other expense or risk whatsoever (including, without limitation, reasonable attorney’s fees and expenses actually incurred), directly or indirectly, arising out of, resulting from or otherwise in connection with (a) the failure for any reason on the part of Tenant to perform, observe or comply with any of the covenants, conditions and obligations under this Lease to be performed, observed or complied with by Tenant, and/or (b) the breach of any representation or warranty given by Tenant in this Lease.

10.5 Bankruptcy . If, as a matter of law, Landlord has no right on the bankruptcy of Tenant to terminate this Lease, then, if Tenant, as debtor, or its trustee wishes to assume or assign this Lease, in addition to curing or adequately assuring the cure of all defaults existing under this Lease on Tenant’s part on the date of filing of the proceeding (such assurances being defined below), Tenant, as debtor, or the trustee or assignee must also furnish adequate assurances of future performance under this Lease (as defined below). Adequate assurance of curing defaults means the posting with Landlord of a sum in cash sufficient to defray the cost of such a cure. Adequate assurance of future performance under this Lease means posting a deposit equal to three (3) months’ rent, including all other charges payable by Tenant hereunder and, in the case of an assignee, assuring Landlord that the assignee is financially capable of assuming this Lease, and that its use of the Leased Premises will not be detrimental to the other tenants in the Building or Landlord. In a reorganization under Chapter 11 of the Bankruptcy Code, the debtor or trustee must assume this Lease or assign it within one hundred twenty (120) days from the filing of the proceeding, or he shall be deemed to have rejected and terminated this Lease.

ARTICLE 11 - EXPIRATION

11.1 Surrender of Possession .

(a) Upon termination of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord in substantially the same condition as when first occupied by Tenant, reasonable wear and tear, casualty and condemnation excepted. Tenant shall also shall surrender all keys for the Leased Premises to Landlord at the place then fixed for the payment of rent and shall inform Landlord of all combinations on locks, safes and vaults, if any, in the Leased Premises. Except as provided in Section 6.2 hereof, all Alterations, or improvements made by either Landlord or Tenant upon the Leased Premises (except movable office furniture and trade fixtures installed at Tenant’s expense) shall remain upon and be surrendered with the Leased Premises upon termination of this Lease, without molestation or injury, and shall become the property of Landlord.

(b) In the event that the removal of any personal property or trade fixtures by or on behalf of Tenant shall damage the Leased Premises, Tenant shall, at its sole cost and

 

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expense, cause such damage to be immediately repaired. In the event Tenant shall so fail to cause repair of any such damage, ten (10) days after written notice to Tenant, Landlord may do so and Tenant shall pay Landlord the reasonable cost of any such repair incurred by Landlord within ten (10) days after receiving an invoice therefor from Landlord, together with interest at the Default Rate if not paid within such ten (10) day period. Any such payment obligation shall survive this Lease.

11.2 Holding Over . If Tenant remains in possession of the Leased Premises or any part thereof after the expiration or termination of the Lease Term, such occupancy shall be a tenancy from month-to-month upon all the provisions of this Lease pertaining to the obligations of Tenant and Tenant shall thereby waive its rights of notice to quit, but all options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further force or effect. The Base Rent during such hold-over period shall be equal to one-hundred fifty percent (150%) of the monthly installment of Base Rent payable immediately prior to expiration or termination of the Lease Term. In addition, Tenant shall continue to be obligated to pay all other amounts required to be paid by the terms of this Lease.

11.3 Re-Renting . For a period commencing one hundred eighty (180) days prior to the termination of this Lease, Landlord may show the Leased Premises to prospective tenants accompanies by Landlord or its agent(s), during reasonable hours and upon reasonable notice to Tenant In addition, the Landlord shall be entitled to post signs on or about the Leased Premises indicating its availability for rent.

ARTICLE 12 - GENERAL PROVISIONS

12.1 Rules . Tenant shall faithfully observe and comply with the rules and regulations annexed to this Lease as Exhibit D and, after notice thereof, all reasonable modifications thereof and additions thereto from time to time promulgated in writing by Landlord, provided that Tenant shall only be required to comply with rules and regulations which are reasonable and nondiscriminatory and which (a) Tenant is given thirty (30) days advance notice of; (b) are for the safety, care, order, and cleanliness of the Common Areas; (c) do not unreasonably or materially interfere with Tenant’s conduct of its business or Tenant’s use and enjoyment of the Leased Premises; and (d) do not require payment of additional moneys. If there is a conflict between Exhibit D or any modification and the Articles of this Lease, the Articles of this Lease shall control.

12.2 Estoppel Certificates .

(a) At any time upon not less than ten (10) business days’ prior notice from Landlord, Tenant shall execute, acknowledge and deliver to Landlord and any other person or entity named in such notice a statement in a form prescribed by Landlord certifying and acknowledging that (a) this Lease represents the entire agreement between Landlord and Tenant, and 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 date to which the Base Rent and other charges are paid in advance, if any, and (b) there are not, to Tenant’s knowledge, any uncured defaults on the part of Tenant, or specifying such defaults if any are claimed. Any prospective purchaser or encumbrances of the Leased Premises or the business of Landlord may conclusively rely upon any such statement.

 

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(b) At any time upon not less than ten (10) business days’ prior notice from Tenant, Landlord shall execute, acknowledge and deliver to Tenant and any other person or entity named in such notice a statement in a form prescribed by Tenant certifying and acknowledging that (a) this Lease represents the entire agreement between Landlord and Tenant, and 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 date to which the Base Rent and other charges are paid in advance, if any, and (b) there are not, to Landlord’s knowledge, any uncured defaults on the part of Landlord, or specifying such defaults if any are claimed. Any prospective purchaser or encumbrances of the Leased Premises or the business of Tenant may conclusively rely upon any such statement.

12.3 Severability . The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof.

12.4 Entire Agreement . There are no oral or written agreements or representations between the parties hereto affecting this Lease, and this Lease and the Exhibits hereto supersede and cancel any and all previous negotiations, arrangements, representations, brochures, displays, projections, estimates, agreements, and understandings, if any, made by or between Landlord and Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret, construe, supplement, or contradict this Lease. This Lease, and the Exhibits hereto, and all amendments hereto, constitute and shall be considered to be the only agreement between Landlord and. Tenant. All negotiations and oral agreements acceptable to Landlord and Tenant have been merged into and are included herein and in the Exhibits hereto.

12.5 Notices . Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery, certified mail, return receipt requested or by nationally recognized overnight courier service and if given personally or by mail or courier service, shall be deemed sufficiently given if addressed to Tenant or to Landlord, as the case may be, at the addresses for Landlord and Tenant set forth in the Fundamental Lease Provisions. Either party may by notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by notice to Tenant.

12.6 Waivers . No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Tenant of the same of any other provision. Landlord’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord’s consent to or approval of any subsequent act by Tenant. The acceptance of Base Rent or any other payment from Tenant hereunder by Landlord shall not be a waiver of any preceding default by Tenant of any provision hereof, other than the failure of Tenant to pay the particular installment of Base Rent or payment so accepted, regardless of Landlord’s knowledge of such preceding default at the time of acceptance of such installment or payment.

 

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12.7 Recording . Either Landlord or Tenant shall, upon request of the other, execute, acknowledge and deliver to the other a “short form” memorandum of this Lease for recording purposes. Such memorandum shall be in the form prescribed by Landlord and shall contain no more than the names of the parties, a description of the Leased Premises and the Lease Term. In addition, Landlord shall have the unilateral right to record an instrument evidencing early termination of the Lease upon the exercise of such remedy by Landlord as permitted by this Lease, which right shall survive such termination. For purposes of the foregoing sentence, Tenant hereby grants to Landlord an irrevocable power of attorney, coupled with an interest and with full power of substitution, to execute and deliver any such instrument evidencing termination of this Lease for purposes of the public records.

12.8 Choice of Law . This Lease shall be governed, construed and enforced in accordance with the internal laws of the State of Michigan, without giving effect to principals of conflicts of law.

12.9 Attorneys’ Fees . Should either party institute any action or proceeding to enforce any provision hereof or for a declaration of such party’s rights or obligations hereunder, the prevailing party shall be entitled to receive from the losing party such amounts as the court may adjudge to be reasonable attorneys’ fees for services rendered to the party prevailing in any such action or proceeding, and such fees shall be deemed to have accrued upon the commencement of such action or proceeding and shall be enforceable whether or not such action or proceeding is prosecuted to judgment.

12.10 Liability of Landlord .

(a) In the event of any sale or other transfer of Landlord’s interest in the Leased Premises, Landlord shall be and hereby is entirely freed and relieved of all liabilities and obligations of Landlord hereunder arising after the date of such transfer provided the transferee assumes all of Landlord’s obligations in writing. If any security has been given by Tenant to secure the faithful performance of any of the covenants of this Lease, Landlord shall transfer or deliver said security, as such, to Landlord’s successor in interest and thereupon Landlord shall be discharged from any further liability with regard to said security.

(b) Notwithstanding anything contained herein to the contrary, Landlord shall have no personal liability in respect of any of the terms, covenants, conditions or provisions of this Lease, and in the event of a breach or default by Landlord of any of its liabilities and obligations under this Lease, Tenant and any persons claiming by, through or under Tenant shall look solely to the equity of Landlord in the Leased Premises for the satisfaction of Tenant’s and/or such persons’ remedies and claims for damages.

12.11 No Merger . There shall be no merger of this Lease, or the leasehold estate created by this Lease, with any other estate or interest in the Leased Premises, or any part thereof, by reason of the fact that the same person, firm, corporation or other entity may acquire or own or hold, directly or indirectly, (a) this Lease or the leasehold estate created by this Lease, or any interest in this Lease or in any such leasehold estate, and (b) any such other estate or interest in the Leased Premises or any part thereof; and no such merger shall occur unless and until all persons, corporations, firms and other entities having an interest (including a security

 

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interest) in (i) this Lease or the leasehold estate created by this Lease; and (ii) any such other estate or interest in the Leased Premises, or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same.

12.12 Definition of Rent . All monetary obligations of Tenant to Landlord under the terms of this Lease shall be deemed to be “rent.”

12.13 Interpretation . The captions by which the Articles and Sections of this Lease are identified are for convenience only and shall have no effect upon the interpretation of this Lease. Whenever the context so requires, singular numbers shall include the plural, the plural shall refer to the singular, the neuter gender shall include the masculine and feminine genders, and the words “Landlord” and “Tenant” and “person” shall include corporations, partnerships, associations, other legal entities, and individuals. Both parties represent and warrant to each other that each has been represented by competent legal counsel and that this Lease shall not be construed against Landlord as the drafting party.

12.14 Relationship of the Parties . Nothing in this Lease shall create a partnership, joint venture, employment relationship, borrower and lender relationship, or any other relationship between Landlord and Tenant other than the relationship of landlord and tenant.

12.15 Successors . This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective personal and legal representatives, heirs, successors, and assigns.

12.16 Modifications . This Lease may not be altered, amended, changed, waived, terminated, or modified in any manner unless the same shall be in writing and signed by or on behalf of the party to be bound.

12.17 Brokerage and other Fees . Landlord shall pay any Leasing Commission shown in the Fundamental Lease Provisions and in the percentages shown therein. Tenant and Landlord represent and warrant to each other that neither has employed a broker in connection with the execution of this Lease that is entitled to a commission or will pay any commissions relating to this Lease. Landlord and Tenant shall each indemnify and hold the other harmless from and against any claim or claims for brokerage or other commissions arising from such party having employed a broker contrary to its representation in this Section. Tenant shall be solely responsible for any other fees or charges due any other advisor engaged by Tenant in connection with this Lease, including, without limitation, legal counsel and any leasing consultant, whether or not any such advisor is also listed in the Fundamental Lease Provisions as Tenant’s broker.

12.18 Waiver of Redemption . To the extent permitted by law, Tenant hereby waives any and all rights of redemption with respect to this Lease. Tenant hereby waives any rights it may have to any notice to cure or vacate or to quit provided by any current or future law; provided that the foregoing shall not be deemed to waive any notice expressly provided in this Lease.

12.19 Not Binding Until Executed . This Lease does not constitute an “offer” and is not binding until fully executed and delivered by Landlord. By execution of this Lease, both parties represent and warrant to the other that they have the power and authority to enter into and perform their respective obligations under this Lease.

 

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12.20 Counterparts . This Lease may be executed in one or more counterparts, each of which shall constitute one and the same instrument, and all of which together shall constitute one and the same instrument.

12.21 Guaranty . If a Guarantor is listed in the Fundamental Lease Provisions, the effectiveness of this Lease shall be conditioned upon execution and delivery to Landlord of the Guaranty in the form attached hereto as Exhibit D .

 

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Landlord and Tenant have caused their duly authorized representatives to execute this Lease as of the day and year written above.

 

LANDLORD:
M ICHIGAN L IFE S CIENCE AND I NNOVATION C ENTER , LLC

By Ann Arbor Spark Foundation

Its Sole Member

By

/s/ Greg Fronizer

Name:

Greg Fronizer

Title:

MDFA

TENANT:
By

/s/ Wendi V. Rodrigueza

Name:

Wend V. Rodrigueza

Title:

Vice President, Product Development

M ICHIGAN L IFE S CIENCE AND I NNOVATION C ENTER L EASE


EXHIBIT A – LEGAL DESCRIPTION OF LAND

Real property in the Township of Plymouth, County of Wayne, State of Michigan, described as follows:

A part of the south 1/2 of Section 21, Town 1 South, Range 8 East, Township of Plymouth, Wayne County, Michigan, being more particularly described as: commencing at the southeast corner of said Section 21; thence North 02 degrees 17 minutes 11 seconds West, 962.25 feet along the east line of said Section 21 to a point on the northerly right-of-way line of M-14; thence South 87 degrees 07 minutes 29 seconds West, 3710.50 feet along said right-of-way line to the point of beginning, the following three courses being along the northerly right-of-way line of M-14: (1) continuing South 87 degrees 07 minutes 29 seconds West, 64.95 feet, and (2) North 78 degrees 22 minutes 31 seconds West, 258.62 feet, and (3) North 60 degrees 26 minutes 00 seconds West, 156.36 feet; thence North 05 degrees 43 minutes 23 seconds East, 686.13 feet to a point on the southerly line of a concrete road, the following five courses being along said line: (1) along a curve to the right, 46.61 feet, said curve having a radius of 320.00 feet, central angle of 08 degrees 20 minutes 45 seconds and a long chord bearing of South 69 degrees 50 minutes 14 seconds East, 46.57 feet, and (2) South 65 degrees 39 minutes 51 seconds East, 97.51 feet, and (3) along a curve to the left, 115.62 feet, said curve having a radius of 356.00 feet, central angle of 18 degrees 36 minutes 30 seconds and a long chord bearing of south 74 degrees 58 minutes 06 seconds East, 115.11 feet, and (4) south 84 degrees 16 minutes 21 seconds East, 114.23 feet, and (5) along a curve to the left, 100.49 feet, said curve having a radius of 355.00 feet, central angle of 16 degrees 13 minutes 06 seconds and a long chord bearing of North 87 degrees 37 minutes 06 seconds East, 100.15 feet; thence South 05 degrees 43 minutes 23 seconds West, 718.97 feet to the point of beginning.

Together with the non-exclusive easement rights set forth in Planned Unit Development Agreement for North Plymouth Research Park dated June 4, 1987, recorded on June 12, 1987 in Liber 23288, Page 461, re-recorded on January 19, 1990 in Liber 24503, Page 929 and amended by Assignment of Development Rights dated October 12, 1987, recorded on October 20, 1987 in Liber 23476, Page 828 and Assignment of Development Rights dated January 17, 1990, recorded on January 19, 1990 in Liber 24503, Page 912 and further amended by Supplement to Restriction Agreement for North Plymouth Research Park dated March 28, 1990, recorded on April 17, 1990 in Liber 24609, Page 947 and further amended by Second Supplement to Restriction Agreement for North Plymouth Research Park dated November 20, 1990, recorded on May 7, 1992 in Liber 25748, Page 151, Wayne County Records, (as assigned and supplemented, the Third Supplement to Restriction Agreement recorded in Liber 28324, Page 204 and Fourth Supplement to Restriction Agreement recorded in Liber 29113, Page 552, Wayne County Records.

 

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EXHIBIT B – SKETCH OF LEASED PREMISES

 

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EXHIBIT C – LEASEHOLD IMPROVEMENTS

None

 

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EXHIBIT D – RULES

Subject to the terms of the foregoing Lease:

1. No person shall disturb other occupants of the Building by making loud or disturbing noises.

2. Soliciting, peddling and canvassing are prohibited in the Building and Tenant shall cooperate to prevent the same.

3. Tenant shall be responsible for all damage or injury resulting from the delivery or removal of all articles into or out of the Building or the Leased Premises. No load shall be placed on the floors or in elevators in excess of the limits of the manufacturers’ design requirements.

4. Tenant shall not use any equipment emitting noxious fumes unless they are properly vented at Tenant’s expense.

5. Nothing shall be attached to the interior or exterior of the Building without the prior written consent of Landlord which shall not be unreasonably withheld or delayed. However, Tenant shall have the right to install and remove, within the Leased Premises (subject to the terms of this Lease), all of Tenant’s furniture and normal business equipment. No window treatments or objects shall be attached to, hung in or used in connection with any exterior of any door or window or from outside the Building, unless approved by Landlord which shall not be unreasonably withheld or delayed.

6. No sign or other representation shall be placed on the interior or exterior of the Building without prior written consent of Landlord which shall not be unreasonably withheld or delayed.

7. No hazardous articles shall be brought into or kept in the Building at any time except in accordance with the Lease and all applicable laws.

8. The electrical system and lighting fixtures in the Building and the Leased Premises shall not be altered or disturbed in any manner without the prior written consent of Landlord which shall not be unreasonably withheld or delayed. Any alterations or additions must be performed by licensed personnel authorized by Landlord.

9. The toilets and other plumbing fixtures shall not be used for any other purpose than those for which they are designed. No sweepings, rubbish or other similar materials or substances shall be deposited therein.

10. Smoking is prohibited in the Building or near or around any entrances.

11. Except during Tenant’s normal business hours, Tenant shall keep all doors to the Leased Premises locked and other means of entry to the Leased Premises closed and secured.

12. All cleaning, repairing, janitorial, decorating, painting or other services and work in and about the Leased Premises shall be done only by authorized Building personnel hired by Tenant or Landlord. Tenant shall notify Landlord of those parties performing such services on behalf of Tenant prior to such work being commenced and provide required insurance naming Landlord as an additional insured.

 

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13. Tenant or Tenant’s employees shall not distribute literature, flyers, handouts or pamphlets of any type in any of the exterior Common Areas without the prior written consent of Landlord.

14. Tenant shall not cook, otherwise prepare or sell, any foods or beverages in or from the Leased Premises. However, Tenant shall have the right to prepare food for the exclusive use of Tenant’s employees.

15. Tenant shall not permit the use of any apparatus for sound production or transmission in such manner that the sound so transmitted or produced shall be audible or vibrations shall be detectable beyond the Leased Premises.

16. Tenant shall keep all electrical and mechanical apparatus free of vibration, noise and air waves which may be transmitted beyond the Leased Premises.

17. No floor covering shall be affixed to any floor in the Leased Premises by means of glue or other adhesive, unless the installation procedure is approved by Landlord.

18. Tenant shall comply with all rules and regulations established by Landlord pursuant to Section 12.1 of the Lease.

19. Landlord shall use the best efforts to enforce the foregoing rules and regulations as to other tenants of the Building. Landlord shall have the right to amend these rules and regulations from time to time as provided in such Section 12.1 of the Lease.

 

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Execution Copy

CASE – 97946

FIRST AMENDMENT TO LEASE

This FIRST AMENDMENT TO LEASE (this “Amendment” ) is dated and made effective as of June 1, 2014 (the “Effective Date” ) by and between the MICHIGAN LAND BANK FAST TRACK AUTHORITY ( “Landlord” ) and PRONAI THERAPEUTICS, INC. ( “Tenant” ) (collectively the “Parties” ).

RECITALS

A. Landlord and Tenant are parties to that certain lease dated March 9, 2012 (the “Lease” ) of certain premises consisting of 955 rentable square feet of space known as Office Suite C (the “Leased Premises” ) located at 46701 Commerce Center Drive, Plymouth, Michigan (the “Property” ).

B. On November 14, 2012, the original Landlord, Michigan Life Sciences and Innovation Center, LLC, assigned the Lease to the Michigan Land Bank Fast Track Authority.

C. Landlord and Tenant wish to amend the Lease to (i) extend the Term of the Lease, (ii) amend the Leased Premises, and (iii) amend certain other terms of the Lease.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby mutually acknowledged, Landlord and Tenant agree as follows:

AGREEMENT

1. Capitalized Terms. Unless otherwise defined herein, all capitalized terms used in this Amendment shall have the meanings ascribed to them in the Lease, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Amendment.

2. Commencement Date. The term “Commencement Date” in Article I - Fundamental Lease Provisions is changed to read as follows: “June 1, 2014.”

3. Landlord. The term “Landlord” in Article I – Fundamental Lease Provisions is changed from “Michigan Life Sciences and Innovation Center, LLC” to “Michigan Land Bank Fast Track Authority.” The term “Landlord’ s Address” is changed from “203 South Division, Suite 430, Ann Arbor Michigan 48104” to “c/o MEDC, Attn:                     300 N. Washington Square, Lansing, Michigan 48913.”

 

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4. Leased Premises. The term “Leased Premises” in Article I – Fundamental Lease Provisions is changed to read as follows:

Approximately 2,916 rentable square feet (includes common area factor of 1.4) of laboratory space commonly known as Office Suite B, all in the Building and as shown on the sketch attached hereto as Exhibit B.

5. Renewal Terms. The term “Renewal Term” in Article I – Fundamental Lease Provisions is changed to read as follows: “one (1) term of six (6) months.”

6. Initial Term. The “Initial Term” is hereby revised to be “6 month period ending November 30, 2014.” Such Initial Term shall be upon all of the current terms and conditions of the Lease, as so amended.

7. Base Rent. The term “Base Rent” in Article I – Fundamental Lease Provisions is changed to read as follows:

$67,697.50 per annum, ($32.50 per rentable square foot of space calculated at 2083 rentable square feet and excluding the load factor of 1.4), as subject to increase as provided in Section 3.1(b) below.

8. Rent. Add the term “Rent” in Article I – Fundamental Lease Provisions to read as follows:

$94,776.50 per annum, (Base Rent multiplied by load factor of 1.4), or $7,898.00 monthly, as subject to increase.

Additionally, revise the term “rent” to “Rent” in the following sections: 2.1, 3.7 and 8.1(a). The word “Base” shall be deleted from the term “Base Rent” in the following locations: Article 3 title, 3.1(a), 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 5.4, 8.1(a), 8.1(c), 9.6, 10.1(a), 10.2(a), 11.2, 12.2 and 12.6. Section 3.1 shall be recaptioned as “Rent and Base Rent.”

9. Term. In Section 2.2(b) the time frame for notice to elect to extend the Initial Term by the Renewal Term shall be revised from “one hundred and eighty (180) days” to “thirty (30) days.”

10. Taxes. In Section 3.2 the phrase “and Taxes” shall be deleted. The definition of “Taxes” in that section shall also be deleted.

11. Place and Manner of Payment. In Section 3.3, add “payable to the Michigan Economic Development Corporation and” immediately following the term “Lease.”

12. Other Taxes. In Section 3.8(a), add the following language:

“…, including those taxes owed under Public Act 189 of 1953, MCL 211.181 to MCL 211.182”

 

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13. Insurance. Replace Section 7.4 with the following:

Subrogation Waiver. Tenant (for itself and its insurer) hereby waives any rights, including rights of subrogation, it may have against the other on account of any loss or damage occasioned to Landlord, to its property, the Leased Premises or its contents that are caused by or result from risks insured against under any insurance policies carried by the Tenant and in force at the time of any such damage or which would have been covered by insurance required to be carried under this Lease. The foregoing waiver of subrogation shall be operative only so long as available in the State of Michigan and so long as no policy of insurance is invalidated thereby.

Delete subsection 7.6(b).

14. Article 8. In Article 8, delete “OR CONDEMNATION OF” from the caption. Delete Section 8.2 in its entirety.

15. Sketch of Leased Premises. Exhibit B – Sketch of Leased Premises shall be replaced with the attached Exhibit B – Sketch of Leased Premises.

16. Ratification. Except as expressly modified by this Amendment, the Lease shall remain in full force and effect, and as further modified by this Amendment, is expressly ratified and confirmed by the parties hereto. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment and subletting.

17. Integration. This Amendment constitutes the entire Amendment between the Parties and supersedes all prior and contemporaneous agreements or understandings, whether written or oral, between the Parties with respect to the subject matter hereof.

18. Governing Law. This Amendment shall be governed and construed in accordance with the laws of the State of Michigan.

19. Counterparts and Authority. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Landlord and Tenant each warrant to the other that the person or persons executing this Amendment on its behalf has or have authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Amendment.

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IN WITNESS WHEREOF, the undersigned executed this Amendment as of the date and year first written above.

 

LANDLORD:
MICHIGAN LAND BANK FAST TRACK AUTHORITY
By:

/s/ Michelle M. Wildman

Name: Michelle M. Wildman
Title:

Authorized Officer

State of Michigan Land Bank Fast Track Authority,

Pursuant to Executive Order 2014-8 dated May 22, 2014
TENANT:
PRONAI THERAPEUTICS, INC.
By:

/s/ Nick Glover

Name: Nick Glover
Title: CEO

 

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EXHIBIT B - SKETCH OF LEASED PREMISES

 

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Via Fed Ex

October 30, 2014

Michigan Land Bank Fast Track Authority

c/o MEDC

Attn: Paula Sorrell

300 N. Washington Square

Lansing, Michigan 48913

 

RE: Michigan Life Science and Innovation Center Lease dated as of March 9, 2012, as amended by that certain First Amendment to Lease dated June 1, 2014, between Michigan Land Bank Fast Track Authority and ProNAi Therapeutics, Inc. (collectively, the “Lease Agreement”) regarding Office Suite B located at 46701 Commerce Center Drive, Plymouth, Michigan

Ladies and Gentlemen:

Reference is made to the above-referenced Lease Agreement. Capitalized terms used in this letter that are not defined herein shall have the meanings given to them in the Lease Agreement.

Pursuant to Section 2.2(b) of the Lease Agreement, this letter shall serve as Tenant’s notice to Landlord of Tenant’s election to exercise its right to extend the term of the Lease Agreement by the six (6) month Renewal Term. The term of the lease is hereby extended for such six (6) month period, until May 31, 2015.

 

Sincerely,
ProNAi Therapeutic Inc.
By:

/s/ Nick Glover

Name: Dr. Nick Glover
Its: President and Chief Executive Officer


Execution Copy

CASE - 120174

SECOND AMENDMENT TO LEASE

This SECOND AMENDMENT TO LEASE (this “Amendment”) is dated and made effective as of October 1, 2014 (the “Effective Date”) by and between the MICHIGAN LAND BANK FAST TRACK AUTHORITY (the “Landlord”) and PRONAI THERAPEUTICS, INC. (the “Tenant”) (collectively the “Parties”).

RECITALS

A. Landlord and Tenant are parties to that certain lease dated March 9, 2012, as amended June 1, 2014 (the “Lease”) of certain premises consisting of 955 rentable square feet of space known as Office Suite C (the “Leased Premises”) located at 46701 Commerce Center Drive, Plymouth, Michigan (the “Property”).

B. Landlord and Tenant wish to amend the Lease to (i) amend the Leased Premises to include additional space effective as of the Effective Date; and (ii) amend certain other terms of the Lease relative to such additional space.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby mutually acknowledged, Landlord and Tenant agree as follows:

AGREEMENT

1. Capitalized Terms. Unless otherwise defined herein, all capitalized terms used in this Amendment shall have the meanings ascribed to them in the Lease, and all references in the Lease to the “Lease” or “this Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease, or such section thereof, as amended by this Amendment.

2. Commencement Date. The term “Commencement Date” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) with respect to the Office Space (as defined below), December 1, 2014; (ii) with respect to the Lab A Space (as defined below), October 1, 2014; and (iii) with respect to the Lab B Space (as defined below), April 1, 2015.

3. Leased Premises. The term “Leased Premises” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) Approximately 2,916 rentable square feet (includes common area factor of 1.4) of office space commonly known as Office Suite B, all in the Building and as shown on the sketch attached hereto as Exhibit B-1 (the “Office Space”); (ii) approximately 1,117 rentable square feet (includes common area factor of 1.4) of laboratory space commonly known as Surgical Suite, all in the Building and as shown on the sketch attached hereto as Exhibit B-2 (the “Lab A Space”); and (iii) approximately 221 rentable square feet (includes common area factor of 1.4) of laboratory space commonly known as Animal Holding, all in the Building and as shown on the sketch attached hereto as Exhibit B-2 (the “Lab B Space”).

 

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4. Renewal Terms. The term “Renewal Term” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) with respect to the Office Space, one (1) term of six (6) months; (ii) with respect to the Lab A Space, one (1) term of six (6) months; and (iii) with respect to the Lab B Space, one (1) term of six (6) months.

5. Initial Term. The term “Initial Term” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) with respect to the Office Space, the six (6) month period ending May 31, 2015; (ii) with respect to the Lab A Space, the twelve (12) month period ending September 30, 2015; and (iii) with respect to the Lab B, the six (6) month period ending September 30, 2015.

6. Base Rent. The term “Base Rent” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) with respect to the Office Space, $67,697 per annum ($32.50 per rentable square foot of space calculated at 2083 rentable square feet and excluding the load factor of 1.4); (ii) with respect to the Lab A Space, $25,935.00 per annum, ($32.50 per rentable square foot of space calculated at 798 rentable square feet and excluding the load factor of 1.4); and (iii) with respect to the Lab B Space, $7,182.50 per annum, ($32.50 per rentable square foot of space calculated at 221 rentable square feet and excluding the load factor of 1.4), in each case as subject to increase as provided in Section 3.1(b) below.

7. Rent. The term “Rent” in Article I – Fundamental Lease Provisions is changed to read as follows:

(i) with respect to the Office Space, $94,776.50 per annum (Base Rent multiplied by a load factor of 1.4), or $7,898.04 monthly; (ii) with respect to the Lab A Space, $36,309.00 per annum, (Base Rent multiplied by load factor of 1.4), or $3,025.75 monthly; and (iii) with respect to the Lab B Space, $10,005.50 per annum, (Base Rent multiplied by load factor of 1.4), or $837.96 monthly, in each case, as subject to increase.

8. Term . In Section 2.2(b) the time frame for notice to elect to extend the Initial Term by the Renewal Term shall be revised from “thirty (30) days” to “ninety (90) days”. By execution of this Second Amendment, Tenant hereby notifies Landlord of its election to extend the term of the Lease by the Renewal Term described in this Amendment with respect to the Office Space.

9. Sketch of Leased Premises. Exhibit B - Sketch of Leased Premises shall be replaced with the attached Exhibits B-1 and B-2 - Sketch of Leased Premises.

10. Ratification. Except as expressly modified by this Amendment, the Lease shall remain in full force and effect, and as further modified by this Amendment, is expressly ratified and confirmed by the parties hereto. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of the Lease regarding assignment and subletting.

 

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11. Integration. This Amendment constitutes the entire Amendment between the Parties and supersedes all prior and contemporaneous agreements or understandings, whether written or oral, between the Parties with respect to the subject matter hereof.

12. Governing Law. This Amendment shall be governed and construed in accordance with the laws of the State of Michigan.

13. Counterparts and Authority. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Landlord and Tenant each warrant to the other that the person or persons executing this Amendment on its behalf has or have authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Amendment.

IN WITNESS WHEREOF, the undersigned executed this Amendment as of the date and year first written above.

 

LANDLORD:
MICHIGAN LAND BANK FAST TRACK AUTHORITY
By:

/s/ Michele M. Wildman

Name: Michele M. Wildman
Title: Authorized Officer
State of Michigan Land Bank Fast Track Authority,
Pursuant to Executive Order 2014-8 dated May 22, 2014
TENANT:
PRONAI THERAPEUTICS, INC.
By:

/s/ Nick Glover

Name: Dr. Nick Glover
Title: President and CEO

 

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EXHIBIT B - SKETCH OF LEASED PREMISES

 

Exhibit B-1: Sketch of Office Space
Exhibit B-2: Sketch of Lab Space and ROFR Space

 

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B-1-1


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B-2-1

Exhibit 10.10

SUBLEASE

THIS SUBLEASE dated for reference the 4th day of February, 2015,

BETWEEN:

THOMPSON CREEK METALS COMPANY INC.

26 West Dry Creek Circle, Suite 810

Littleton, Colorado 80120

(the “ Sublandlord ”)

AND:

PRONAI THERAPEUTICS CANADA ULC

2150 – 885 West Georgia Street

Vancouver, British Columbia V6C 2G2

(the “ Subtenant ”)

WITNESSES THAT WHEREAS:

 

A. Pursuant to a lease dated April 12, 2011 (the “ Head Lease ”), a copy of which is attached hereto as Schedule A to this Sublease, the Head Landlord leased to the Sublandlord, upon and subject to the terms and conditions set forth in the Head Lease, certain premises (the “ Premises ”) located on the 21st floor of the building (the “ Building ”) with an address of 885 West Georgia Street, Vancouver, British Columbia, having a Rentable Area of approximately 16,305 square feet and shown outlined on the plan attached as Schedule B to the Head Lease; and

 

B. Pursuant to an offer to sublease dated on December 17, 2014 and accepted on or around December 22, 2014 (the “ Offer to Sublease ”), the Sublandlord and the Subtenant have agreed to enter Into this Sublease in respect of that portion of the Premises known as Suite 2150 and having a Rentable Area of approximately 8,347 square feet, as outlined and hatched on the plan attached as Schedule B to this Sublease (the “ Sublet Premises ”), on the terms and conditions hereinafter set forth,

NOW THEREFORE in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is acknowledged by each of the parties, the parties agree as follows:

 

1. Definitions

 

  (a) Commencement Date ” means May 1, 2015;

 

  (b) Expiry Date ” means February 27, 2018;

 

  (c) Head Landlord’s Consent ” means the Head Landlord’s consent to the sublease of the Sublet Premises by the Sublandlord to the Subtenant as contemplated in this Sublease, which consent is required under Section 8.01 of the Head Lease and set out in Section 29 of this Sublease;


  (d) Sublease Net Rent ” means the basic rent for the Sublet Premises specified in Section 3 of this Sublease;

 

  (e) Sublease Term ” means the term of 34 months, less one day, commencing on the Commencement Date and expiring on the Expiry Date; and

 

  (f) Subtenant’s Proportionate Share ” means a fraction having as its numerator the Rentable Area of the Sublet Premises and as its denominator the Rentable Area of the Premises (including the Sublet Premises).

Capitalized terms used in this Sublease will have the meanings ascribed to them in the Head Lease, or in this Sublease if defined herein.

 

2. Grant of Sublease

The Sublandlord subleases the Sublet Premises to the Subtenant and the Subtenant subleases the Sublet Premises from the Sublandlord for the Sublease Term, on the terms and conditions set forth in this Sublease and the Head Lease. As applied to this Sublease, the words “Landlord” and “Tenant” in the Head Lease will be deemed to refer to Sublandlord and Subtenant, respectively, under this Sublease. The covenants, agreements, provisions and conditions of the Head Lease, to the extent that they relate to the Sublet Premises and to the extent that they are not inconsistent with the terms of this Sublease, are made a part of and incorporated into this Sublease as if recited In full in this Sublease. As between the Sublandlord and the Subtenant, in the event of a conflict between the terms of the Head Lease and the terms of this Sublease, the terms of this Sublease will prevail.

 

3. Sublease Net Rent

The Subtenant covenants to pay to the Sublandlord as net rent (the “ Sublease Net Rent ”), during the Sublease Term, the sum of $217,022.00 per annum (based upon $26.00 per square foot of the Rentable Area of the Sublet Premises per annum), without any deduction, abatement, set-off, counterclaim, or compensation whatsoever, payable in equal consecutive monthly Instalments payable in advance on the first day of each and every month during the Sublease Term.

 

4. Sublease Additional Rent

The Subtenant covenants to pay to the Sublandlord as additional rent (the “ Sublease Additional Rent ”) during the Sublease Term the following amounts:

 

  (a) the Subtenant’s Proportionate Share of Operating Costs and Taxes, payable by the Sublandlord under the Head Lease, together with any other amounts of Additional Rent attributable to the Sublet Premises; and

 

  (b) all other costs, damages or other amounts which are the responsibility of the Sublandlord under the Head Lease, to the extent such costs relate to the Sublet Premises, all without any notice, demand, deduction, abatement, set-off, counterclaim or compensation whatsoever, payable on the first day of each calendar month.

 

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5. Apportionment of Sublease Rent

The Sublease Net Rent and the Sublease Additional Rent (together, the “ Sublease Rent ”) will be considered as accruing from day to day hereunder. If it is necessary to calculate the Sublease Rent for a period of less than one year or less than one calendar month, an appropriate apportionment and adjustment on a pro rata daily basis will be made.

 

6. Taxes

In addition to the Sublease Rent hereunder, the Subtenant will remit to the Sublandlord any goods and services taxes or other taxes or impositions collectible by the Sublandlord for the use of the Sublet Premises by the Subtenant.

 

7. Additional Services and Utilities

The Subtenant will be solely responsible for any additional services as described in Section 2.08 of the Head Lease and will arrange with the Head Landlord to have any invoice for such additional services sent directly to the Subtenant. The Subtenant will, within 10 days of receipt of any invoice for such additional services, pay to the Head Landlord therefor at reasonable rates in accordance with the terms of the Head Lease.

 

8. Deposit

The Subtenant will pay to the Sublandlord:

 

  (a) the sum of $66,358.65 (the “ Deposit ”) (being a sum equal to two months’ Sublease Rent) to be applied to the first and second months’ Sublease Rent; and

 

  (b) a clean, unconditional, irrevocable letter of credit (the ‘” Letter of Credit ”) issued by a chartered bank in the amount of $50,000.00 and in a form acceptable to the Sublandlord, renewable annually with the amount of the Letter of Credit diminishing by 50% at the renewal date each year,

both tendered to the Subtenant’s agent, Devencore Company Limited, within 72 hours of the receipt of the Head Landlord’s Consent.

The Deposit (until such time as it is fully drawn down in accordance with Section 8(a) and the Letter of Credit will be held by the Sublandlord, without any liability whatsoever on the part of the Sublandlord for the payment of interest thereon, as security for the faithful performance by the Subtenant of all of the provisions of the Sublease and the Head Lease to be performed or observed by the Subtenant. If the Subtenant fails to pay Sublease Rent or otherwise defaults with respect to any provision of this Sublease, the Sublandlord may:

 

  (c) fully draw upon the Deposit, if any, or the Letter of Credit and apply all or a portion of that draw for the payment of any rent in default, or for the payment of any other expense which the Sublandlord may incur by reason of the Subtenant’s default, or to compensate the Sublandlord for any loss or damage which the Sublandlord may suffer thereby; or

 

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  (d) if the Letter of Credit has been previously drawn upon, apply all or a portion of any cash held by the Sublandlord from that draw for the payment of any Sublease Rent in default, or for the payment of any other expense which the Sublandlord may incur by reason of the Subtenant’s default, or to compensate the Sublandlord for any loss or damage which the Sublandlord may suffer thereby.

Any excess amount remaining from a draw upon the Letter of Credit after the remedying of the Subtenant’s default will be held by the Sublandlord on the terms and conditions set out herein. If any amount is applied by the Sublandlord, the Subtenant will, forthwith after notice of such application, replenish any funds held by the Sublandlord to the amount set out above.

If the Subtenant performs all of its obligations under this Sublease and the Head Lease, the Letter of Credit, or so much thereof as has not theretofore been applied by the Sublandlord, will be returned by the Sublandlord to the Subtenant within 30 days of the expiration of the Sublease Term. No trust relationship is created herein between the Sublandlord and the Subtenant with respect to the Letter of Credit or the Deposit.

 

9. Fixturing Period

Provided the Sublandlord has approved the Subtenant’s insurance and subject to any delay caused by the Subtenant, the Subtenant will have the right to occupy the Sublet Premises from the date of Head Landlord’s Consent (the “Possession Date”) until the Commencement Date (the “ Fixturing Period ”).

The Sublandlord and the Subtenant agree that during the Fixturing Period:

 

  (a) the Subtenant will be bound by all of the provisions of this Sublease and the Head Lease, save and except that the Subtenant will not be obligated to pay Sublease Rent;

 

  (b) the Subtenant will be responsible for maintaining the insurance required by the Head Lease;

 

  (c) the Subtenant will be entitled to access and occupy the Sublet Premises;

 

  (d) the Subtenant will be entitled to conduct its business, in accordance with the permitted uses set out herein;

 

  (e) the Subtenant will at all times have access to the Building and the Sublet Premises as allowed by the Head Lease;

 

  (f) the Subtenant will have access to, and will only use, the freight elevators of the Building during the Normal Business Hours for the Building as allowed by the Head Lease;

 

  (g) the Subtenant will have access to certain non-freight elevators of the Building, as determined by the Head Landlord, outside of the Normal Business Hours for the Building: and

 

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  (h) The Fixturing Period shall not be less than seventy (70) days following the Possession Date.

 

10. Sublandlord’s Work

Subject to the completion by the Sublandlord of the Sublandlord’s Work (as hereinafter defined) in accordance with this Section 10, the Subtenant will accept the Sublet Premises on an as is, where is” basis in accordance with the terms of this Sublease. The Sublandlord will not be required to perform any work or provide any materials or services in respect of the Sublet Premises whatsoever pursuant to this Sublease, except for the work (the “ Sublandlord’s Work ”) as expressly set out in Schedule C of this Sublease.

 

11. Subtenant’s Work

The Subtenant will perform all work (other than the Sublandlord’s Work) to make the Sublet Premises suitable for the Subtenant’s use at the Subtenant’s sole cost and expense. The Subtenant covenants and agrees that any work performed by the Subtenant will comply with the terms of the Head Lease and is subject to the prior written approval of the Sublandlord and the Head Landlord, which approval will not be unreasonably withheld or delayed.

 

12. Furniture and Equipment

All furniture and equipment (collectively, the “ Furniture ”) set out in Schedule D of this Sublease will be provided on an as is, where is” basis for the exclusive use of the Subtenant until the Expiry Date. The Subtenant, at its option, will either:

 

  (a) return the Furniture on the Expiry Date in the same condition it was in on the first day of the Fixturing Period, save normal wear and tear; or

 

  (b) at any time during the Sublease Term, but at least 30 days prior to the Expiry Date, provide the Sublandlord with written notice that It wishes to purchase the Furniture for $1.00, payable at the time the notice is sent to the Sublandlord, and the Subtenant will remove all Furniture from the Sublet Premises on the Expiry Date.

 

13. Subtenant’s Covenants

The Subtenant acknowledges having received and read a copy of the Head Lease and covenants and agrees with the Sublandlord:

 

  (a) except as otherwise provided In this Sublease, to faithfully observe and perform all of the obligations of the “Tenant” under the Head Lease and to be bound by the terms and conditions of the Head Lease in each case as they relate to the Sublet Premises;

 

  (b) to abide by any rules and regulations governing the use of the Sublet Premises and the Building that are attached to the Head Lease, as the same may be amended from time to time;

 

  (c) to faithfully observe and perform all of the obligations of the Subtenant under this Sublease;

 

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  (d) not to do or omit to do any act in or around the Sublet Premises which would cause a breach of the Sublandlord’s obligations as the “Tenant” under the Head Lease;

 

  (e) to promptly pay when due to the authorities having jurisdiction all charges for utilities and all business taxes and rates and personal property taxes (whether imposed upon the Subtenant or otherwise) attributable to the personal property, trade fixtures, business, income or occupancy of the Subtenant and to any leasehold improvements or fixtures within the Sublet Premises, and to the use by the Subtenant or its officers, employees and invitees of any of the common areas of the Building; and

 

  (f) to indemnify and save harmless the Sublandlord against and from any and all expenses, costs, damages, suits, actions or liabilities arising or growing out of the failure of the Subtenant to perform any of its obligations hereunder and from all claims and demands of every kind and nature made by any person or persons to or against the Sublandlord for all and every manner of costs, damages or expenses incurred by or injury or damage to such person or persons or his, her or their property, to the extent that such claims or demands arise out of the use and occupation of the Sublet Premises by the Subtenant or its officers, employees or any other person authorized or permitted by the Subtenant to be on the Sublet Premises or in or about the Building or any of the above- mentioned, and from all costs, legal fees, expenses and liabilities incurred by reason of any such claim or any action or proceeding brought thereon.

 

14. Subtenant’s Breach

If the Subtenant fails to perform any of its obligations herein, the Sublandlord will have all of the remedies against the Subtenant which the Head Landlord has under the Head Lease for a breach thereof, whether expressly set out in the Head Lease or arising in law or equity.

 

15. Restoration

At the Expiry Date or earlier termination of this Sublease, the Sublandlord agrees to accept the Sublet Premises in the configuration in which it is structured at the Expiry Date or earlier termination date. The Subtenant will not be responsible for removing or restoring any leasehold improvements in the Sublet Premises and, for clarity, the Subtenant will not be responsible to bring the Sublet Premises to a base building condition. Notwithstanding the foregoing, the Subtenant will be responsible for either removing any wiring from the Sublet Premises on the Expiry Date, if required by the Sublandlord, or reimbursing Sublandlord for its cost in removing any wiring.

 

16. Sublandlord’s Covenants

Subject to the due performance by the Subtenant of its obligations herein, the Sublandlord covenants and agrees with the Subtenant:

 

  (a) for quiet enjoyment of the Sublet Premises;

 

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  (b) to enforce against the Head Landlord for the benefit of the Subtenant the obligations of the Head Landlord under the Head Lease which materially affect the Sublet Premises;

 

  (c) to perform all of the obligations of the Sublandlord under the Sublease; and

 

  (d) to perform all of the obligations of the Sublandlord under the Head Lease which materially affect the Sublet Premises, including, without limitation, the payment of Rent that is payable pursuant to the Head Lease.

 

17. Use

Unless otherwise agreed between the Head Landlord, the Sublandlord and the Subtenant, the Sublet Premises will be used by the Subtenant solely for the purpose described in the Head Lease, being executive and general office use, and for no other purpose.

 

18. Right to Lease If Sublandlord Defaults

The Head Landlord and the Sublandlord covenant and agree that notwithstanding anything to the contrary in this Sublease or the Head Lease, if the Sublandlord is in default, for whatever reason, including the non-payment of Net Rent and Additional Rent, the Head Landlord and the Sublandlord will provide the Subtenant with written notice of such occurrence within 24 hours. The Head Landlord further covenants and agrees that if the Head Lease is terminated due to a default by the Sublandlord and the Sublease Term has not expired or been terminated, the Head Landlord will provide written notice to the Subtenant of such termination and the Subtenant will have a one-time only option to lease the Sublet Premises when it becomes available for lease, provided the Subtenant notifies the Head Landlord in writing that it wishes to lease the Sublet Premises within 15 days of receipt by the Subtenant from the Head Landlord of notice that the Head Lease has been terminated. The term of the lease between the Head Landlord and the Subtenant for the Sublet Premises shall commence on the first day after the Subtenant’s notification to the Head Landlord of the exercise of the Subtenant’s option to lease the Sublet Premises and shall terminate on the expiry of the Sublease Term or any permitted renewal or extension thereof and shall otherwise be on the same terms as the Head Lease, excepting any provisions in respect of Head Landlord’s work, free rent, tenant allowances or other tenant inducements of any kind whatsoever and this option to lease. Upon the Subtenant providing the notification referred to in this section within the required time period, the Subtenant will execute and deliver to the Head Landlord all such documents and instruments as the Head Landlord may reasonably require to evidence the leasing of the Sublet Premises by the Subtenant pursuant to this section.

 

19. Subtenant’s Assignment or Subletting

The Subtenant and the Sublandlord agree that with respect to any assignment, subletting or otherwise parting with or sharing possession of the Sublet Premises or any part thereof by the Subtenant, the provisions of the Head Lease apply with the following amendments thereto:

 

  (a) each reference to “Landlord”, ‘Tenant”, “Lease” and “Premises” will become, respectively, “Sublandlord”, “Subtenant”, “Sublease” and “Sublet Premises”; and

 

  (b) the Sublandlord will have the additional right to withhold and/or delay its consent if it has not received the prior written consent of the Head Landlord.

 

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Notwithstanding anything to the contrary-in this Sublease or the Head Lease, the Subtenant may assign, sublease or otherwise part with possession of the Sublet Premises or any part thereof to an affiliate (as defined in the Canada Business Corporations Act ) of ProNAi Therapeutics Canada ULC (a “Permitted Affiliate”), without the consent of the Sublandlord or the Head Landlord, provided:

 

  (c) the Subtenant has provided the Sublandlord and the Head Landlord with 30 days’ prior written notice of such assignment;

 

  (d) such Permitted Affiliate remains an affiliate of ProNAi Therapeutics Canada ULC;

 

  (e) all of the provisions of Section 8.03 of the Head Lease apply in respect of the assignment or sublease;

 

  (f) the Subtenant will remain liable under this Sublease and will not be released from performing any of the terms of this Sublease; and

 

  (g) the Permitted Affiliate enters into an agreement prepared by and in a form satisfactory to the Sublandlord and the Head Landlord in which such Permitted Affiliate covenants directly with the Sublandlord and the Head Landlord to be bound by all of the terms of this Sublease and the Head Lease.

 

20. Exercise of Rights

The determination of any state of facts, the promulgation of any rules or regulations or the taking of any other action or exercise of any other rights under the Head Lease which is permitted to be taken by the Head Landlord will, upon written notice to the Subtenant of such action or exercise, be binding upon the Subtenant and the Sublet Premises.

 

21. Paramountcy of Head Lease

The Subtenant acknowledges and agrees that it has no greater interest in the Sublet Premises than the Sublandlord under the Head Lease.

 

22. Notices

Any notice, demand, request or other instrument which may be or is required to be given under this Sublease shall be transmitted by facsimile or e-mail or sent by registered mail postage prepaid and shall be addressed:

 

  (a) if to the Sublandlord at

Thompson Creek Metals Company Inc.

26 West Dry Creek Circle, Suite 810

Littleton, Colorado 80120

Attention:                     

Facsimile:

E-mail:

 

8


  (b) if to the Subtenant at:

ProNAi Therapeutics Canada ULC

2150 – 885 West Georgia Street

Vancouver, British Columbia V6C 2G2

Attention:                     

Facsimile:

E-mail:

Any such notice, demand, request or consent is conclusively deemed to have been given or made on the day upon which such notice, demand, request or consent is delivered or transmitted by facsimile or e-mail, or, if mailed, then 96 hours following the date of mailing, as the case may be, and the time period referred to therein commences to run from the time of delivery or 96 hours following the date of mailing; provided that in the case of a disruption of normal mail service, a notice, demand, request or consent will only be effective if actually delivered or transmitted by facsimile or e-mail. Any party may deliver notice to the other parties changing its address for notices,

 

23. Parking

The Sublandlord hereby grants to the Subtenant a license to use up to eight (8) unreserved parking spaces, along with the Sublandlord and the Sublandlord’s other tenants, in the parking facility provided for the Building, which spaces have been made available to the Sublandlord by the Head Landlord on the terms and conditions pertaining to the use of such parking spaces from time to time, including as to payment of any parking fees (at the prevailing market rates applicable from time to time) associated with such parking spaces, all in accordance with Section 11.22 of the Head Lease. The Subtenant shall deal directly with the Head Landlord with respect to its use of any such parking spaces. The Subtenant will indemnify the Sublandlord from any damages, losses or claims arising from the Subtenant’s use of such parking spaces, howsoever arising. If the Subtenant requires additional parking spaces the Subtenant will arrange for such additional parking directly with the Head Landlord.

 

24. Further Assurances

Each party agrees to execute such further assurances as may be reasonably required from time to time by any other party to more fully effect the true intent of this Sublease.

 

25. Entire Agreement

This Sublease sets forth all of the agreements, covenants, representations, warranties and conditions between the Head Landlord, the Sublandlord and the Subtenant concerning the Sublet Premises and there are no agreements, covenants, representations, warranties or conditions, express or implied, collateral or otherwise between the parties, except as expressly set forth in this Sublease.

 

26. Waiver

No waiver by the Sublandlord of a condition or the performance of an obligation of the Subtenant hereunder binds the Sublandlord unless in writing and executed by it, and no waiver given by the Subiandlord will constitute a waiver of any other condition or performance by the Subtenant of Its obligations hereunder in any other case.

 

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27. Time

Time is of the essence of this Sublease with respect to the covenants contained herein.

 

28. Sublease Execution

This Sublease and all subsequent amendments thereto are only binding on the Sublandlord and the Subtenant, respectively, if in writing and executed by authorized signatories for the Sublandlord and the Subtenant and if executed copies thereof have been delivered to each party.

 

29. Head Landlord’s Consent Required

It is a condition precedent to this Sublease and all obligations of the Sublandlord to the Subtenant hereunder that the Head Landlord consents to this Sublease. The parties agree to use their commercially reasonable efforts to obtain the consent of the Head Landlord to this Sublease and to provide all such information and assurances (other than third party guarantees or covenants or additional security) is the Head Landlord may reasonably require In this regard. it is further understood that the Subtenant shall not be required to provide any parent company or third party guarantees, no additional security will be provided by the Subtenant other than those agreed to under this Sublease. It is understood that the Head Landlord in granting this consent does not hereby acknowledge or approve of or agree to be bound by any of the remaining terms of this Sublease made between the Sublandlord and the Subtenant other than Sections 15, 18, 19 and this Section 29, but is only consenting to the subletting of the Sublet Premises, subject to the following:

 

  (a) such consent is limited to the subletting herein and Is restricted to the Subtenant and Sublandlord;

 

  (b) the granting of this consent will not be deemed to be a waiver of any of the rights of the Head Landlord pursuant to the Head Lease;

 

  (c) nothing herein contained will be considered as releasing the Sublandlord from the due performance of the Sublandlord’s covenants, agreements and obligations under the Head Lease;

 

  (d) the subletting hereby authorized will be upon the terms and conditions of this Sublease; and

 

  (e) the Sublandlord will pay the Head Landlord’s reasonable costs incurred in connection with this consent, including legal costs.

The Subtenant acknowledges that it has read and is familiar with all of the terms, conditions and provisions contained in the Head Lease. In consideration of the Head Landlord consenting to the subletting herein, the Subtenant covenants and agrees with the Head Landlord that, subject to the terms and conditions of this Sublease, it will observe and perform the obligations of the “Tenant” under the Head Lease to the extent applicable to the Sublet Premises and appurtenances thereto. Without limiting the generality of the foregoing, the Subtenant covenants and agrees with the Head Landlord not to assign, sublet or otherwise part with or share possession of the Sublet Premises or any part thereof, except in accordance with Section 19 of this Sublease.

 

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The Sublandlord agrees with the Head Landlord that the consent hereby granted will be subject to the observance and performance of all of the terms, conditions and covenants contained in this Section 29.

 

30. Governing Law

This Sublease will be governed in accordance with laws applicable in the province of British Columbia and the parties irrevocably submit to the non-exclusive jurisdiction of the courts of British Columbia.

 

31. Enurement

This Sublease will enure to the benefit of, and be binding upon, each of the parties hereto and their successors and permitted assigns.

 

32. Severability

The invalidity of any particular provision of this Sublease will not affect any other provision of it, but this Sublease will be construed as if the invalid provision has been omitted.

 

33. Counterparts

This Sublease may be executed in any number of counterparts with the same effect as if all parties hereto had all signed the same document. All counterparts will be construed together and will constitute one and the same original document.

 

34. Execution by Facsimile or E-Mail

This Sublease may be executed by the parties and transmitted by facsimile or e-mail and if so executed and transmitted, this Sublease will be for all purposes as effective as if the parties had delivered an executed original agreement.

 

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35. Captions

The captions appearing in this Sublease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Sublease or any provision hereof.

IN WITNESS WHEREOF the parties have duly executed this Sublease as of the date set out above.

 

The Sublandlord: The Subtenant:
THOMPSON CREEK METALS COMPANY INC. PRONAI THERAPEUTICS CANADA ULC
Per:

/s/ Illegible

Per:

/s/ Sukhi Jagpal

Authorized Signatory Authorized Signatory
Per:

 

Per:

 

Authorized Signatory Authorized Signatory

 

12


SCHEDULE A

HEAD LEASE

[ATTACH COPY]


SCHEDULE B

PLAN OF THE SUBLET PREMISES

 

 

LOGO


SCHEDULE C

SUBLANDLORD’S WORK

The Sublandlord will, at its own expense, complete the following work for the Sublet Premises in accordance with current standard of the Building and applicable Building Code, as applicable, on or before the commencement of the Fixturing Period, subject to minor deficiencies:

 

  (a) the Sublet Premises will meet all applicable codes and standards as per the floor plan set out in Schedule B to this Sublease;

 

  (b) all telecommunications and network cabling will be in good operational condition; and

 

  (c) be clean and tidy and ready for the Fixturing Period.

Subtenant shall have three (3) business days from the date of mutual Sublease Execution to inspect the Sublet Premises and provide written notice (the “ Subtenant’s Notice ”) of acceptance of the Sublet Premises, acknowledging substantial completion of the Sublandlord’s Work and listing any deficiencies in the Sublandlord’s Work. For clarity, the Subtenant’s delivery of the Subtenant’s Notice will be deemed to be the Subtenant’s acceptance of the Sublet Premises, subject to the Sublandlord’s correction of the deficiencies listed therein and any deficiencies set out in the Subtenant’s Notice will be remedied on or before the Commencement Date. If the Sublandlord is to remedy any deficiencies, the Sublandlord or the Sublandlord’s contractor(s) shall be able to perform such work during the Fixturing Period and in conjunction with the Subtenant’s Work


SCHEDULE D

FURNITURE AND EQUIPMENT

EXHIBIT 10.11

 

  * Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

EXCLUSIVE LICENSE AGREEMENT

T HIS E XCLUSIVE L ICENSE A GREEMENT (the “ Agreement ”) is made and entered into effective as of March 13, 2012 (the “ Effective Date ”), by and between M ARINA B IOTECH , I NC . , a Delaware corporation with a place of business at 3830 Monte Villa Parkway, Bothell, Washington 98021 USA (“ Marina ”), and P RO NA I T HERAPEUTICS , I NC . , a Delaware corporation with a place of business at 2725 South Industrial Highway, Suite 200, Ann Arbor, Michigan 48104 (“ ProNAi ”). Marina and ProNAi are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

R ECITALS

W HEREAS , Marina owns or controls certain patent rights and know-how relating to its SMARTICLES ® liposomal delivery technology; and

W HEREAS , ProNAi desires to obtain from Marina, and Marina is willing to grant to ProNAi, an exclusive [***] license under Marina’s technology and intellectual property to develop and commercialize drug products containing such delivery technology combined with one or more selected DNAi oligonucleotides, on the terms and conditions set forth herein;

N OW , T HEREFORE , based on the premises and the mutual covenants and obligations set forth below, and intending to be bound hereby, the Parties agree as follows:

ARTICLE 1

D EFINITIONS

For purposes of this Agreement, the following terms (including, if applicable, the plural versions thereof) shall have the meanings as set forth below:

1.1 Additional Indication ” means, with respect to a particular Licensed Product, an indication for treating or preventing a human disease or condition that is the subject of and covered by a unique NDA application and Regulatory Approval, different from and subsequent to the original Regulatory Approval for such Licensed Product.

1.2 Affiliate ” means, with respect to a particular Party, an entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Party. For purposes of this definition, the term “control” (with correlative meanings for the terms “controlled by” and “under common control with”) means that the

 

*Confidential Treatment Requested.

 

1


CONFIDENTIAL

 

applicable entity has the actual power, direct or indirect, to direct and to cause the direction of the management and policies of the applicable other entity, whether through ownership of fifty percent (50%) or more of the voting securities of such other entity, by contract or otherwise. An entity will be an Affiliate for purposes of this Agreement only so long as it satisfies the definition set forth above in this Section.

1.3 Applicable Law ” means all applicable laws, rules, ordinances, and regulations, including any rules, regulations, guidelines or other requirements of relevant government agencies, that may be in effect from time to time in the applicable country or jurisdiction, applicable to the specific activities being undertaken pursuant to this Agreement.

1.4 Bankrupt Party ” shall have the meaning ascribed to such term in Section 10.2(b).

1.5 Claim ” means any claim, allegation, suit, complaint, action or legal proceeding.

1.6 Commercialize ” or “ Commercialization ” means those activities comprising or relating to the manufacturing, promotion, marketing, advertising, distribution and sale of Licensed Products, including Phase IV Trials or equivalent clinical trials conducted following Regulatory Approval as needed or useful to promote and market the Licensed Product and/or maintain such Regulatory Approval.

1.7 Commercially Reasonable Efforts ” means [***].

1.8 Confidential Information ” of a Party means all confidential or proprietary Information received or otherwise obtained by the other Party from such Party or its Affiliates pursuant to this Agreement, other than that portion of such information that:

(a) is now, or hereafter becomes, generally available to the public through no fault of the receiving Party, or its Affiliates, or any entity that obtained such information or materials from the receiving Party;

(b) the receiving Party or its Affiliates already possesses, as evidenced by its written records, prior to receipt thereof from the disclosing Party;

(c) is obtained without restriction from a Third Party that had the legal right to disclose the same to the receiving Party or its Affiliates; or

(d) has been independently developed by the receiving Party or its Affiliates without the aid, application or use of any Confidential Information of the disclosing Party, as demonstrated by competent written proof.

1.9 Default ” shall mean a failure by a Party to perform one or more of its material obligations under this Agreement which, if not cured within the applicable cure period set forth in Section 10.2(c) or (d), is likely to cause material harm to the other Party.

1.10 Dispute ” shall have the meaning ascribed to such term in Section 11.1.

 

*Confidential Treatment Requested.

 

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CONFIDENTIAL

 

1.11 DNAi ” means all single stranded oligonucleotides that affect the non-transcribed region of a gene target. DNAi does not include RNAi, antisense and microRNA oligonucleotides that base pair with mRNAs, microRNAs or pre-mRNAs to affect expression of a gene, directly or indirectly.

1.12 “Field of Use” means [***].

1.13 Field Infringement ” shall have the meaning ascribed to such term in Section 6.4.

1.14 Financial Event ” shall have the meaning ascribed to that term in Section 10.2(b).

1.15 First Commercial Sale ” means, with respect to a particular country, the first commercial sale of a Licensed Product by ProNAi, its Affiliates or Sublicensees to a Third Party in a country, after all needed Regulatory Approvals for the Licensed Product have been granted in such country.

1.16 GAAP ” means generally accepted accounting principles.

1.17 Generic Product ” means, with respect to a Licensed Product, a generic product in a formulation similar to and substitutable for such Licensed Product.

1.18 Improvement Patent Claim ” means any claim in a patent application filed by ProNAi (or in any patent issuing on any such application) that: (i) claims any improvements, modifications or enhancements to the Licensed Technology invented by ProNAi, and (ii) cannot be practiced without infringing the Licensed Patents, and including for clarity applicable claims in continuing patent applications (such as continuations, divisions, or continuations-in-part) or in any reissue, re-examined or extended patent.

1.19 IND ” means an Investigational New Drug application, as defined in 21 C.F.R. 312 or any successor regulation or comparable application in accordance with the Regulatory Authority in the applicable jurisdiction.

1.20 Indemnified Party ” shall have the meaning ascribed to it in Section 8.3.

1.21 Indemnifying Party ” shall have the meaning ascribed to it in Section 8.3.

1.22 Information ” means any and all data, results, improvements, processes, methods, protocols, formulas, inventions, know-how, trade secrets and any other information, patentable or otherwise, which may include (but is not limited to) scientific, research and development, manufacturing know-how, pre-clinical, clinical, regulatory, manufacturing, safety, marketing, financial and commercial information or data.

1.23 Initial Upfront License Fee ” shall have the meaning ascribed to it in Section 5.1.

 

*Confidential Treatment Requested.

 

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CONFIDENTIAL

 

1.24 Joint Intellectual Property ” shall have the meaning ascribed to it in Section 6.1(b).

1.25 Licensed Know-How ” means any and all proprietary Information owned or controlled by Marina (or its Affiliate) that (i) relates directly to the use or practice of the Licensed Patents and/or (ii) is otherwise necessary to develop, make, use or sell Licensed Product.

1.26 Licensed Patent ” means:

(a) The patents and patent applications that are owned or controlled by Marina or its Affiliate that claim or cover the Marina Technology (including the manufacture or use thereof), including those patents and patent applications listed in Appendix A of this Agreement;

(b) all additional patent applications based on or relating to the patents and applications set forth in subclause (a) above;

(c) any and all patent applications that are continuing applications (including continuations, continuations-in-part or divisionals, or any foreign equivalents thereof) of the patents and applications described in (a) or (b) above;

(d) any and all issued and unexpired patents resulting from any of the applications described in (a), (b) or (c) above;

(e) any and all issued and unexpired reissues, reexaminations, renewals, extensions (and any foreign equivalents of any of the foregoing) of any of the patents described in (a), (c) or (d) above; and

(f) any and all supplemental protection certificates (and any foreign equivalents thereof) applicable to products that, prior to the expiration of any patents listed on Appendix A or any patents included in the scope of (d) above, were covered by one or more Valid Claims of such patents.

1.27 Licensed Product ” means a pharmaceutical composition (including any improvements, enhancements or modifications to such composition) developed or sold by ProNAi (or its Affiliate or Sublicensee) that contains a ProNAi Compound and Marina Technology which targets a gene target.

1.28 Licensed Technology ” means the Licensed Patents, the Licensed Know-How, and Marina’s interest in any Joint Intellectual Property.

1.29 Losses ” means costs and expenses (including, without limitation, reasonable legal expenses and attorneys’ fees), judgments, liabilities, fines, damages, assessments and/or other losses.

1.30 Marina Indemnitees ” shall have the meaning ascribed to such term in Section 8.2.

 

4


CONFIDENTIAL

 

1.31 Marina Technology ” means a single formulation of Marina’s proprietary SMARTICLES ® liposomal delivery technology for each Licensed Product, as designated by ProNAi in writing, initially the [***] formulation ([***]), and any Technology Improvements thereto.

1.32 NDA ” means a New Drug Application, as defined in 21 C.F.R. 314, and any other appropriate application or registration submitted to the appropriate Regulatory Authority in a particular country in the Territory to seek Regulatory Approval for sale of Licensed Product in such country.

1.33 Net Sales ” means, with respect to a certain time period, all revenues recognized, and deductions applied, in accordance with GAAP consistently applied, based on invoices for the sales of Licensed Products sold by ProNAi or its Affiliate to Third Parties (but not including sales relating to transactions between ProNAi, its Affiliates and/or its respective Sublicensees and agents) during such time period, less the total of the following estimated and/or incurred charges or expenses with respect to such sales: (a) [***]; (b) [***]; (c) [***]; (d) [***]; (e) [***]; (f) [***]; and (g) [***].

Any disposal of Licensed Products for, or use of Licensed Products in, clinical or pre-clinical trials, given as free samples, including, without limitation, sample cards, or distributed for indigent programs shall not be included in Net Sales.

Upon any sale or other disposal of any Licensed Product that should be included within Net Sales for any consideration other than an exclusively monetary consideration on bona fide arm’s-length terms, then for purposes of calculating the Net Sales under this Agreement, [***].

1.34 Original License Agreement ” means that certain Exclusive License Agreement between the Parties dated March 5, 2007, as amended on May 16, 2007.

1.35 Phase IV Trial ” means a clinical trial of a pharmaceutical product initiated in a country in an approved indication after receipt of Regulatory Approval for such product in such indication in such country, intended to delineate additional information about such product’s risks, benefits and/or optimal use.

1.36 ProNAi Compound ” means any DNAi oligonucleotide that is owned, controlled, developed or licensed by ProNAi (or its Affiliate) for use in the Field of Use, such as [***] through [***].

1.37 ProNAi Indemnitees ” shall have the meaning ascribed to such term in Section 8.1.

1.38 Prosecution ” shall have the meaning ascribed to such term in Section 6.3.

1.39 Regulatory Approval ” means all approvals (including supplements, amendments, pre- and post-approvals and price approvals), licenses, registrations or authorizations of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the distribution, use or sale of a Licensed Product in the applicable country or regulatory jurisdiction.

 

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1.40 Regulatory Authority ” means any regulatory agency, department, bureau, commission, council or other governmental entity involved in granting approvals, registrations or licenses for the development, manufacturing, marketing, reimbursement and/or pricing of a Licensed Product in a particular country or regulatory jurisdiction.

1.41 Regulatory Documents ” means all regulatory documents and filings, correspondence with Regulatory Authorities, annual reports and amendments thereto related to a Licensed Product.

1.42 Royalty Term ” means, as to a particular Licensed Product sold in a country, the period from the date of First Commercial Sale of such Licensed Product in such country until the later of: (i) the date of expiration of the last to expire patent included in the Licensed Patents having a Valid Claim that claims the Licensed Product in such country, or (ii) 10 years after such First Commercial Sale of the Licensed Product in such country.

1.43 Royalties Report ” shall have the meaning ascribed to such term in Section 5.6.

1.44 [***]

1.45 Sublicensee ” means a sublicensee, direct or indirect, of ProNAi under ProNAi’s rights pursuant to Section 2.1.

1.46 Technology Improvement ” means any improvements, enhancements or modifications to the Marina Technology created solely by Marina and which are not created pursuant to any agreement between Marina and a Third Party, but excluding agreements with a contract research organization or consultant (or similar organization) that is contracted to improve the technology on behalf of Marina and where Marina owns or has exclusive license rights to the improvements made under such agreement.

1.47 Term ” means the term of this Agreement as set forth in Section 10.1.

1.48 Territory ” means [***].

1.49 Third Party ” means any entity or person other than Marina or ProNAi or an Affiliate of either of them.

1.50 Third Party Claim ” means any claim, action, allegation, suit or legal proceeding brought by a Third Party against another entity or person.

1.51 Trademark ” means any trade name, service mark, logo or trademark (whether or not registered), together with all goodwill associated therewith, and any renewals, extensions or modifications thereto.

1.52 Valid Claim ” means an unexpired claim of an issued patent within the Licensed Patents that has not been ruled to be unpatentable, invalid or unenforceable by a court or other authority in the country of the patent with competent jurisdiction, from which decision no appeal is taken or can be taken.

 

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ARTICLE 2

L ICENSES AND R ELATED R IGHTS

2.1 License Grants. Marina hereby grants to ProNAi (and its Affiliates) an exclusive royalty-bearing right and license, with full rights to grant sublicenses through multiple tiers, under the Licensed Technology to research (however, for clarity, such research shall not be performed solely on the Marina Technology), have researched, develop, make, have made, use, sell, offer for sale, import, export and otherwise Commercialize the Licensed Product(s) within the Field of Use in the Territory. In the interest of clarity, this license includes ProNAi’s right to conduct pre-clinical feasibility studies prior to designating a Licensed Product.

2.2 Sublicenses. Any sublicenses granted to Third Party Sublicensees under the license rights granted in Section 2.1 shall be subject to the following terms: ProNAi shall promptly notify Marina of the granting of any sublicense hereunder including the name of the Sublicensee and a general description of the rights sublicensed, and each such sublicense shall be consistent with the terms of this Agreement.

2.3 Retained Rights. For clarity, Marina retains all rights under the Licensed Technology, subject only to the license rights granted to ProNAi under Section 2.1.

2.4 Limitations on License Rights. Except as granted under Section 2.1, no other rights to use or practice the Licensed Technology for any other use or purpose are granted to ProNAi.

2.5 Trademark License. Marina grants to ProNAi a revocable, limited, non-exclusive, non-transferable license in the United States and European Union member countries to use Marina’s Trademark “SMARTICLES ® liposomal delivery technology” and in all other countries in the Territory “SMARTICLES™ liposomal delivery technology” solely to research, develop, promote and sell Licensed Products. Notwithstanding the foregoing, any use or display of the Trademark by ProNAi shall be in a manner that the Parties agree is commercially reasonable, which approval by Marina shall not be unreasonably withheld. Marina may, at its discretion, independently monitor ProNAi’s use of the Trademark, and if Marina perceives a use or display of its Trademark that is not in accordance with preciously approved submissions or is otherwise damaging to Marina, Marina may notify ProNAi of such and ProNAi shall correct such non-conformance or shall cease and desist such use or display within thirty (30) days of receipt of such notice.

ARTICLE 3

P RODUCT D EVELOPMENT AND R EGULATORY M ATTERS

3.1 Development in Field of Use. ProNAi shall have the sole rights to control and conduct, itself and/or through Affiliates or Sublicensees, and in its sole discretion except as provided below, the research and development of Licensed Products for Commercialization and use in the Field of Use in the Territory. ProNAi agrees to use [***] to conduct such research and development (pre-clinical and clinical) of Licensed Products as necessary to obtain Regulatory

 

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Approval of a Licensed Product in the Field of Use in any country in the Territory where ProNAi determines it is commercially reasonable to do so. ProNAi may satisfy the foregoing diligence obligation through activities of its Affiliates, subcontractors and/or Sublicensees. ProNAi may subcontract all or part of the conduct of such development program to appropriately qualified Third Parties.

3.2 Development Reporting. Every year within [***] days after the anniversary of the Effective Date, ProNAi shall provide a written report to Marina and the Parties shall meet by teleconference to discuss the progress and results of the development program on Licensed Products during the previous year, including a summary of results and of the efforts taken in relation to the preparation submission of applications and other filings for Regulatory Approvals for each of the Licensed Products in the Field of Use. ProNAi shall also provide prompt written notice to Marina of (i) any Regulatory Approval received for any Licensed Product in any country and (ii) the anticipated commercial launch date for the Licensed Product in each country. The information communicated in such reports, at such meetings and in such notices shall be deemed to be ProNAi’s Confidential Information.

3.3 Uncertainty In Development. With respect to the development of Licensed Products and efforts to obtain Regulatory Approval, each of the Parties agrees as follows:

(a) Drug product research and development is uncertain and has many risks and potential problems (including efficacy and toxicity issues), and that the development program on Licensed Products may produce no results, or unpredictable or inaccurate results, or results that cannot support Regulatory Approval or further development or commercial activity;

(b) Neither Party gives to the other any warranty or assurance that the development program for Licensed Products will have any particular result, that Regulatory Approval(s) will be obtained, or that such product development or Commercialization will be successful;

(c) ProNAi’s research and development program is dependent upon ProNAi’s receipt of adequate funding for such projects, from sources that may include federal and other grants, foundations, partners or private capital. The availability of such financing is uncertain and ProNAi makes no warranty or assurance that such attempts will be successful;

(d) For the avoidance of doubt, deviations from or changes to the development program on Licensed Product due to unexpected, unpredictable, inaccurate, or otherwise undesirable results as described in this Section 3.3 (including, without limitation, results indicating toxicity issue or a lack of efficacy) shall not be considered a failure of ProNAi to meet its obligations hereunder and it shall not be deemed a material breach to this Agreement per Section 10.2(c) of this Agreement.

 

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3.4 Regulatory Matters Generally . ProNAi (or its Affiliate or Sublicensee, as applicable) shall have the exclusive rights to manage and conduct all regulatory activities relating Licensed Products for use in the Field of Use in the Territory. ProNAi may subcontract all or part of the conduct of such regulatory activities to appropriately qualified third parties.

3.5 Communications with Regulatory Authorities. From and after the Effective Date, ProNAi shall be solely responsible for all contacts with all Regulatory Authorities with respect to Licensed Products within the Field of Use in the Territory. ProNAi may, in its sole determination, request that Marina participate in such regulatory discussions and Marina agrees to comply with such request. ProNAi shall reimburse Marina for its actual costs and expenses (including FTE rates, travel, per diem and lodging) with respect to such requested participation.

3.6 Regulatory Filings. ProNAi (or its Affiliate or Sublicensee) shall control and have sole responsibility for, at its expense and in its name, preparing and filing with the appropriate Regulatory Authorities of all Regulatory Documents, including all INDs and that are necessary or useful to conduct clinical studies of the Licensed Products, and all NDAs and other applications for Regulatory Approval to market and sell Licensed Products in the Field of Use in the Territory, and all amendments or supplements thereto. ProNAi (or its Affiliate or Sublicensee, as applicable) shall own the entire and exclusive rights in all its Regulatory Documents and Regulatory Approvals.

ARTICLE 4

C OMMERCIALIZATION ; M ANUFACTURING

4.1 Commercialization Rights in Field of Use. ProNAi shall have the sole rights, itself and/or through Affiliates or Sublicensees (and their respective distributors) to Commercialize and otherwise exploit Licensed Products developed by ProNAi or its Affiliates (or Sublicensee) for all uses in the Field of Use in the Territory. ProNAi agrees to use [***] to conduct such Commercialization activities of a Licensed Product in the Field of Use in any country in the Territory where ProNAi determines it is commercially reasonable to do so. ProNAi may satisfy the foregoing diligence obligation through activities of its Affiliates, subcontractors and/or Sublicensees. ProNAi (and its Affiliates and Sublicensees) shall have sole control over all decisions regarding Commercialization, including pricing and marketing strategies.

4.2 Commercialization Reporting. Every year within [***] days of the anniversary of the Effective Date after Regulatory Approval is granted on a particular Licensed Product, ProNAi shall provide a written report to Marina and the Parties shall meet by teleconference to discuss the efforts and progress of the Commercialization program on such Licensed Product in the Field of Use during the previous year, including a summary of marketing results. The information communicated in such reports and at such meetings shall be deemed to be ProNAi’s Confidential Information.

4.3 Manufacturing. ProNAi (and/or its Affiliate or Sublicensee) shall have the sole responsibility for conducting all manufacturing process development and scale-up, as needed to have an appropriate manufacturing process for Licensed Products sufficient to meet all expected demand for Licensed Products. For the avoidance of doubt, ProNAi (and/or its Affiliate or Sublicensee) shall have the right to source the lipids comprising the Marina Technology from a Third Party and to have the Licensed Products manufactured by a Third Party contracted by ProNAi.

 

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ARTICLE 5

C ONSIDERATION ; P AYMENTS ; R EPORTS

5.1 Initial Upfront License Fee. In part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay Marina a non-refundable, non-creditable upfront license fee of $[***] for the first Licensed Product designated under this Agreement (the “ Initial Upfront License Fee ”), such payment shall be made upon the earlier of (a) [***] or (b) within [***] days of [***].

5.2 Additional Upfront License Fees. In part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay Marina a non-refundable, non-creditable upfront license fee of $[***] for each subsequent Licensed Product, of which $[***] will be paid not later than [***] and the balance (i.e., $[***]) will be paid upon the earlier of [***] or [***].

5.3 Milestone Payments.

(a) In part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay to Marina a non-refundable, non-creditable milestone payment upon first achievement by ProNAi, its Affiliate or Sublicensee of the applicable milestone event set forth in the table below, such payments to be in the listed amounts for the applicable milestone event:

 

Milestone Event

   Milestone Payment  

(i) For each Licensed Product:

  

(1) [***]

   $ [ ***] 

(2) [***]

   $ [ ***] 

(3) [***]

   $ [ ***] 

(4) [***]

   $ [ ***] 

(ii) [***]

   $ [ ***] 

For clarity each of the above milestone payments shall be paid only once for a particular Licensed Product, regardless if any such Milestone Event is achieved more than once, [***]. Further, if a particular Licensed Product achieves a particular Milestone Event under subclause (i) of the above table without having achieved a previous Milestone Event in such subclause (i), then such previous Milestone Event shall be deemed also achieved, and the Milestone Payment associated with such Milestone Event shall then be paid with the achievement of the subsequent

 

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Milestone Event. For illustrative purposes only, if the [***] Milestone Event as set forth in (i)(3) in the table above is not achieved for a Licensed Product but the [***] Milestone Event as set forth in (i)(4) above is achieved for such Licensed Product, then the Milestone Payment for achievement of the Milestone Event in clause (i)(3) ($[***]) will be paid when the Milestone Payment for (i)(4) is paid. The total amount of milestone payments payable for a particular Licensed Product under the above shall not, in any event, exceed $[***] under subclause (i) of the above table and $14,000,000 in total.

(b) ProNAi shall [***] notify Marina of the achievement of any Milestone Event for each Licensed Product. All Milestone Payments under subsection (a) above are non-refundable and non-creditable, and shall be due within [***] days of achievement of the applicable Milestone Event.

5.4 Royalties. In part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay royalties to Marina on Net Sales by ProNAi or any of its Affiliates or Sublicensees of Licensed Products during the Royalty Term for sales of License Product in country(ies) where such sale would infringe, absent the license granted in Section 2.1, a Valid Claim of an issued Licensed Patent, ProNAi shall pay to Marina royalties equal to [***]% of the Net Sales revenue recognized by ProNAi or any of its Affiliates or Sublicensees from such sales.

5.5 Anti-Stacking Provisions. If ProNAi or its Affiliate owes to one or more Third Parties, under license agreement(s) granting ProNAi (or its Affiliate or Sublicensee) license rights covering patents (or other intellectual property rights) that are needed to make, use, sell or otherwise Commercialize the Licensed Technology as contained in a Licensed Product, royalties or similar payments on sales of such Licensed Products, then ProNAi may reduce the royalties owed to Marina under Section 5.4 based on such sales of Licensed Product by [***]% of the royalty or similar payments actually paid to such Third Parties, provided that ProNAi shall not reduce any particular royalty payment to Marina by more than [***]% of the amount otherwise owed under the royalty provisions of Section 5.4 for the applicable royalty period.

5.6 Payment of Royalty. The royalty obligation under Section 5.4 shall accrue upon the sales of a Licensed Product in each particular country in the Territory, commencing upon [***], and such obligation shall end upon the expiration of the Royalty Term applicable to such Licensed Product in such country. All such royalty payments are non-refundable and non-creditable and shall be due within [***] days of the end of each [***] and are payable in immediately available funds. ProNAi shall notify Marina in writing promptly upon the First Commercial Sale of Licensed Product in each country and thereafter ProNAi shall furnish Marina with a written report (the “ Royalties Report ”) for each completed [***] showing, on a country-by-country basis, according to the volume of units of Licensed Product sold in each such country (by SKU) during the reporting period (whether Licensed Product is sold by ProNAi or its Affiliates or Sublicensees): (a) the gross invoiced sales of the Licensed Product sold in each country during the reporting period, and the amounts deducted therefrom to determine Net Sales from such gross invoiced sales; (b) the royalties payable in dollars, if any, which shall have accrued hereunder based upon Net Revenues from sales of Licensed Product; and (c) the withholding taxes, if any, required by Applicable Law to be deducted in respect of such sales (provided that, as to sales by Sublicensees, ProNAi shall report only the net sales numbers (using the definition for such term in the applicable sublicense agreement) as reported by the

 

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Sublicensee, if such Sublicensee does not report gross invoiced sales numbers). With respect to sales of Licensed Product invoiced in US dollars, the gross invoiced sales, Net Revenues and royalties payable shall be expressed in the Royalties Report in US Dollars. With respect to sales of Licensed Product invoiced in a currency other than US dollars, the gross invoiced sales, Net Sales and royalties payable shall be expressed in the Royalties Report in the domestic currency of the party making the sale as well as in the US dollar equivalent of the Royalty payable and the exchange rate used in determining the amount of US dollars. The US dollar equivalent shall be calculated on a calendar-month basis using the average monthly interbank rate listed in the Wall Street Journal.

5.7 Currency Restrictions. If at any time legal restrictions in any country in the world prevent the prompt remittance of any payments with respect to sales in that country, ProNAi shall have the right and option upon written notice to Marina to make such payments by depositing the amount thereof in local currency to Marina’s account (or such other designated nominee by Marina) in a bank or depository in such country.

5.8 Taxes. In the event that laws, rules or regulations require ProNAi to withhold taxes with respect to any payment to be made by ProNAi to Marina pursuant to this Agreement, ProNAi will notify Marina of such withholding requirement prior to making the payment to Marina and shall make such withholding from such payment of the required amount of withholding and shall make the required tax payment to the appropriate tax authority, and provide such assistance to Marina, including the provision of such documentation as may be required by a tax authority, as may be reasonably necessary in Marina’s efforts to claim an exemption from or reduction of such taxes.

5.9 Late Payments. All fees and royalties due under this Agreement not received within the period due shall bear interest from the date they are due until the date they are paid at the rate of [***] percent ([***]%) per annum or the maximum rate permitted by law, whichever is less.

5.10 Audit. ProNAi and its Affiliates shall keep complete and accurate records of the underlying revenue and expense data relating to the calculations of Net Sales, Sublicensee revenues and payments required under this Agreement. Marina shall have the right, at its own expense and no more than [***], to have an independent, certified public accountant, selected by Marina and reasonably acceptable to ProNAi, review all such records upon reasonable notice and during regular business hours and under obligations of strict confidence, for the sole purpose of verifying the basis and accuracy of payments required and made under this Agreement within the prior [***] month period. No calendar quarter may be audited more than one time. ProNAi shall receive a copy of each audit report promptly from Marina. Should the inspection lead to the discovery of a discrepancy to Marina’s detriment, ProNAi shall pay the amount of the discrepancy in Marina’s favor within [***] days after being notified thereof. Marina shall pay the full cost of the inspection unless the discrepancy is greater than [***] percent ([***]%), in which case ProNAi shall pay to Marina the actual cost charged by such accountant for such inspection. If such audit shows a discrepancy in ProNAi’s favor, then ProNAi may credit the amount of such discrepancy against subsequent amounts owed to Marina, or if no further amounts are owed under this Agreement, then Marina shall pay ProNAi the amount of the discrepancy within [***] days after being notified thereof.

 

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ARTICLE 6

I NTELLECTUAL P ROPERTY

6.1 Intellectual Property Ownership.

(a) Any information, know-how, data, results, and inventions, and any associated intellectual property, that is made, discovered, created, invented or generated by ProNAi or its Affiliate in any activities or work under this Agreement shall be owned by ProNAi.

(b) Any information, know-how, data, results, and inventions, and any associated intellectual property, that is made, discovered, created, invented or generated by jointly by ProNAi and/or its Affiliate and Marina and/or its Affiliates in any activities or work under this Agreement shall be jointly owned by ProNAi and Marina (the “ Joint Intellectual Property ”). Neither Party would assign their rights to the Joint Intellectual Property without the prior written consent of the other Party.

6.2 Grant-Back License. Subject to the terms of the Agreement, ProNAi hereby grants to Marina (and its Affiliates) the [***] license, with the right to sublicense (subject to the limitation below) in the Territory under the Improvement Patent Claims solely to use and practice the Improvement Patent Claims in connection with the manufacture, use or sale of the Licensed Technology outside the Field of Use. In no event shall Marina (or its Affiliates or sublicensees) grant, or have any rights to grant, any sublicense under the foregoing license that is separate from a license (to the applicable sublicensee) under Marina Technology. Marina shall pay to ProNAi a royalty of [***]% of the net sales of any products sold by Marina or its Affiliates or sublicensees where the manufacture, use or sale of such product is claimed by a valid claim in the issued Improvement Patent Claims (where the terms “net sales” and “valid claim” have the same meanings as Net Sales and Valid Claims applied mutatis mutandis to the situation involving such product sold by Marina (or its Affiliate or sublicensee) and Improvement Patent Claim).

6.3 Prosecution and Maintenance.

(a) Marina shall, at its expense, file, prosecute, defend and maintain, including conducting re-examination, reissue, opposition and interference proceedings (and any other similar patent proceedings) regarding, the Licensed Patents before all patent authorities (collectively, “ Prosecution ”). Marina shall keep ProNAi reasonably informed of such Prosecution efforts and results. Marina shall not abandon any patent rights in the Licensed Patents without first notifying ProNAi in writing at least [***] days prior to any such abandonment. If Marina intends to abandon any such rights of Licensed Patent, or does not conduct the Prosecution of any claim or patent application or patent within the Licensed Patents in any specific country, after ProNAi’s request, then ProNAi shall have the right, on written notice to Marina, to undertake the Prosecution of such claims, applications or patents at ProNAi’s sole cost and expense, and in such case Marina shall do all things to provide ProNAi with the right and opportunity to conduct the Prosecution of such claim or patent application or patent.

 

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(b) ProNAi shall, at its expense and discretion, control the Prosecution of all Joint Intellectual Property before all patent authorities. ProNAi shall keep Marina reasonably informed of such Prosecution efforts and results. ProNAi shall not abandon any patent rights in the Joint Intellectual Property without first notifying Marina in writing at least [***] days prior to any such abandonment. If ProNAi intends to abandon any such rights of the Joint Intellectual Property, or does not conduct the Prosecution of any claim or patent application or patent within the Joint Intellectual Property in any specific country, after Marina’s request, then Marina shall have the right, on written notice to ProNAi, to undertake the Prosecution of such claims, applications or patents at Marina’s sole cost and expense, and in such case ProNAi shall do all things to provide Marina with the right and opportunity to conduct the Prosecution of such claim or patent application or patent.

6.4 Infringement by Third Parties. If requested by ProNAi, Marina shall use [***] to enforce the Licensed Patents against infringers that are causing a material negative impact on ProNAi (or its Affiliate or Sublicensee) in the market for a Licensed Product due to the infringement of the Licensed Patents. Marina shall keep ProNAi fully informed of the progress and results of any such enforcement action. Any recoveries in any such enforcement actions against an infringement brought under this Section 6.4 shall be used first to reimburse Marina’s out-of-pocket costs and expenses (including attorneys’ fees) for such action and any remainder shall be shared equally by the licensees of the Licensed Patents affected by the infringement action. Marina shall not enter into any settlement of any action under this Section 6.4 that materially negatively affects ProNAi’s (or its Affiliate’s or Sublicensee’s) rights or interests under this Agreement without ProNAi’s written consent, which consent shall not be unreasonably withheld or delayed. If a Third Party is infringing a Licensed Patent by making, using or selling a product in the Field of Use (a “ Field Infringement ”), and Marina does not enforce the Licensed Patent against such Field Infringement within [***] days after request by ProNAi, or ceases such enforcement without causing the Field Infringement to terminate, then thereafter ProNAi shall have the right to enforce the applicable Licensed Patents against such Field Infringement, at its expense, and shall keep Marina reasonably informed of such enforcement. In any such enforcement by ProNAi, Marina agrees to join the action as a party plaintiff (at ProNAi’s expense) if required for ProNAi to have standing to pursue the action and to cooperate and provide all reasonable assistance in ProNAi’s enforcement.

6.5 Defense of Third Party Actions. Each Party shall promptly notify the other Party upon receiving written notice of any potential infringement, or any Third Party Claim or action against Marina or ProNAi or any of their Affiliates or Sublicensees for possible infringement, of a Third Party patent right resulting from the practice or use by ProNAi (or its Affiliate or Sublicensee) of the Licensed Technology under this Agreement. Each Party shall be responsible for defending, and shall control the defense of, any such action brought against such Party.

ARTICLE 7

R EPRESENTATIONS , W ARRANTIES AND C OVENANTS

7.1 Representations and Warranties of Marina. As of the Effective Date, Marina hereby represents and warrants to ProNAi as follows:

 

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(a) Corporate Existence and Power. Marina is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted.

(b) Authority and Binding Agreement. Marina has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder. Marina has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered by Marina and constitutes a legal, valid and binding obligation of Marina that is enforceable against it in accordance with its terms.

(c) No Conflict. The execution, delivery and performance of this Agreement by Marina does not conflict with, and will not result in a breach of, any material agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. Marina hereby covenants that it and its Affiliates shall not enter into any agreement that will conflict with its obligations and covenants in this Agreement or prevent or interfere with its performance of such obligations.

(d) IP Rights. Marina owns all the Licensed Technology, has the full legal rights and authority to grant the licenses and rights under the Licensed Technology granted under this Agreement, and has not assigned, transferred, conveyed or licensed its right, title and interest in the Licensed Technology in any manner inconsistent with such license grant or the other terms of this Agreement. There is no pending litigation or, to the best of Marina’s knowledge, written threat of litigation (that has not been resolved by taking a license or otherwise), which alleges that Marina’s activities with respect to the Licensed Patents or Licensed Products have infringed or misappropriated any of the intellectual property rights of any Third Party. To the best of Marina’s knowledge, the practice of the Licensed Technology as contemplated by this Agreement does not infringe any patent rights, or misappropriate any other intellectual property, owned by a Third Party.

(e) Disclaimer. EXCEPT FOR THE WARRANTIES EXPRESSLY SET FORTH ABOVE IN THIS SECTION 7.1, MARINA MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND, INCLUDING AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR USE OR NON-INFRINGEMENT OF THE LICENSED TECHNOLOGY OR THE LICENSED PRODUCTS.

7.2 Representations and Warranties of ProNAi. As of the Effective Date, ProNAi hereby represents and warrants to Marina as follows:

(a) Corporate Existence and Power. ProNAi is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted.

 

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(b) Authority and Binding Agreement. ProNAi has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder. ProNAi has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered by ProNAi and constitutes a legal, valid and binding obligation of ProNAi that is enforceable against it in accordance with its terms.

(c) No Conflict. The execution, delivery and performance of this Agreement by ProNAi does not conflict with, and would not result in a breach of, any material agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

(d) EXCEPT FOR THE WARRANTIES EXPRESSLY SET FORTH ABOVE IN THIS SECTION 7.2, PRONAI MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY KIND, INCLUDING AS TO MERCHANTABILITY, FITNESS FOR A PARTICULA R USE OR NON-INFRINGEMENT, OR THAT THE DEVELOPMENT OR COMMERCIALIZATION OF ANY LICENSED PRODUCT WILL BE SUCCESSFUL.

ARTICLE 8

I NDEMNIFICATION

8.1 Indemnification by Marina. Marina hereby agrees to defend, hold harmless and indemnify ProNAi and its Affiliates, and each of their respective officers, directors and employees (collectively, the “ ProNAi Indemnitees ”), from and against any and all Losses arising out of any Third Party Claim based upon or resulting from: (i) any of Marina’s representations and warranties set forth in Section 7.1 of this Agreement being untrue in any material respect when made; (ii) Marina’s failure to perform, in any material respect, any covenant or obligation of Marina set forth in this Agreement; and (iii) Marina’s gross negligence or willful misconduct; except, in each case, to the extent any such Losses result from the gross negligence or willful misconduct of ProNAi Indemnitees or from the breach of any representation or warranty or obligation under this Agreement by ProNAi or its Affiliate.

8.2 Indemnification by ProNAi. ProNAi hereby agrees to defend, hold harmless and indemnify Marina and its Affiliates, and each of their respective officers, directors and employees (collectively, the “ Marina Indemnitees ”), from and against any and all Losses arising out of any Third Party Claim based upon or resulting from: (i) any of ProNAi’s representations and warranties set forth in Section 7.2 of this Agreement being untrue in any material respect when made; (ii) ProNAi’s or its Affiliate’s failure to perform, in any material respect, any covenant or obligation of ProNAi set forth in this Agreement; (iii) the exercise or practice by ProNAi, its Affiliates or Sublicensees of the licenses granted to ProNAi under Sections 2.1 ( excluding any such Claim that alleges that the exercise or practice of the Licensed Technology infringes a patent or misappropriates other intellectual property of the Third Party); or (iv) the development, manufacture or Commercialization of any Licensed Product by or for ProNAi, its Affiliates or Sublicensees; except, in each case, to the extent any such Losses result from the gross negligence or willful misconduct of Marina Indemnitees or from the breach of any representation or warranty or covenant or obligation under this Agreement by Marina.

 

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8.3 Indemnification Procedures. Each Party (Marina on behalf of Marina Indemnitees, or ProNAi on behalf of ProNAi Indemnitees) will promptly notify the other Party when it becomes aware of a Claim for which indemnification may be sought hereunder. To be eligible to be indemnified for a Claim, a person seeking indemnification (the “ Indemnified Party ”) shall (i) provide the Party required to indemnify such person (the “ Indemnifying Party ”) with prompt written notice of the Claim giving rise to the indemnification obligation under this Article 8, provided that, the failure to provide such prompt notice shall not relieve the Indemnifying Party of any of its obligations under this Article 8 except to the extent the Indemnifying Party is actually prejudiced thereby; (ii) provide the Indemnifying Party with the exclusive ability to defend (with the reasonable cooperation of the Indemnified Party) against the Claim; and (iii) not settle, admit or materially prejudice the Claim, without the Indemnifying Party’s prior written consent. The Indemnified Party shall reasonably cooperate with the Indemnifying Party, at the Indemnifying Party’s expense, in the defense of any Claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to participate in and have its own counsel participate in any action or proceeding for which the Indemnified Party seeks to be indemnified by the Indemnifying Party. Such participation shall be at the Indemnified Party’s expense, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both Parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Party’s obligations under Section 8.1 or 8.2, as the case may be, shall not apply to the extent of the Indemnified Party’s failure to take reasonable action to mitigate any Losses. The Indemnifying Party shall not settle or compromise, or consent to the entry of any judgment with respect to, any Claim, without the prior written consent of the Indemnified Party, which will not be unreasonably withheld or delayed.

8.4 Insurance. ProNAi shall, at its own expense, procure and maintain during the Term and for a period of [***] years thereafter, insurance policy/policies, including product liability insurance, adequate to cover its obligations hereunder and which are consistent with normal business practices of prudent companies similarly situated.

ARTICLE 9

C ONFIDENTIALITY

9.1 Treatment of Confidential Information. The Parties agree that during the Term, and for a period of [***] years after this Agreement expires or terminates, a Party receiving Confidential Information of the other Party shall (i) maintain in confidence such Confidential Information; (ii) not disclose such Confidential Information to any Third Party without prior written consent of the disclosing Party, except as otherwise permitted in this Article 9; and (iii) not use such Confidential Information for any purpose other than the performance of or exercise of its rights under this Agreement.

 

*Confidential Treatment Requested.

 

17


CONFIDENTIAL

 

9.2 Authorized Disclosure.

(a) If, based upon the advice of legal counsel skilled in the subject matter, a Party is required to disclose specific Confidential Information of the other Party to comply with an Applicable Law, regulation, legal process, or order of a government authority or court of competent jurisdiction, the Party may disclose such Confidential Information only to the entity or person required to receive such disclosure; provided, however, that the Party required to disclose such Confidential Information shall (a) to the extent permitted by such law, regulation, process, order or rules, first have given prompt (but in no event less than five (5) business days) advance notice to such other Party to enable it to seek any available exemptions from or limitations on such disclosure requirement and shall reasonably cooperate in such efforts by the other Party, (b) furnish only the portion of the Confidential Information which is legally required to be disclosed; (c) use all reasonable efforts to secure confidential protection of such Confidential Information, and (d) continue to perform its obligations of confidentiality and non-use set out in this Article 9.

(b) ProNAi (and its Affiliates and Sublicensees) may disclose Confidential Information of Marina to Regulatory Authorities to the extent such disclosure is reasonably necessary in regulatory filings required for the development and/or commercialization of Licensed Products. In addition, each Party may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary in the following instances: filing or prosecuting patents as permitted by this Agreement; and disclosure to Affiliates and Sublicensees and potential Sublicensees or other similar commercial partners, who need to know such information for the development, manufacture and commercialization of Licensed Products, to bankers, lawyers, accountants, agents or other Third Parties in connection with due diligence or similar investigations, and to potential Third Party investors in confidential financing documents or potential acquirers or merger partners in confidence pursuant to due diligence; provided that any such Sublicensee, licensee, contractor, employee, consultant, banker, lawyer, accountant, agent or Third Party is bound by obligations of confidentiality and non-use at least as restrictive as those set forth herein. In the case of each disclosure, the Party making such disclosure shall use reasonable efforts to obtain confidential treatment of any such disclosure, and shall not disclose Confidential Information of the other Party other than is reasonably necessary.

9.3 Publicity; Terms of Agreement. The Parties shall treat the existence and material terms of this Agreement as confidential and shall not disclose such information to Third Parties without the prior written consent of the other Party or except as provided in Section 9.2 (treating such information as Confidential Information for purposes of Section 9.2) or as provided below. The Parties agree that upon execution of this Agreement or shortly thereafter, the Parties shall issue a joint press release, such press release attached hereto as Appendix B . Except for such press release or as otherwise required by Applicable Law or applicable stock exchange requirements, neither Marina nor ProNAi shall issue or cause the publication of any other press release or public announcement with respect to the transactions contemplated by this Agreement without the express prior approval of the other Party, which approval shall not be unreasonably withheld or delayed; provided that, each of Marina and ProNAi may make any public statement in response to questions by the press, analysts, investors or those attending industry conferences or financial analyst calls, or issue press releases, so long as any such public statement or press release is not inconsistent with prior public disclosures or public statements approved by the other Party pursuant to this Section 9.3 and which do not reveal non-public

 

18


CONFIDENTIAL

 

information about the other Party. With respect to complying with the disclosure requirements of the Securities and Exchange Commission or other regulatory agencies, in connection with any required filing of this Agreement with such agency, the Parties shall consult with one another concerning which terms of this Agreement shall be requested to be redacted in any public disclosure of the Agreement by the agency, and each Party shall seek confidential treatment by the agency in public disclosure of the Agreement by the agency for all sensitive commercial, financial and technical information, including the definitions of Licensed Products and Field of Use, and any dollar amounts set forth herein.

9.4 Injunctive Relief. Given the nature of the Confidential Information and the competitive damage that would result to a Party upon unauthorized disclosure, use or transfer of its Confidential Information to any Third Party, the Parties agree that monetary damages may not be a sufficient remedy for any breach of this Article 9. In addition to all other remedies, a Party shall be entitled to seek specific performance and injunctive and other equitable relief as a remedy for any breach or threatened breach of this Article 9.

ARTICLE 10

T ERM A ND T ERMINATION

10.1 Term. The term of this Agreement, as to a particular Licensed Product in a particular country, shall expire (on a country-by-country basis) upon the earlier of: (i) the expiration of the Royalty Term for such Licensed Product in such country, or (ii) the end of calendar quarter in which sales in such country of Generic Products exceed 25% (on a “per unit” basis) of the sales of the Licensed Product in such country. Upon expiration of the Royalty Term with respect to a Licensed Product in a particular country, then the licenses granted in Section 2.1 for such Licensed Product in such country shall become [***], and shall survive any expiration or termination of this Agreement. This Agreement shall expire in its entirety upon the expiration of the last Royalty Term for any Licensed Product with respect to which ProNAi has a license under this Agreement, unless earlier terminated pursuant to this Article 10.

10.2 Termination.

(a) Termination for Convenience. ProNAi shall have the right to terminate this Agreement for convenience in its entirety, or on a country-by-country basis, by giving ninety (90) days prior written notice to Marina, provided that no such termination shall be effective sooner than the date that is nine (9) months after the Effective Date.

(b) Termination for Bankruptcy/Insolvency. A Party may immediately terminate this Agreement in its entirety, or on a country-by-country basis, on written notice in the event (each, a “ Financial Event ”) any of the following occurs with respect to the other Party (the “ Bankrupt Party ”): (a) such Bankrupt Party files a petition in bankruptcy or makes a general assignment for the benefit of creditors or otherwise acknowledges in writing insolvency, or is adjudged bankrupt, and such Bankrupt Party (i) fails to assume this Agreement in any such bankruptcy proceeding within thirty (30) days after filing or (ii) assumes and assigns this Agreement to a Third Party; (b) such Bankrupt Party goes into or is placed in a process of complete liquidation; (c) a trustee or receiver is appointed for any substantial portion of such

 

*Confidential Treatment Requested.

 

19


CONFIDENTIAL

 

Bankrupt Party’s business and such trustee or receiver is not discharged within sixty (60) days after appointment; (d) any case or proceeding shall have been commenced or other action taken against such Bankrupt Party in bankruptcy or seeking liquidation, reorganization, dissolution, a winding-up arrangement, composition or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or similar act or law of any jurisdiction now or hereafter in effect and is not dismissed or converted into a voluntary proceeding governed by clause (a) above within sixty (60) days after filing; or (e) there shall have been issued a warrant of attachment, execution, distraint or similar process against any substantial part of the property of such Bankrupt Party and such event shall have continued for a period of sixty (60) days and none of the following has occurred: (i) it is dismissed, (ii) it is bonded in a manner reasonably satisfactory to the other Party, or (iii) it is discharged.

(c) Termination for ProNAi Default. Upon any Default by ProNAi under this Agreement, Marina may notify ProNAi of such Default and require that ProNAi cure such Default, which cure period shall be not shorter than sixty (60) days of Marina’s notice for any Default of a payment obligation under this Agreement, or one hundred and twenty (120) days of Marina’s notice for any other Default. In the event ProNAi shall not have cured the Default by the end of the applicable cure period, Marina may terminate this Agreement immediately upon written notice to ProNAi. Notwithstanding the foregoing cure period, non-payment of the Initial Upfront License Fee in accordance with Section 5.1 shall automatically and immediately terminate this Agreement.

(d) Termination for Marina Default. Upon any Default by Marina under this Agreement, ProNAi may notify Marina in writing of such Default and require that Marina cure such Default within one hundred and twenty (120) days of ProNAi’s notice. In the event Marina shall not have cured the Default by the end of the cure period, ProNAi may terminate this Agreement in its entirety, or on a country-by-country basis, immediately upon written notice to Marina.

10.3 Effects of Termination. Upon termination of this Agreement pursuant to Section 10.2: (a) all licenses granted hereunder to ProNAi shall revert to Marina; (b) all sublicenses granted by ProNAi under the rights or licenses granted to ProNAi under this Agreement shall survive such termination, provided that the applicable Sublicensees are not in material breach of such sublicense agreements, and shall become direct licenses with Marina except that Marina shall not have any obligations under any such sublicense agreements that are greater than the obligations of Marina under this Agreement; (c) ProNAi (and its Affiliates) shall immediately cease all development and Commercialization of any Licensed Products that contain Licensed Know-How that is Confidential Information of Marina and/or are claimed by a Valid Claim, and shall return to Marina all physical manifestations of the Licensed Technology and Marina Confidential Information; and (d) ProNAi shall immediately cease and desist from all use or display of Marina’s Trademark and will destroy all goods, materials and papers upon which Marina’s Trademark appears and delete all uses of the Trademark on any other media, unless otherwise authorized in writing by Marina. For the avoidance of doubt, any technology, materials, intellectual property and information in ProNAi’s possession for use and application under the Original License Agreement for the product known as [***] shall not be affected by termination of this Agreement.

 

*Confidential Treatment Requested.

 

20


CONFIDENTIAL

 

10.4 Survival. The following provisions shall survive any expiration or termination of this Agreement: Articles [***], and Sections [***] and the applicable Sections of Article 1 (as needed to apply to the foregoing surviving Sections and Articles). Termination of this Agreement shall not relieve the Parties of any liability which accrued hereunder prior to the effective date of such termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any Default of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.

ARTICLE 11

D ISPUTE R ESOLUTION

11.1 Disputes. In the event that any issue, controversy or claim between the Parties arises out of, relating to or in connection with, any provision of this Agreement, or the rights or obligations of the Parties hereunder (a “ Dispute ”), the Parties shall try to settle such Dispute and their differences amicably between themselves. Either Party may initiate such informal dispute resolution by sending written notice of the Dispute to the other Party, and within [***] days after such notice appropriate representatives of the Parties shall meet for attempted resolution by good faith negotiations. If such representatives are unable to resolve promptly such Dispute, it shall be referred to the Parties executive officers for discussion and resolution. If such personnel are unable to resolve such Dispute within [***] days of initiating such negotiations, unless otherwise agreed by the Parties, such dispute shall be finally settled under Section 11.2.

11.2 Arbitration. For any Dispute involving amounts owed under the Agreement, or whether a Party has breached its obligations under the Agreement (and/or has cured such breach), such Dispute (if not resolved by the Parties under Section 11.1) shall be resolved by final and binding arbitration in accordance with this Section 11.2, under the Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration Association (“ AAA ”) by a single arbitrator. Either Party may, following the end of the good faith negotiation period referenced in Section 11.1, refer any such Dispute to arbitration by submitting written notice to the other Party. Within [***] Business Days of delivery of such notice, the Parties shall meet and discuss in good faith and agree on (a) an arbitrator to resolve the issue, which arbitrator shall be neutral and independent of both Parties and all of their respective Affiliates, shall have significant experience and expertise in licensing and partnering agreements in the pharmaceutical industry and other relevant experience and (b) any changes in these arbitration provisions or the rules of arbitration which are herein adopted, in an effort to expedite the process and otherwise ensure that the process is appropriate given the nature of the dispute and the values at risk. If the Parties cannot agree on such arbitrator within [***] days of request by a Party for arbitration, then such arbitrator shall be appointed by AAA, which arbitrator must meet the foregoing criteria. The arbitration shall be held in New York, New York, and the proceedings shall be conducted in the English language. The arbitrators may proceed to an award, notwithstanding the failure of either Party to participate in the proceedings. The arbitrator shall be instructed that time is of the essence in the arbitration proceeding. The arbitrator shall, within [***] calendar days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded (if applicable). The arbitrator shall be authorized to award compensatory damages, but shall not be authorized to (i)

 

*Confidential Treatment Requested.

 

21


CONFIDENTIAL

 

award non-economic or punitive damages to the extent expressly excluded under this Agreement, or (ii) reform, modify or materially change this Agreement or any other agreements contemplated hereunder; provided, however, that the damage limitations described in part (i) of this sentence will not apply if such damages are statutorily imposed. Judgment on the award rendered by the arbitrator may be enforced in any court having competent jurisdiction thereof, or application may be made to the court for a judicial recognition of the award or an order of enforcement as the case may be, subject only to revocation on grounds of fraud or clear bias on the part of the arbitrator. Notwithstanding anything contained in this Section 11.2 to the contrary, either Party shall have the right to seek equitable relief or interim or provisional relief from a court of competent jurisdiction, including a temporary restraining order, preliminary injunction or other interim equitable relief, concerning a dispute either prior to or during any arbitration if necessary to protect the interests of such Party or to preserve the status quo pending the arbitration proceeding. The Parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of its (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the Parties, their counsel and any person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise.

ARTICLE 12

M ISCELLANEOUS

12.1 Entire Agreement; Amendment. This Agreement, including the appendices, constitutes the entire agreement between the Parties (or their Affiliates) related to the subject matter hereof. All prior and contemporaneous negotiations, representations, warranties, agreements, statements, promises and understandings related to the subject matter hereof are superseded by and merged into and extinguished and completely expressed by this Agreement, including the appendices. No Party shall be bound by or charged with any written or oral agreements, representations, warranties, statements, promises or understandings not specifically set forth in this Agreement. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party. For the avoidance of doubt, the Original License Agreement shall continue in full force and effect in accordance with the terms contained therein.

12.2 Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes (i) when delivered, if sent by recognized overnight courier or personally delivered, or (ii) upon confirmation of receipt, if sent by facsimile transmission (provided a duplicate hard copy is promptly delivered by one of the other foregoing means), in each case using the mailing addresses of the Parties as set forth below (or such other mailing address of which a Party is notified pursuant to this Section 11.2):

 

22


CONFIDENTIAL

 

 

  For ProNAi: ProNAi Therapeutics, Inc.
     2725 South Industrial Drive
     Suite 200
     Ann Arbor, Michigan 48104
     Attn: Chief Executive Officer
     Facsimile: 269-585-6120

 

  With a copy to: Honigman Miller Schwartz and Cohn LLP
     350 East Michigan Avenue, Suite 500
     Kalamazoo, Michigan 49007
     Attn: Joscelyn C. Boucher
     Facsimile: 269-337-7825

 

  For Marina: Marina Biotech, Inc.
     3830 Monte Villa Parkway
     Bothell, Washington 98021
     Attn: President & CEO
     Facsimile: (425) 908-3650

 

  With a copy to: Pryor Cashman LLP
     7 Times Square
     New York, NY 10036
     Attn: Lawrence Remmel
     Facsimile: (212) 798-6365

12.3 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without regard to any applicable principles of conflicts of law.

12.4 Limitation of Liability. EXCEPT FOR LIABILITY FOR BREACH OF OBLIGATIONS UNDER ARTICLE 9 OR FOR FRAUD OR COMPARABLE INTENTIONAL MISCONDUCT, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECION WITH THIS AGREEMENT OR ANY LICENSE GRANTED HEREUNDER. However, the foregoing limitations in this Section 12.4 shall not apply with respect to either Party’s indemnification obligations under Sections 8.1 or 8.2 for Third Party Claims.

12.5 Interpretation. Marina and ProNAi have each participated in negotiations and due diligence and consulted their respective counsel regarding this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

12.6 Assignment. This Agreement may not be assigned by either party without the express written consent of the other party, except that either Party may assign the Agreement to its Affiliate or to its successor in interest in connection with a merger, consolidation or sale of all or substantially all of its assets, or the sale or license of the portion of such Party’s business relating to this Agreement.

 

23


CONFIDENTIAL

 

12.7 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the Parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable provision in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision; provided, however, that 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.

12.8 Headings. The heading for each article and section in this Agreement has been inserted for convenience of reference only and is not intended to limit or expand on the meaning of the language contained in the particular article or section.

12.9 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of the Agreement.

12.10 Independent Contractors. The relationship between ProNAi and Marina created by this Agreement is solely that of independent contractors. This Agreement does not create any agency, distributorship, employee-employer, partnership, joint venture or similar business relationship between the Parties. Neither Party is a legal representative of the other Party, and neither Party can assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other Party for any purpose whatsoever. Each Party shall use its own discretion and shall have complete and authoritative control over its employees and the details of performing its obligations under this Agreement.

12.11 No Waiver. A Party’s consent to or waiver, express or implied, of the other Party’s breach of its obligations hereunder shall not be deemed to be or construed as a consent to or waiver of any other breach of the same or any other obligations of the other Party. A Party’s failure to complain of any act, or failure to act, by the other Party, to declare the other Party in default, to insist upon the strict performance of any obligation or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof, no matter how long such failure continues, shall not constitute a waiver by such Party of its rights hereunder, of any such breach, or of any other obligation or condition. A Party’s consent in any one instance shall not limit or waive the necessity to obtain such Party’s consent in any future instance and in any event no consent or waiver shall be effective for any purpose hereunder unless such consent or waiver is in writing and signed by the Party granting such consent or waiver.

12.12 Fees and Expenses. Regardless of whether or not the transactions contemplated by this Agreement are consummated, each Party shall bear its own fees and expenses incurred in connection with the negotiation and execution of this Agreement.

 

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12.13 No Other Rights. The Parties acknowledge and agree that, except as expressly set forth in this Agreement, neither Party grants any rights or licenses to the other Party under this Agreement nor shall either Party have any rights or obligations under this Agreement.

12.14 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each Party hereto and its respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement (with the exception of ProNAi Indemnitees and Marina Indemnitees under Sections 8.1 and 8.2, respectively).

12.15 Rules of Construction. The use in this Agreement of the term “ including ” (or any cognates thereof, such as “ include ” or “ includes ”) means “ including (or the applicable cognate thereof), without limitation.” The words “ herein ,” “ hereof ,” “ hereunder ,” and other words of similar import refer to this Agreement as a whole, including the exhibits, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections and exhibits mean those sections of this Agreement and the Appendixes attached to this Agreement, except where otherwise stated.

12.16 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any signature page delivered by facsimile or electronic image transmission shall be binding to the same extent as an original signature page.

 

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I N W ITNESS W HEREOF , the Parties have executed this Agreement by their duly authorized representatives as of the Effective Date.

 

M ARINA B IOTECH , I NC . P RO NA I T HERAPEUTICS , I NC .
By:

/s/ J. Michael French

By:

/s/ Charles L. Bisgaier

Print Name: J. Michael French Print Name: Charles L. Bisgaier
Title: President & CEO Title: President & CEO

 

26


A PPENDIX A

L IST OF L ICENSED P ATENTS

[***] formulation:

 

Patent Identifier

   Jurisdiction     Title  

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

[***]

     [ ***]      [ ***] 

 

*Confidential Treatment Requested.

 

A-1


CONFIDENTIAL

 

This Appendix A will be updated as necessary to include applicable Licensed Patents to reflect other formulations of SMARTICLES ® liposomal delivery technology designated by ProNAi in writing in accordance with the Agreement.

 

A-2


A PPENDIX B

J OINT P RESS R ELEASE

 

LOGO LOGO

Marina Biotech and ProNAi Therapeutics Announce License

Agreement for the Development of DNAi-based Therapeutics

- ProNAi Therapeutics will develop oncology-focused compounds utilizing its proprietary DNAi

technology combined with Marina Biotech’s novel SMARTICLES ® liposomal delivery

technology -

Bothell, WA and Ann Arbor, MI March 14, 2012 – Marina Biotech, Inc. (OTCQX: MRNA), a leading nucleic acid-based drug discovery and development company, and ProNAi Therapeutics, Inc. (ProNAi), a privately-held biotechnology company pioneering DNA interference (DNAi) therapies for cancer, announced today that the Companies have entered into an Exclusive License Agreement regarding the development and commercialization of DNAi-based therapeutics utilizing Marina Biotech’s novel SMARTICLES ® liposomal delivery technology. ProNAi will have full responsibility for the development and commercialization of any products arising under the Agreement. Under terms of the Agreement, Marina Biotech could receive up to $14 million for each gene target in total upfront, clinical and commercialization milestone payments, as well as royalties on sales, with ProNAi having the option to select any number of additional gene targets. For example, if ProNAi licenses five products over time under this Agreement, Marina Biotech could receive up to $70 million in total milestones, plus royalties. Further terms of the Agreement were not disclosed.

“We are pleased that twenty-two patients have been dosed with PNT2258 in our Phase I clinical trial in advanced solid tumor patients to evaluate safety and tolerability, maximum tolerated dose, pharmacokinetics and pharmacodynamics. PNT2258 is our first DNAi oligonucleotide targeted against the anti-apoptotic bcl-2 oncogene and encapsulated in Marina’s SMARTICLES ® technology. This novel delivery technology offers protection for the DNAi oligonucleotide during systemic administration with good circulation times and extrahepatic tumor exposure. DNAi are short single-strand unmodified oligonucleotides designed to silence genes by interfering with DNA. The DNAi silencing approach is differentiated from that of RNAi, antisense or miRNA in that it targets genomic sequences within noncoding region of DNA disrupting transcription. The progress and delivery validation in the clinic this past year on the novel DNAi-SMARTICLES ® formulation gives us confidence to bring forward more first in class drug candidates alone or with partners. ProNAi is now positioned to advance additional cancer therapies from its pre-clinical leads targeting other oncogenes such as c-myc and k-ras while also exploring other disease targets in areas such as inflammation and genetics diseases,” said Charles L. Bisgaier, Ph.D., President and CEO of ProNAi Therapeutics.

 

B-1


CONFIDENTIAL

 

“We are extremely pleased to have entered into a relationship with a company like ProNAi who is developing a first-in-class nucleic acid therapeutic,” stated J. Michael French, President and CEO of Marina Biotech. “In addition, we are excited to see the continued advancement of oligonucleotide-based therapeutics using our SMARTICLES ® technology. Besides advancements within our own internal research programs, we have now been able to establish two license agreements broadening the application of the SMARTICLES ® technology to the systemic administration of both single and double-stranded oligonucleotide therapeutics. We look forward to the rapid advancement of ProNAi Therapeutics’ clinical pipeline and the opportunity to bring novel therapeutics to patients in need.”

ProNAi is conducting an open-label, single arm, Phase I dose-escalation study of PNT2258 in patients with advanced solid tumors for which no standard therapy exists at START in San Antonio Texas. PNT2258 is ProNAi’s first drug candidate from the DNAi drug platform. Patients receive PNT2258 as an intravenous infusion once daily for 5 consecutive days (Days 1-5) of every 21-day cycle (3 weeks). ProNAi plans to report the results of this Phase I study at oncology conferences later this year and initiate the next Phase I/II safety and efficacy studies in select cancer patients based upon the safety and dose findings from this Phase I study.

About Marina Biotech, Inc.

Marina Biotech is a biotechnology company focused on the development and commercialization of oligonucleotide-based therapeutics utilizing multiple mechanisms of action including RNA interference (RNAi) and messenger RNA translational blocking. The Marina Biotech pipeline currently includes a clinical program in Familial Adenomatous Polyposis (a precancerous syndrome) and two preclinical programs — in bladder cancer and malignant ascites. Marina Biotech entered into an exclusive agreement with The Debiopharm Group for the development and commercialization of the bladder cancer program. In addition, Marina Biotech has entered into an agreement with Mirna Therapeutics to license Marina Biotech’s SMARTICLES ® technology for the delivery of microRNA mimics. Marina Biotech’s goal is to improve human health through the development of RNAi- and oligonucleotide-based compounds and drug delivery technologies that together provide superior therapeutic options for patients. Additional information about Marina Biotech is available at http://www.marinabio.com .

About ProNAi Therapeutics, Inc.

ProNAi Therapeutics, Inc. is a venture backed, clinical stage, biotech company pioneering a new class of targeted drugs based on utilizing single strands of unmodified DNA oligonucleotides to target genomes responsible for complex, proliferative diseases initially in cancer. The Company’s lead drug candidate, PNT2258, has demonstrated safety and in vivo efficacy in a variety of preclinical tumor xenograft models. The company has successfully raised over $20 million from Apjohn Ventures, Grand Angels, the State of Michigan, Biosciences Research and Commercialization Center (BRCC), Amherst Fund and private investors. Additional information about ProNAi Therapeutics is available at http://www.pronai.com .

 

B-2


CONFIDENTIAL

 

Forward-Looking Statements

Statements made in this news release may be forward-looking statements within the meaning of Federal Securities laws that are subject to certain risks and uncertainties and involve factors that may cause actual results to differ materially from those projected or suggested. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to: (i) the ability of Marina Biotech to obtain additional funding; (ii) the ability of Marina Biotech to attract and/or maintain manufacturing, research, development and commercialization partners; (iii) the ability of Marina Biotech and/or a partner to successfully complete product research and development, including preclinical and clinical studies and commercialization; (iv) the ability of Marina Biotech and/or a partner to obtain required governmental approvals; and (v) the ability of Marina Biotech and/or a partner to develop and commercialize products prior to, and that can compete favorably with those of, competitors. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in Marina Biotech’s most recent periodic reports on Form 10-K and Form 10-Q that are filed with the Securities and Exchange Commission. Marina Biotech assumes no obligation to update and supplement forward-looking statements because of subsequent events.

Forward-Looking Statements made in this news release may be forward-looking statements within the meaning of Federal Securities laws that are subject to certain risks and uncertainties and involve factors that may cause actual results to differ materially from those projected or suggested. Factors that could cause actual results to differ materially from those in forward- looking statements include, but are not limited to: (i) the ability of ProNAi to obtain additional funding; (ii) the ability of ProNAi Therapeutics to attract and/or maintain manufacturing, research, development and commercialization partners; (iii) the ability of ProNAi and/or a partner to successfully complete product research and development, including preclinical and clinical studies and commercialization; (iv) the ability of the ProNAi Therapeutics and/or a partner to obtain required governmental approvals; and (v) the ability of ProNAi Therapeutics and/or a partner to develop and commercialize products that can compete favorably with those of competitors.

Marina Biotech, Inc.

Philip Ranker

Interim Chief Financial Officer

(425) 908-3615

pranker@marinabio.com

ProNAi Therapeutics, Inc.

Wendi Rodrigueza, Ph.D.

Vice President, Product Development

(269) 815-8098

wrodrigueza@pronai.com

 

B-3

EXHIBIT 10.12

 

*   Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

SECOND LICENSE AMENDMENT AND CONSENT TO TERMINATION

This Amendment and Agreement (“ Amendment ”), dated April 14, 2014 (the “ Effective Date ”), is made by and among Marina Biotech, Inc., a Delaware corporation with a place of business at 7 Times Square, 40 th Floor, New York, NY 10028, Attention: Stephen M. Goodman (“ Marina ”), ProNAi Therapeutics, Inc., a Delaware corporation, with a corporate address of 46701 Commerce Center Drive, Plymouth, MI 48107 (“ ProNAi ”).

BACKGROUND

Novosom AG (“AG”), a German corporation, developed and filed patents covering a certain drug delivery technology known as the SMARTICLES ® technology. On May 9, 2005, AG and ProNAi entered into a certain Formulation Feasibility Agreement (the “ Formulation Agreement ”), pursuant to which AG (defined as the “ Delivery Partner ” in the Formulation Agreement) and ProNAi agreed to develop a formulation of (1) the oligonucleortide-based compounds known as PNT100 and any derivatives thereof, together with (2) a SMARTICLES ® liposomal delivery formulation (together with any derivatives thereof). The Formulation Agreement defined the intellectual property arising thereunder and specified ownership of such intellectual property.

On March 5, 2007, AG and ProNAi entered into an Exclusive License Agreement, amended by the parties on May 16, 2007 (as amended, the “ AG License ”). As more specifically set forth in the AG License, AG granted ProNAi an exclusive license to exploit certain Licensed Technology (as defined in the AG License) to make, use and sell “Licensed Products” (referred to in this Agreement as the “AG License Products” and defined in Section 5 below).

The Licensed Technology (as defined in the AG License) consisted of certain patents listed on Schedule 1 to the AG License (the “ AG License Patents ”), AG’s interest in any Joint Patent Rights (as defined in the AG License), and certain other technology owned or controlled by AG specific to the Licensed Vehicle. The “Joint Patent Rights” (as defined in the AG License) include the patents and patent applications relating to inventions jointly created by employees or agents of both AG and ProNAi “under the Formulation Agreement prior to the Effective Date [of the AG License].”

Under Section 2.6 of the AG License, for consideration, ProNAi granted back to AG an exclusive, worldwide, fully-paid, royalty-free license (the “ Grant-Back License ”) to use and practice all Joint Intellectual Property (as defined in the AG License) and other ProNAi Intellectual Property that relates to ProNAi’s specific formulations of the SMARTICLES ® technology in order to develop, make, use and sell products outside the field of DNAi human therapeutics. The only Joint Intellectual Property contemplated at the time the AG License was executed consisted of the inventions disclosed in provisional patent applications [***], filed [***], and [***], filed [***]. These two provisionals were the priority basis for [***], filed on [***], publication number [***] (the “ [***] Filing ”)

 

*Confidential Treatment Requested.


Marina, AG and Steffen Panzner, Ph.D. (“ Panzner ”) entered into an Asset Purchase Agreement, dated as of July 27, 2010 (the “ Purchase Agreement ”), pursuant to which Marina acquired certain Acquired Assets (as defined in the Purchase Agreement), including all patents of AG relating to the SMARTICLES ® technology (including its joint ownership rights in the ’[***] Filing) as well as certain Acquired Contracts, among which was the AG License. As stated in Section 2.01(d) of the Purchase Agreement, AG assigned to Marina “the [AG License] and all of the Seller’s rights under the [AG License]”. As a result of the closing under the Purchase Agreement, AG ceased to be a party to the AG License and Marina acquired all rights to the SMARTICLES ® technology, subject to ProNAi’s exclusive rights in the field of DNAi human therapeutics under the AG License, but including AG’s rights under the Grant-Back License to develop and commercialize products under the ’[***] Filing for human therapeutic use outside the field of DNAi human therapeutics.

As consideration for the assignment of the AG License and ProNAi’s consent to the assignment, Marina agreed that AG retained the right to receive any and all payments that become due from ProNAi under the terms of the AG License with respect to Licensed Products (as defined in the AG License) and the right to approve any reduction of those payments (the “ Payment Rights ”). ProNAi countersigned a letter dated August 19, 2010, from Marina confirming that the assignment of the AG License complied with the terms thereof and acknowledging that, as of July 27, 2010, all other rights and obligations (except for the Payment Rights) under the AG License are by and between ProNAi and Marina.

On March 13, 2012, Marina and ProNAi entered into a separate Exclusive License Agreement (the “ Marina License ”), pursuant to which Marina granted to ProNAi an exclusive, royalty-bearing license to research, make, use and sell pharmaceutical compositions that contain (i) any DNAi oligonucleotide that is owned or controlled by ProNAi for use in the field of DNAi therapeutics in humans and (ii) Marina Technology which targets a gene target. Marina Technology is defined as “a single formulation of Marina’s proprietary SMARTICLES ® liposomal delivery technology for each Licensed Product, as designated by ProNAi in writing…”

AG was transformed into Novosom Verwaltungs GmbH (“ Verwaltungs ”) on March 25, 2011.

The parties wish to modify the terms of ProNAi’s payment obligations under the AG License in connection with Novosom’s Payment Rights, to transfer those obligations from the AG License to the Marina License, and to terminate the AG License, all with Verwaltungs’ approval.

In furtherance of the foregoing, ProNAi and Verwaltungs have executed a License Payment Agreement in the form annexed hereto as Schedule 1 (the “ License Payment Agreement ”) which has been acknowledged by Marina and which contains Verwaltungs’ agreement to the modification of ProNAi’s payment obligations under the AG License in connection with Novosom’s Payment Rights, the transfer those obligations from the AG License to the Marina License and the termination of the AG License.

 

*Confidential Treatment Requested.


The parties believe it is in their respective best interests to amend the Marina License and to terminate the AG License as set forth in this Amendment, which shall serve as the Second Amendment to the Marina License and a Consent to Termination of the AG License.

NOW, THEREFORE, based upon the premises set forth above and the mutual covenants set forth herein and for other good and valuable consideration, the parties hereto hereby agree as follows:

 

1. ProNAi acknowledges and agrees that the document denominated Second Amendment to Exclusive License Agreement, dated as of May 1, 2013 between Verwaltungs and ProNAi and the document denominated Third Amendment to Exclusive License Agreement, dated as of March 21, 2014 between Verwaltungs and ProNAi are void ab initio, of no force or effect and unenforceable.

 

2. Based on the memorandum of April 4, 2014 from Dr. Jan Seelinger, Marina acknowledges the transformation of AG into Verwaltungs.

 

3. The parties acknowledge and agree that the inventions disclosed in the ’[***] Filing were jointly created, made or reduced to practice by employees or agents of both AG and ProNAi under the Formulation Agreement prior to the Effective Date of the AG License and constitute “Joint Intellectual Property” under the AG License.

 

4. There shall be added a new Section 1.2A to the Marina License which shall read as follows:

1.2A AG License ” means a certain Exclusive License Agreement, dated March 5, 2007, by and between Novosom AG and ProNAi, as amended by the parties on May 16, 2007.

 

5. There shall be added a new Section 1.2A to the Marina License which shall read as follows:

1.2B AG License Product ” shall mean, for purposes of Article 5 of this Agreement, a Licensed Product that targets the non-translated regions of the bcl-2 gene locus or that targets a replacement target substituted for the bcl-2 gene locus upon ProNAi’s exercise of the Substitution Right. “ Substitution Right ” shall mean ProNAi’s right to make one (1) substitution of the Primary Target for the AG License Product with another Available Target (including any Secondary Target, to the extent it is an Available Target) (as all such terms are defined in the License Agreement), upon approval by Marina, which approval shall not be unreasonably withheld. For clarity, ProNAi may only commercialize one AG License Product targeting a single target.

 

6. The definition of “Licensed Product” under Section 1.27 of the Marina License is hereby amended to read in its entirety as follows:

1.27 Licensed Product ” means a pharmaceutical composition (including any improvements, enhancements or modifications to such composition) developed or sold by ProNAi (or its Affiliate or Sublicensee) that contains a ProNAi Compound and Marina Technology which targets a gene target, provided , however , that, solely for purposes of interpreting ProNAi’s Substitution Right and its payment obligations with respect to the

 

*Confidential Treatment Requested.


AG License Product under Sections 5.4(b) and 5.11 of the Marina License as revised by this Agreement, capitalized terms used in Sections 5.4(b) and 5.11 shall have the definitions set forth in the AG License, which definitions are incorporated herein solely for such purpose. Such definitions shall survive the termination of the License Agreement.

 

7. There shall be added a new Section 1.37A to the Marina License which shall read as follows:

1.37A ProNAi Intellectual Property ” means (i) any and all derivatives, modifications or improvements of or to PNT100, including, without limitation, any sequence related to PNT100, (ii) all DNAi oligonucleotides (including, without limitation, the PNT100 oligonucleotide molecule) owned, controlled, developed or licensed by ProNAi, (iii) any and all derivatives, modifications or improvements of or to such oligonucleotides, (iv) any and all intellectual property invented, made or reduced to practice solely by ProNAi, its employees or agents under a certain Formulation Feasibility Agreement, dated May 9, 2005, between Novosom AG and ProNAi, during the term of the AG License or during the Term of this Agreement and (v) any and all inventions, developments, improvements, enhancements or modifications, whether or not patentable, that are conceived or developed or reduced to practice by ProNAi arising out of or in connection with ProNAi’s performance under the AG License or this Agreement.

 

8. Section 2.1 of the Marina License is hereby amended to renumber the existing text as paragraph “(a)” and to add a new paragraph (b) which shall read in its entirety as follows:

(b) For good and valuable consideration previously received, receipt of which is hereby acknowledged, ProNAi hereby confirms that Marina is the successor to the rights of Novosom AG under Section 2.6 of the AG License and grants directly to Marina an exclusive, worldwide, fully-paid, royalty-free license to use and practice the the inventions disclosed in [***], filed on December 1, 2006, publication number [***] (the “ ’[***] Filing ”) and ProNAi Intellectual Property that relates to Marina’s proprietary SMARTICLES ® technology in connection with the research, development, manufacture, promotion, use, import and sale of products for human therapeutic use outside the Field of Use. Marina shall have the right to sublicense such rights to customers of such products in connection with the sale and use of such products, and to collaborators of Marina assisting in developing such products for human therapeutics use outside the Field of Use. Notwithstanding the foregoing, the license granted to Marina pursuant to this Section 2.1(b) does not provide Marina with any right to the ProNAi Compounds or any derivatives, modifications or improvements of or to ProNAi Compounds or the right to practice in the Field of Use. Without the prior written consent of Marina, ProNAi agrees that it will not prosecute any claims currently proposed in the ’[***] Filing and any case derived therefrom that do not relate to DNAi.

 

*Confidential Treatment Requested.


9. The first sentence of paragraph (a) of Section 5.3 (Milestone Payments) of the Marina License is hereby amended to read in its entirety as follows:

(a) Except as otherwise provided in Sections 5.4(b) and 5.11 which shall exclusively govern ProNAi’s payment obligations for the AG License Product, in part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay to Marina a non-refundable, non-creditable milestone payment upon first achievement by ProNAi, its Affiliate or Sublicensee of the applicable milestone event set forth in the table below, such payments to be in the listed amounts for the applicable milestone event: ….

 

10. Section 5.3 (Milestones) of the Marina License is hereby amended to renumber paragraph (b) as paragraph (d), to insert the following new paragraphs (b) and (c), and to amend renumbered paragraph (d) as follows:

(b) In the event that within thirty (30) days of the date of this Agreement, ProNAi fulfills the requirements for a fully paid-up license set forth in paragraph (d) of Section 5.11 and makes the Initial Cash Payment to Verwaltungs as set forth therein, then ProNAi shall pay to Verwaltungs a milestone payment of Three Million United States Dollars ($3,000,000) in cash following Regulatory Authority Approval of the AG License Product.

(c) In the event that ProNAi exercises the Substitution Right, ProNAi shall pay to Marina a non-refundable, non-creditable payment of Three Million Dollars ($3,000,000) (the “Substitution Payment”).

(d) ProNAi shall promptly notify Marina of the achievement of any Milestone Event for each Licensed Product or the intent to exercise the Substitution Right. All Milestone Payments under subsection (a) above and the Substitution Payment under subsection (b) above are non-refundable and non-creditable, and shall be due within sixty (60) days of achievement of the applicable Milestone Event or Marina’s approval of the exercise of the Substitution Right.

 

11. Section 5.4 (Royalties) of the Marina License is hereby amended to read in its entirety as follows:

5.4 Royalties. (a) Except as provided in paragraph (b) of this Section 5.4, in part consideration of the license rights granted by Marina under this Agreement, ProNAi shall pay royalties to Marina on Net Sales by ProNAi or any of its Affiliates or Sublicensees of Licensed Products during the Royalty Term for sales of License Products in country(ies) where such sale would infringe, absent the license granted in Section 2.1, a Valid Claim of an issued Licensed Patent. ProNAi shall pay to Marina royalties equal to [***]% of the Net Sales revenue recognized by ProNAi or any of its Affiliates or Sublicensees from such sales.

(b) Notwithstanding the provisions of paragraph (a) of this Section 5.4, unless ProNAi fulfills the requirements for a fully paid-up license set forth in paragraph (d) of Section 5.11 and makes the Initial Cash Payment to Verwaltungs (as defined in said Section 5.11) as set forth therein, ProNAi shall pay royalties with respect to the AG License Product in accordance with the following:

 

*Confidential Treatment Requested.


(i) ProNAi shall pay to Verwaltungs a royalty of [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the AG License Product (“Royalty Rate”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales for the AG License Product, the Royalty Rate shall increase by [***] for every full percentage point in excess of such [***] level. Royalties shall be payable on a country-by-country and AG License Product-by-AG License Product basis until the expiration in such country of the last to expire Valid Claim and all supplementary protection certificates based on a Valid Claim relating to the AG License Product (each an “ SPC ”). On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Royalty Rate shall be reduced to [***] for the use of Licensed Know-How until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPC’s in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the AG License Product in such jurisdiction.

In the event that any AG License Product is sold in combination with another active ingredient or component having independent therapeutic effect or diagnostic utility, then “Net Sales,” for purposes of determining royalty payments on the combination during the royalty payment period in question shall be calculated as follows:

By multiplying the Net Sales of the combined product by the fraction A/{A+B), where A is the list price of such AG License Product as sold separately, and B is the list price of the other active ingredients or components as sold separately.

In the event that there are no separate sales of such AG License Product or the active ingredients or components in such combination product, Net Sales shall instead be calculated by multiplying them by the formula in the foregoing clause (i), but where A is the commercial value of such AG License Product if sold separately and B is the commercial value of the other active ingredients or components if sold separately, with each such value determined using criteria and a commercial value mutually agreed upon in writing by Verwaltungs and ProNAi.

(ii) The royalty payments due under this Section 5.4(b) shall be paid to Verwaltungs by ProNAi within sixty (60) days after the end of each calendar quarter in which such Net Sales are made and royalties are owed hereunder. Each such payment shall be accompanied by a report (with a copy to Marina) showing the Net Sales of each AG License Product sold by ProNAi, or an Affiliate or sublicensee of ProNAi, in each country, the applicable royalty rate for such AG License Product, and a calculation of the amount of royalty.

(iii) ProNAi shall not be obligated to pay multiple royalties on Net Sales of a AG License Product, even if a AG License Product is covered by more than one Valid Claim.

(iv) If ProNAi, in its reasonable judgment, is required to obtain a license from any third party that is not an Affiliate of ProNAi under any patent in order to practice the Licensed Technology, and if ProNAi is required to pay a royalty under such license calculated on sales of such AG License Product in any country, and the infringement of such patent cannot reasonably be avoided by ProNAi, or if ProNAi is

 

*Confidential Treatment Requested.


required by a court of competent jurisdiction to pay such a royalty, then ProNAi’s obligation to pay royalties to Verwaltungs with respect to such AG License Product shall be reduced by [***] of the amount of the royalty paid to such third party with respect to such AG License Product; provided however , that the royalties payable to Verwaltungs shall not be reduced in any such event below [***] of the applicable amount set forth in Section 5.4(b)(i) above. Prior to ProNAi exercising its reasonable judgment under this subparagraph (iv), ProNAi shall provide Verwaltungs and Marina with written notice of a potential need to obtain any license from third parties.

(v) ProNAi may withhold from payments due to Verwaltungs amounts for payment of any withholding tax that it is required by law to pay to any taxing authority with respect to such payment amounts due to Verwaltungs; provided , however , that in regard to any such tax withholding, ProNAi shall give Verwaltungs such documents and provide any other cooperation or assistance on a reasonable basis as may be necessary to enable Verwaltungs to claim exemption therefrom to receive a full refund of such withholding tax or claim a foreign tax credit and shall, upon Verwaltungs’ request, give proper evidence from time to time as to the payment of such tax.

(vi) Translation of sales recorded in local currencies to ProNAi’s or sublicensee’s global currency will be performed in a manner consistent with ProNAi or sublicensee’s normal practices used to prepare its audited financial statements for internal and external reporting purposes, and which uses a widely accepted source of published exchange rates. Royalties will be calculated and paid in Euros, using the rate of conversion from applicable global currency to Euros published in The Wall Street Journal (U.S.) two business days before the due date; provided , however , that for purposes of converting ProNAi’s cash payment obligations upon achievement of milestones with respect to the AG License Product as contemplated by Section 5.11 below, any such milestone payment in Euros shall be adjusted so that the rate of conversion of U.S. Dollars to Euros is not more than two percent (2%) greater or less than such rate of conversion as published in The Wall Street Journal (U.S.) as of the Effective Date.

(vii) All royalty and milestone payments not paid within the time period set forth in this Section 5.4(b) shall bear interest at a rate of one percent (1%) per month from the due date until paid in full; provided that, in no event shall such annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such royalty or milestone payment when made shall be accompanied by all interest so accrued.

(c) If within thirty (30) days of the date of this Agreement ProNAi fulfills the requirements for a fully paid-up license set forth in paragraph (d) of Section 5.11 and makes the Initial Cash Payment to Verwaltungs as set forth therein, then in lieu of the payment obligations set forth in paragraph (b),

(i) ProNAi shall pay to Verwaltungs a royalty of [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the AG License Product (the “Fully Paid-up Royalty Rate”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales of the AG License Product, the Fully Paid-up Royalty Rate shall increase by [***] for every full percentage point in

 

*Confidential Treatment Requested.


excess of such [***] level. Royalties shall be payable on a country-by-country and AG License Product-by-AG License Product basis until the expiration in such country of the last to expire Valid Claim and all SPCs. On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Royally Rate shall be reduced to [***]% for the use of Licensed Know-how until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPCs in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the AG License Product in such jurisdiction; and

(ii) except as expressly set forth in this paragraph (c), all financial obligations of ProNAi set forth in this Agreement are terminated as of the Fully Paid-Up Effective Time (as defined in Section 5.11(d)).

(d) If ProNAi exercises the Substitution Right, then in addition to royalties payable to Verwaltungs under this Section 5.4, ProNAi shall pay to Marina a royalty of [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the AG License Product.

 

12. Article 5 of the Marina License is hereby amended to add Section 5.11, which shall read in its entirety as follows:

 

  5.11 Special Payment Provisions for the AG License Product.

(a) Marina hereby directs ProNAi to pay to Novosom Verwaltungs GmbH, a German corporation with a corporate address of Weinbergweg 23, 06120, Halle, Germany (“ Verwaltungs ”) all amounts which become payable to Marina under this Section 5.11 with respect to the AG License Product. Such payments shall be made to Verwaltungs by ProNAi as directed by Verwaltungs. Marina shall not (i) terminate ProNAi rights with respect to the AG License Product, nor (ii) amend any provision of this Agreement as it pertains to the AG License Product in any manner that would reduce, or would be likely to reduce, payments due to Verwaltungs under this Section 5.11 without Verwaltung’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

(b) Any payment to be made by ProNAi to Verwaltungs under this Section 5.11 through the issuance of stock of ProNAi may be made, at ProNAi’s option, in either stock, cash or a combination of both, as determined by ProNAi in its sole discretion as long as the total amount to be paid to Verwaltungs remains unaffected.

(c) Marina and ProNAi agree that, unless ProNAi fulfills the requirements for a fully paid-up license set forth in pragraph (d) of this Section 5.11 and makes the Initial Cash Payment to Verwaltungs as set forth therein, ProNAi shall make the payments with respect to the AG License Product set forth in this Section 5.11(c).

(i) Within thirty (30) calendar days following ProNAi’s achievement of each of the milestones set forth in Appendix C attached to this Agreement with respect to each AG License Product, ProNAi shall pay or issue to Verwaltungs the corresponding consideration set forth in said Appendix C . In the event that a milestone is met without all prior milestones being met, all unmet prior milestones shall be deemed met simultaneously with such milestone.

 

*Confidential Treatment Requested.


(ii) Notwithstanding the foregoing, Marina and ProNAi agree that the Milestone “Completion of the first Phase I Clinical Trial” specified in Schedule 2 has been fulfilled and the milestone payment (the “First Milestone Payment”) was made to Verwaltungs through the issuance of 2,108,870 shares of ProNAi’s common stock on May 1, 2013, and is not subject to further adjustment.

(d) In the event that ProNAi closes a financing, in the minimum amount of Thirty-Five Million United States Dollars ($35,000,000) (the “Financing”) within thirty (30) days of the date of this Agreement, (a) within two (2) business days of ProNAi closing on the Financing, ProNAi shall pay Verwaltungs Eleven Million United States Dollars ($11,000,000) in cash (the “Initial Cash Payment”) and (b) within thirty (30) days following Regulatory Authority Approval of the AG License Product, ProNAi shall pay Verwaltungs a milestone payment as set forth above in Section 5.3(b). Upon Verwaltungs’ receipt of the Initial Cash Payment (the “Fully Paid-Up Effective Time”), the license set forth in this Agreement as it pertains to the AG License Product shall become fully paid-up (other than the milestone payment set forth in paragraph (b) of Section 5.3 and the royalty payments set forth in paragraph (c) of this Section 5.11). In the event a Financing does not close within thirty (30) days of the date of this Agreement, this paragraph (d) shall be null and void.

(e) The foregoing provisions of Section 5.11 shall not diminish, replace or otherwise modify ProNAi’s obligations to make milestone payments as specified in this Agreement with respect to any other Licensed Product that is not a AG License Product. For the avoidance of doubt, this means that the payment of milestones under this Section 5.11 shall not relieve ProNAi of its obligation to pay the milestones specified in Section 5.3 upon first achievement thereof for a Licensed Product other than a AG License Product.

 

13. There shall be added to the Marina License a new Appendix C , in the form annexed to this Amendment as Schedule 2 , specifying the milestones and payments for the AG License Product only.

 

14. Pursuant to Section 10.2(c) of the AG License, Marina (as successor to AG) and ProNAi are required to “in good faith negotiate a commercially reasonable split of the cost of the filing, prosecution and maintenance of the Joint Patent Rights.” Pursuant thereto, Marina agrees to credit ProNAi for Two Hundred Fifty Thousand Dollars ($250,000) of the patent costs incurred prior to the date hereof with respect to the AG License Product against the first milestone payment payable to Marina on any non-AG License Product pursuant to Section 5.3. (For clarity, such credit may not be applied against the Substitution Payment, which relates to an AG License Product.) Effective with the execution of this Amendment and the termination of the AG License, ProNAi will bear all patent costs as specified in Section 6.3(b) of the Marina License.


15. In consideration of the execution by ProNAi and Verwaltungs of the License Payment Agreement, and notwithstanding the last sentence of Section 12.1 of the Marina License, ProNAi and Marina hereby terminate the AG License, effective upon execution and delivery of this Amendment by the parties. ProNAi and Marina agree that, from and after the date hereof, all of their respective rights and obligations with respect to SMARTICLES ® technology (including ProNAi’s rights and obligations with respect to the AG License Product and specifically ProNAi’s obligation to make payments to Verwaltungs with respect to the AG License Product) shall be governed solely by the terms of the Marina License, as amended by this Amendment, except that, solely for purposes of interpreting ProNAi’s payment obligations with respect to the AG License Product under Sections 5.4(b) and 5.11 of the Marina License as revised by this Agreement, capitalized terms used in Sections 5.4(b) and 5.11 shall have the definitions set forth in the AG License, which definitions are incorporated herein solely for such purpose. Such definitions shall survive the termination of the License Agreement. Any future amendment or modification of such payment obligations shall require a further amendment of the Marina License in accordance therewith.

 

16. PUBLICITY. Each of the parties hereby agrees to treat the existence and material terms of this Amendment as Confidential Information which may be disclosed only in accordance with the provisions of Article 9 of the Marina License, as if this Amendment were the Marina License for purposes of said Article 9.

 

17. CONSTRUCTION. Unless otherwise defined herein, capitalized terms shall have the meanings set forth in the Marina License. The terms of this Amendment amend and modify the Marina License as if fully set forth therein. If there is any conflict between the terms, conditions and obligations of this Amendment and the Marina License, this Amendment’s terms, conditions and obligations shall control. All other provisions of the Marina License not specifically modified by this Amendment are preserved.

 

18. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, and all of which together shall constitute one and the same instrument.

 

19. FACSIMILE SIGNATURE. This Amendment may be executed by facsimile or .pdf signature.


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

 

MARINA BIOTECH, INC. PRONAI THERAPEUTICS, INC.
By:

/s/ J. Michael French

By:

/s/ Mina Sooch

Name: J. Michael French Name: Mina Sooch
Title: President & CEO Title: CEO + President

 


SCHEDULE 1

EXECUTED LICENSE PAYMENT AGREEMENT


LICENSE PAYMENT AGREEMENT

THIS LICENSE PAYMENT AGREEMENT (this “ Agreement ”) is made effective as of April 14, 2014 (the “ Effective Date ”), by and among Novosom Verwaltungs GmbH, a German corporation with a corporate address of Weinbergweg 22, 06120 Halle, Germany (“ Novosom ”), and ProNAi Therapeutics, Inc., a Delaware corporation, with a corporate address of 46701 Commerce Center Drive, Plymouth, MI 48170 (“ ProNAi ”). ProNAi and Novosom are collectively referred to herein as the “ Parties ” and each of them as a “ Party .”

Background

Novosom and ProNAi are parties to that certain Exclusive License Agreement dated as of March 5, 2007, as amended on May 16, 2007 (the “ License Agreement ”). Novosom was transformed from Novosom AG into Novosom Verwaltungs GmbH on March 25, 2011. The License Agreement was assigned by Novosom to Marina Biotech, Inc. (“ Marina ”) pursuant to an Asset Purchase Agreement dated July 27, 2010 (the “ APA ”). As partial consideration for the transfer of assets (including the License Agreement) pursuant to the APA, Marina agreed that ProNAi would continue to pay Novosom all amounts which would otherwise have been required to be paid to Marina (as the successor Licensor) under the License Agreement.

Novosom and ProNAi desire to obtain Marina’s consent to remove the payment terms from the License Agreement and allow Novosom and ProNAi to contract directly with one another regarding ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement).

Marina will consent to such removal if the agreement between Novosom and ProNAi also terminates the License Agreement and contains a general waiver and release of claims by Novosom and ProNAi against Marina with respect to the License Agreement.

NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Novosom and ProNAi hereby agree as follows:

Terms and Conditions

1. D EFINITIONS .

(a) Capitalized terms used but not defined in this Agreement shall have the meanings attributed to such terms in the License Agreement. Such definitions shall survive the termination of the License Agreement.

(b) For clarity, ProNAi and Marina are also parties to an Exclusive License Agreement, dated March 13, 2012, (the “ Marina License Agreement ”), which is being amended by this Agreement. The Marina License also refers to “Licensed Products” but Novosom disclaims any right to receive payment of any kind for Licensed Products as defined under the Marina License which are not Licensed Products as defined in the License Agreement. Except for Novosom’s waiver in Section 14 of any Claims (as defined in said Section 14) based on or arising out of Section 2.01(d) of the APA, nothing (also not the disclaimer of this Section


1b) contained in this Agreement shall be deemed a termination or modification of the APA or of any rights which Novosom has or may have under the APA, including without limitation any rights to receive payments from Marina under Section 2.04(b) of the APA.

2. R OYALTY P AYMENTS AND M ILESTONES . Marina, by its acknowledgement of this Agreement, agrees to the following modifications of ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement), which payment obligations will be preserved in any amendment to the Marina License unless Novosom agrees otherwise:

Unless ProNAi fulfills the requirements for a fully paid-up license set forth in Section 3 within thirty (30) days of the Effective Date and makes the Initial Cash Payment (as defined below) to Novosom as set forth therein, ProNAi shall pay to Novosom all those amounts otherwise due to Marina (as the successor Licensor under the License Agreement) with respect to Licensed Products in accordance with the following:

(a) ProNAi shall pay to Novosom an amount (the “ Royalty Equivalent Amount ”) equal to a royalty of [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the Licensed Products (“ Royalty Equivalent Rate ”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales for the Licensed Products, the Royalty Equivalent Rate shall increase by [***] for every full percentage point in excess of such [***] level. Royalty Equivalent Amounts shall be payable on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration in such country of the last to expire Valid Claim and all supplementary protection certificates based on a Valid Claim relating to the Licensed Product (each an “ SPC ”). On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Royalty Equivalent Rate shall be reduced to [***] for the use of Licensed Know-How and other unpatented technology until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPC’s in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the Licensed Product in such jurisdiction.

(b) In the event that any Licensed Product is sold in combination with another active ingredient or component having independent therapeutic effect or diagnostic utility, then “Net Sales,” for purposes of determining Royalty Equivalent Amounts on the combination during the payment period in question shall be calculated as follows:

(i) By multiplying the Net Sales of the combined product by the fraction A/{A+B), where A is the list price of such Licensed Product as sold separately, and B is the list price of the other active ingredients or components as sold separately.

(ii) In the event that there are no separate sales of such Licensed Product or the active ingredients or components in such combination product, Net Sales shall instead be calculated by multiplying them by the formula in the foregoing clause (i), but where A is the commercial value of such Licensed Product if sold separately and B is the commercial value of the other active ingredients or components if sold separately, with each such value determined using criteria and a commercial value mutually agreed upon in writing by Novosom and ProNAi.

 

*Confidential Treatment Requested.


(c) The Royalty Equivalent Amounts due under this Section 2 shall be paid to Novosom by ProNAi within sixty (60) days after the end of each calendar quarter in which such Net Sales are made and Royalty Equivalent Amounts are owed hereunder. Each such payment shall be accompanied by a report showing the Net Sales of each Licensed Product sold by ProNAi, or an Affiliate or sublicensee of ProNAi, in each country, the applicable Royalty Equivalent Rate for such Licensed Product, and a calculation of the amount of Royalty Equivalent Amounts.

(d) ProNAi shall not be obligated to pay multiple Royalty Equivalent Amounts to Novosom on Net Sales of a Licensed Product, even if a Licensed Product is covered by more than one Valid Claim.

(e) If ProNAi, in its reasonable judgment, is required to obtain a license from any third party that is not an Affiliate of ProNAi (other than Marina) under any patent in order to practice the Licensed Technology, and if ProNAi is required to pay a royalty under such license calculated on sales of such Licensed Product in any country, and the infringement of such patent cannot reasonably be avoided by ProNAi, or if ProNAi is required by a court of competent jurisdiction to pay such a royalty, then ProNAi’s obligation to pay Royalty Equivalent Amounts to Novosom with respect to such Licensed Product shall be reduced by [***] of the amount of the royalty paid to such third party with respect to such Licensed Product; provided however , that the Royalty Equivalent Amounts payable to Novosom shall not be reduced in any such event below [***] of the applicable amount set forth in Section 2(a) above. Prior to ProNAi exercising its reasonable judgment under this Section 2(e), ProNAi shall provide Novosom with written notice of a potential need to obtain any license from third parties.

(f) ProNAi may withhold from payments due to Novosom amounts for payment of any withholding tax that it is required by law to pay to any taxing authority with respect to such Royalty Equivalent Amounts due to Novosom; provided , however , that in regard to any such tax withholding, ProNAi shall give Novosom such documents and provide any other cooperation or assistance on a reasonable basis as may be necessary to enable Novosom to claim exemption therefrom to receive a full refund of such withholding tax or claim a foreign tax credit and shall, upon Novosom’s request, give proper evidence from time to time as to the payment of such tax.

(g) Translation of sales recorded in local currencies to ProNAi’s or sublicensee’s global currency will be performed in a manner consistent with ProNAi or sublicensee’s normal practices used to prepare its audited financial statements for internal and external reporting purposes, and which uses a widely accepted source of published exchange rates. Royalty Equivalent Amounts will be calculated and paid in Euros, using the rate of conversion from applicable global currency to Euros published in The Wall Street Journal (U.S.) two business days before the due date; provided , however , that for purposes of converting ProNAi’s cash payment obligations upon achievement of milestones with respect to Licensed Products as contemplated by Section 2(j)(ii) below, any such milestone payment in Euros shall be adjusted so that the rate of conversion of U.S. Dollars to Euros is not more than two percent (2%) greater or less than such rate of conversion as published in The Wall Street Journal (U.S.) as of the Effective Date.

 

*Confidential Treatment Requested.


(h) All Royalty Equivalent Amounts and Milestone Equivalent Amounts (as defined below) not paid within the time period set forth in this Agreement shall bear interest at a rate of one percent (1%) per month from the due date until paid in full; provided that, in no event shall such annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such Royalty Equivalent Amounts or Milestone Equivalent Amounts when made shall be accompanied by all interest so accrued.

(i) Upfront Payment. Novosom acknowledges and agrees that all up-front payments contemplated in Section 7.1 of the License Agreement have been paid in full as of the Effective Date.

(j) Milestone Equivalent Amounts.

(i) Novosom acknowledges and agrees that the Milestone “Completion of the first Phase I Clinical Trial” specified in Exhibit A has been fulfilled and the payment obligation with respect to the milestone payment specified with respect to such Milestone was satisfied through the issuance to Novosom of 2,108,870 shares of ProNAi’s common stock on May 1, 2013, such number of shares calculated based upon a per share price of $0.625 per share and equal in value to 1,000,000 Euro, and is not subject to further adjustment.

(ii) Within thirty (30) calendar days following ProNAi’s achievement of each of the milestones set forth in Exhibit A attached hereto with respect to each Licensed Product, ProNAi shall pay or issue to Novosom the corresponding consideration set forth in Exhibit A attached hereto (each, a “ Milestone Equivalent Amount ”). In the event that a milestone is met without all prior milestones being met, all unmet prior milestones shall be deemed met simultaneously with such milestone, accompanied by all interest so accrued.

3. F ULLY P AID U P L ICENSE .

Marina, by its acknowledgement of this Agreement, agrees to the following additional modifications of ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement), which payment obligations will be preserved in any amendment to the Marina License unless Novosom agrees otherwise:

(a) In the event ProNAi closes on a financing in the minimum amount of Thirty-Five Million United States Dollars ($35,000,000 ,the “ Financing ”) within thirty (30) days of the Effective Date, then (i) within two (2) business days following the closing of such Financing, ProNAi shall pay Novosom Eleven Million United States Dollars ($11,000,000) in cash (the “ Initial Cash Payment ”); and (ii) within thirty (30) days following Regulatory Authority Approval of the Licensed Product, ProNAi shall pay Novosom a Milestone Equivalent Amount, as set forth below in Section 3(b). Upon Novosom’s receipt of the Initial Cash Payment (the “ Fully Paid Up Effective Time ”), no further payments will be due to Novosom with respect to Licensed Products (other than the Royalty Equivalent Amounts and Milestone Equivalent Amounts set forth in Section 3(b)). In the event a Financing does not close within thirty (30) days of the Effective Date, this Section 3 shall be null and void.


(b) If ProNAi fulfills the requirements for a fully paid-up license as set forth in Section 3(a) within thirty (30) days of the Effective Date and makes the Initial Cash Payment to Novosom as set forth therein, ProNAi also shall pay Novosom:

(i) A Milestone Equivalent Amount payment of Three Million United States Dollars ($3,000,000) in cash following Regulatory Authority Approval of the Licensed Product; and

(ii) A Royalty Equivalent Amount with respect to Licensed Products in accordance with the following: [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the Licensed Product (the “ Fully Paid-up Royalty Equivalent Rate ”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales of the Licensed Product, the Fully Paid-up Royalty Equivalent Rate shall increase by [***] for every full percentage point in excess of such [***] level. Royalty Equivalent Amounts shall be payable on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration in such country of the last to expire Valid Claim and all SPCs. On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Fully Paid-Up Royalty Equivalent Rate shall be reduced to [***] for the use of Licensed Know-how until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPCs in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the Licensed Product in such jurisdiction; and

(c) Except as expressly set forth in this Section 3(b), all financial obligations of ProNAi set forth in the License Agreement are terminated as of the Fully Paid Up Effective Time.

4. P RIMARY T ARGET S UBSTITUTION . ProNAi agrees (and Marina, by its acknowledgement of this Agreement, confirms) (a) that ProNAi has right to make one (1) substitution of the Primary Target with another Available Target (including any Secondary Target, to the extent it is an Available Target) [as such terms are defined in the License Agreement] which is targeted with DNAi, upon approval by Marina, which approval shall not be unreasonably withheld, (b) that the product resulting from such substitution shall constitute a Licensed Product as such term is used in the License Agreement, and (c) that in the event of such substitution, Novosom shall have the same rights to receive payments from ProNAi with respect to such License Product as it had under the License Agreement with respect to Licensed Products prior to such substitution. ProNAi agrees that, in the event that ProNAi successfully exercises the foregoing substitution right, it will promptly notify Novosom.

5. M ANUFACTURING C OMPENSATION . Until the earlier of (a) the Fully Paid Up Effective Time or (b) ProNAi’s completion of Phase II Clinical Trials for the Licensed Product, ProNAi shall (1) provide Novosom with a copy of all orders that are placed with a Sourcing Designee or a Manufacturing Designee; and (2) pay Novosom an amount equal to [***] of the aggregate prices paid (net of transportation costs, insurance costs, taxes and duties, and royalties payable to third parties) for (i) the lipids comprising the Licensed Vehicle purchased from a Sourcing Designee and (ii) the Licensed Product purchased from a Manufacturing Designee. Payments shall be made monthly and shall be accompanied by reports showing the calculation of the payment. In the interest of clarity, effective as of the Fully Paid Up Effective Time, ProNAi shall have no obligation to make any payments under this Section 5.

 

*Confidential Treatment Requested.


6. R ECORDS AND A UDITS . ProNAi and its Affiliates and sublicensees shall keep for three (3) years from the date of each payment of Royalty Equivalent Amounts complete and accurate records of sales by ProNAi and its Affiliates and sublicensees of each Licensed Product, in sufficient detail to allow the accruing Royalty Equivalent Amounts to be determined accurately. Novosom shall have the right for a period of three (3) years after receiving any such report or statement to appoint at its expense an independent certified public accountant reasonably acceptable to ProNAi to inspect the relevant records of ProNAi and its Affiliates and sublicensees to verify such report or statement. ProNAi and its Affiliates and sublicensees shall each make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from Novosom, solely to verify the accuracy of the reports and payments. Such inspection right shall not be exercised by Novosom more than once in any calendar year nor more than once with respect to sales of any Licensed Product in any given period. Such information shall be deemed to be Confidential Information (as defined herein) and subject to confidentiality pursuant to Section 7. Novosom shall pay for such inspections, except that in the event there is any upward adjustment in the aggregate Royalty Equivalent Amounts, payable for any relevant payment period shown by such inspection of more than [***] of the amount paid, ProNAi shall pay for such inspection. Any dispute arising under this Section 6 shall be resolved in accordance with Section 16 of this Agreement.

7. C ONFIDENTIALITY .

(a) Confidential Information. The Parties each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. The Parties each agree that during the term of this Agreement and for five (5) years thereafter, it will keep confidential, and will cause its directors, officers, employees, consultants, Affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Party nor any of their respective directors, officers, employees, consultants, Affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder or fulfilling its obligations arising pursuant to this Agreement. For clarity, the foregoing shall not limit (or be asserted by either Party to limit) Marina’s existing rights to audit or otherwise have access to either Party’s books or records in order to enforce Marina’s agreements with either Party; in the interest of clarity, this sentence does not create any new or expand any existing audit rights of Marina.

(b) Publicity. Neither of the Parties may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (i) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded or (ii) to any investors, prospective investors, prospective acquirer, joint venture partners, lenders and other potential financing sources who are obligated to keep such information confidential.

 

*Confidential Treatment Requested.


8. T ERM . This Agreement shall become effective upon the occurrence of the Condition Precedent set forth under Section 10. The Agreement shall continue on a country-by-country basis until the later of (a) the expiry, invalidation or abandonment of the last Valid Claim of the Licensed Patent Rights in such country, (b) a Licensed Product becomes publicly available in a country such that the Licensed Product becomes uncompetitive or unprofitable in such country, including by intentional disclosure by Marina or ProNAi of its trade secrets that results in the elimination of an enforceable intellectual property right of Marina or ProNAi, or (c) the expiration or termination of all obligations of ProNAi to pay Royalty Equivalent Amounts or Fully Paid-Up Royalty Equivalent Amounts with respect to Licensed Products sold in such country. Expiration of this Agreement in accordance with the foregoing shall not excuse ProNAi from paying to Novosom all Milestone Equivalent Amounts earned prior to the date of written notice of such termination and Royalty Equivalent Amounts earned pursuant to Sections 2 or 3 herein prior to the effective date of such termination, which amounts shall become due and payable within sixty (60) days of the effective date of such termination. This Agreement may not be terminated except by mutual agreement of the Parties.

9. T ERMINATION OF L ICENSE A GREEMENT . Novosom and ProNAi agree that the substantive terms of the payment obligations of ProNAi to Novosom under the License Agreement have been restated in this Agreement as payment obligations of ProNAi to Novosom, except to the extent expressly amended hereby, and acknowledge that this Agreement establishes the rights of Novosom to receive payment from ProNAi relative to the Licensed Products formerly covered by the License Agreement. Upon the effectiveness of this Agreement as provided in Section 8 hereof, Novosom hereby consents to the termination of the License Agreement in its entirety and Novosom approves of such termination by ProNAi and Marina.

10. C ONDITION P RECEDENT (A UFSCHIEBENDE B EDINGUNG ). This Agreement is entered into under the condition precedent that Novosom receives joint notice from ProNAi and Marina that (i) an amendment to the Marina License Agreement has been executed by both ProNAi and Marina and has become effective; and (ii) that such amendment (A) provides ProNAi with rights to sell Licensed Products equivalent to the Grant of Rights (as defined in the License Agreement) and affirms the terms of ProNAi’s payment obligations to Novosom as set forth in this Agreement.

11. R EPRESENTATIONS AND W ARRANTIES OF P RO NA I . ProNAi hereby represents and warrants to Novosom that the Marina License Agreement (i) does not terminate or modify ProNai’s rights to develop and sell Licensed Products as contemplated by the License Agreement and (ii) does not reduce or contain any provision that would be likely to reduce, the payments due to Novosom under this Agreement.

12. R EMEDIES . In the event that any of ProNAi’s representations or warranties set forth in this Agreement fail to be true, accurate or complete in all material respects (in each case a “ Breach ”), then Novosom shall have all rights to seek damages from ProNAi for such Breach in equity or at law. ProNAi shall notify Novosom about any fact, event or circumstance which arises or comes to its knowledge and which is or may be inconsistent with any of ProNAi’s representations or warranties set forth in this Agreement.


13. N O T ERMINATION . Marina, by its acknowledgement of this Agreement, and ProNAi agree that they will not (i) terminate the ProNAi’s license with respect to Licensed Products (as defined in the License Agreement) nor (ii) otherwise amend the Marina License in any manner that would reduce, or would be likely to reduce, the payments due to Novosom under this Agreement without Novosom’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing covenant, Novosom acknowledges ProNAi’s right to transfer its entire interest in Licensed Products (as defined in the License Agreement) to a third party on the terms and conditions set forth therein, provided that such third party shall be bound to this Agreement to the extent ProNAi is bound. ProNAi shall immediately after any such transfer notify Novosom and disclose the identity of the party acquiring rights to such Licensed Products to Novosom.

14. W AIVER AND R ELEASE . Novosom and ProNAi hereby waive, release and forever discharge Marina, its shareholders, directors, employees, agents, representatives, affiliates, successors, assigns and any other persons or entities claiming by or through Marina (hereinafter collectively and individually “ Marina Releasees ”) from any and all claims, demands, debts, accounts, actions, suits, damages, liability, losses or expenses of whatever kind and nature (collectively, “ Claims ”), cognizable at law or equity, whether known or unknown on the date of this release, which Novosom or ProNAi has or claims, or might hereafter have or claim, against any Marina Releasee based upon or arising out of the License Agreement or Section 2.01(d) of the APA. In the interest of clarity, nothing in this Section 14 shall extend such release to Claims based on or arising out of Section 2.04(b) of the APA or this Agreement.

15. S URVIVAL . For the avoidance of doubt, the Parties agree that this Agreement shall survive any change of ownership or change of control regarding ProNAi, including but not limited to an acquisition of the majority of shares of ProNAi by any third party. This Agreement shall also survive any combination of businesses between ProNAi and Marina, including but not limited to merger, acquisitions of ProNAi by Marina, acquisition of Marina by ProNAi, acquisition of relevant IP by ProNAi or acquisition of relevant IP, compound or program by Marina.

16. D ISPUTE R ESOLUTION . Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be referred to a designated manager (having authority to settle the dispute) of each Party for resolution. If the claim or controversy is not resolved within thirty (30) days thereafter, such controversy or claim shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) as modified hereby. The location of the arbitration shall be Wilmington, Delaware. Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof. The arbitration shall be conducted by a panel of three neutral arbitrators who are independent and disinterested with respect to the Parties, this Agreement, and the outcome of the arbitration. The arbitrators shall have legal and technical expertise relevant to this Agreement and the Licensed Technology. Each Party shall appoint one neutral arbitrator, and these two arbitrators so selected by the Parties shall then select the third arbitrator. The arbitrators may grant any legal or equitable remedy or relief that the arbitrators deem just and equitable to the same extent that remedies or relief could be granted by a court. The decision of any two of the three arbitrators appointed shall be binding upon the Parties. The expenses of the arbitration, including the arbitrators’ fees, expert witness fees, and attorney’s fees, may be


awarded to the prevailing Party, in the discretion of the arbitrators, or may be apportioned between the Parties in any manner deemed appropriate by at least two of the three arbitrators. The enforceability of the arbitrators’ award will be conditioned upon issuance of a written opinion containing findings of fact and conclusions of law. Notwithstanding the foregoing, a Party desiring injunctive relief may bring an action for such relief in the courts of the State of Delaware and the Parties agree to submit to the jurisdiction of such courts for such equitable relief. Remedies shall be cumulative. The Parties acknowledge that equitable relief will be an appropriate remedy to prevent irreparable harm in the case of the breach of the confidentiality provision hereof.

17. A MENDMENT . This Agreement, the annexed Exhibits and any amendments hereto or thereto constitute the entire contract between ProNAi and Novosom with respect to ProNAi’s payment obligations with respect to Licensed Products, and supersede all proposals, oral or written, all previous negotiations, and all other communications between the parties with respect to the subject matter hereof, including, but not limited to, the License Agreement. No modifications, alterations or waivers of any provisions herein contained will be binding on ProNAi and Novosom unless evidenced in writing signed by duly authorized representatives of both parties. In the interest of clarity, this Agreement may be modified or amended without the consent or acknowledgment of Marina. This Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together will be deemed to constitute one and the same instrument.

18. A SSIGNMENT . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by either ProNAi or Novosom without the prior express written consent of the other, which consent shall not be unreasonably withheld, provided however, that either party may assign this Agreement without prior written consent to an Affiliate of such party or to a party which acquires all or substantially all of that party’s business, whether by merger, sale of assets or otherwise. A permitted assignee shall, simultaneously with assignment, assume in writing all obligations of the assignor under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and permitted assigns of the parties and the name of a party herein will be deemed to include the names of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment which is not in accordance with this Section 18 will be void.

19. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile or .pdf signature.

S IGNATURES ON THE F OLLOWING P AGE


IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

NOVOSOM:

N OVOSOM V ERWALTUNGS G MB H

 

By:

/s/ Steffen Panzner

Name: Steffen Panzner
Title: CEO

PRONAI:

P RO NA I T HERAPEUTICS , I NC .

 

By:

/s/ Mina Sooch

Name: Mina Sooch
Title: President and CEO

ACKNOWLEDGED:

M ARINA B IOTECH , I NC .

 

By:

/s/ J. Michael French

Name: J. Michael French
Title: President and CEO

S IGNATURE P AGE TO

L ICENSE P AYMENT A GREEMENT


EXHIBIT A

MILESTONE EQUIVALENT AMOUNTS FIRST AND SECOND ONCOLOGY

INDICATIONS

 

M ILESTONE

  

C ASH P AYMENT

  

E QUITY P AYMENT

Completion of the first Phase I Clinical Trial    None    Satisfied.
Completion of the first Phase II Clinical Trial    One Million Fifty Thousand Euros (€1,050,000)    One Million Nine Hundred and Fifty Thousand Euros (€1,950,000) in the form of ProNAi’s common stock priced in the same manner as the first milestone.
Commencement of the first Phase III Clinical Trial    Five Million Euros (€5,000,000)    None
Completion of the first Phase III Clinical Trial    Five Million Euros (€5,000,000)    None
Regulatory Authority Approval    Seven Million Five Hundred Thousand Euros (€7,500,000)    None

MILESTONE EQUIVALENT AMOUNTS FOR ADDITIONAL ONCOLOGY

INDICATIONS

 

I NDICATION

  

P ERCENTAGE OF THE ABOVE M ILESTONE E QUIVALENT

A MOUNTS PAYABLE TO N OVOSOM

NDA Submission of supplemental NDA (or relevant foreign equivalent) for 3 rd and 4 th indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for 5 th and 6 th indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for 7 th and each subsequent indication    [***]

 

*Confidential Treatment Requested.


SCHEDULE 2

APPENDIX C

AG LICENSE PRODUCT MILESTONE PAYMENTS

FIRST AND SECOND ONCOLOGY INDICATIONS

 

MILESTONE

  

CASH PAYMENT

  

EQUITY PAYMENT

Completion of the first Phase 1 Clinical Trial    None    One Million Euros (€1,000,000) in the form of Licensee’s common stock priced for this purpose at the same price as the equity sold by the Company in its then most recent financing or if such a financing has not taken place within one year prior to the date of the milestone, such other method negotiated in good faith to determine fair market value. In each instance customary registrations rights will be provided.
Completion of the first Phase II Clinical Trial    One Million Fifty Thousand Euros (€1,050,000)    One Million Nine Hundred and Fifty Thousand Euros (€1,950,000) in the form of Licensee’s common stock priced in the same manner as the first milestone.
Commencement of the first Phase III    Five Million Euros (€5.000.000)    None
Completion of the first Phase III    Five Million Euros (€5,000,000)    None
Regulatory Authority Approval    Seven Million Five Hundred    None

 


INDICATION   

PERCETAGE OF THE ABOVE MILESTONE PAYMENTS

PAYABLE TO LICENSOR

NDA Submission of supplemental NDA (or relevant foreign equivalent) for 3 rd and 4 tH indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for 5 th and 6 th indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for T 11, and each subsequent indication    [***]

 

*Confidential Treatment Requested.

EXHIBIT 10.13

 

*   Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

LICENSE PAYMENT AGREEMENT

THIS LICENSE PAYMENT AGREEMENT (this “ Agreement ”) is made effective as of April 14, 2014 (the “ Effective Date ”), by and among Novosom Verwaltungs GmbH, a German corporation with a corporate address of Weinbergweg 22, 06120 Halle, Germany (“ Novosom ”), and ProNAi Therapeutics, Inc., a Delaware corporation, with a corporate address of 46701 Commerce Center Drive, Plymouth, MI 48170 (“ ProNAi ”). ProNAi and Novosom are collectively referred to herein as the “ Parties ” and each of them as a “ Party .”

B ACKGROUND

Novosom and ProNAi are parties to that certain Exclusive License Agreement dated as of March 5, 2007, as amended on May 16, 2007 (the “ License Agreement ”). Novosom was transformed from Novosom AG into Novosom Verwaltungs GmbH on March 25, 2011. The License Agreement was assigned by Novosom to Marina Biotech, Inc. (“ Marina ”) pursuant to an Asset Purchase Agreement dated July 27, 2010 (the “ APA ”). As partial consideration for the transfer of assets (including the License Agreement) pursuant to the APA, Marina agreed that ProNAi would continue to pay Novosom all amounts which would otherwise have been required to be paid to Marina (as the successor Licensor) under the License Agreement.

Novosom and ProNAi desire to obtain Marina’s consent to remove the payment terms from the License Agreement and allow Novosom and ProNAi to contract directly with one another regarding ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement).

Marina will consent to such removal if the agreement between Novosom and ProNAi also terminates the License Agreement and contains a general waiver and release of claims by Novosom and ProNAi against Marina with respect to the License Agreement.

NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Novosom and ProNAi hereby agree as follows:

T ERMS AND C ONDITIONS

1. D EFINITIONS .

(a) Capitalized terms used but not defined in this Agreement shall have the meanings attributed to such terms in the License Agreement. Such definitions shall survive the termination of the License Agreement.

 

1


(b) For clarity, ProNAi and Marina are also parties to an Exclusive License Agreement, dated March 13, 2012, (the “ Marina License Agreement ”), which is being amended by this Agreement. The Marina License also refers to “Licensed Products” but Novosom disclaims any right to receive payment of any kind for Licensed Products as defined under the Marina License which are not Licensed Products as defined in the License Agreement. Except for Novosom’s waiver in Section 14 of any Claims (as defined in said Section 14) based on or arising out of Section 2.01(d) of the APA, nothing (also not the disclaimer of this Section 1b) contained in this Agreement shall be deemed a termination or modification of the APA or of any rights which Novosom has or may have under the APA, including without limitation any rights to receive payments from Marina under Section 2.04(b) of the APA.

2. R OYALTY P AYMENTS AND M ILESTONES . Marina, by its acknowledgement of this Agreement, agrees to the following modifications of ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement), which payment obligations will be preserved in any amendment to the Marina License unless Novosom agrees otherwise:

Unless ProNAi fulfills the requirements for a fully paid-up license set forth in Section 3 within thirty (30) days of the Effective Date and makes the Initial Cash Payment (as defined below) to Novosom as set forth therein, ProNAi shall pay to Novosom all those amounts otherwise due to Marina (as the successor Licensor under the License Agreement) with respect to Licensed Products in accordance with the following:

(a) ProNAi shall pay to Novosom an amount (the “ Royalty Equivalent Amount ”) equal to a royalty of [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the Licensed Products (“ Royalty Equivalent Rate ”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales for the Licensed Products, the Royalty Equivalent Rate shall increase by [***] for every full percentage point in excess of such [***] level. Royalty Equivalent Amounts shall be payable on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration in such country of the last to expire Valid Claim and all supplementary protection certificates based on a Valid Claim relating to the Licensed Product (each an “ SPC ”). On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Royalty Equivalent Rate shall be reduced to [***] for the use of Licensed Know-How and other unpatented technology until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPC’s in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the Licensed Product in such jurisdiction.

(b) In the event that any Licensed Product is sold in combination with another active ingredient or component having independent therapeutic effect or diagnostic utility, then “Net Sales,” for purposes of determining Royalty Equivalent Amounts on the combination during the payment period in question shall be calculated as follows:

(i) By multiplying the Net Sales of the combined product by the fraction A/{A+B), where A is the list price of such Licensed Product as sold separately, and B is the list price of the other active ingredients or components as sold separately.

 

*Confidential Treatment Requested.

 

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(ii) In the event that there are no separate sales of such Licensed Product or the active ingredients or components in such combination product, Net Sales shall instead be calculated by multiplying them by the formula in the foregoing clause (i), but where A is the commercial value of such Licensed Product if sold separately and B is the commercial value of the other active ingredients or components if sold separately, with each such value determined using criteria and a commercial value mutually agreed upon in writing by Novosom and ProNAi.

(c) The Royalty Equivalent Amounts due under this Section 2 shall be paid to Novosom by ProNAi within sixty (60) days after the end of each calendar quarter in which such Net Sales are made and Royalty Equivalent Amounts are owed hereunder. Each such payment shall be accompanied by a report showing the Net Sales of each Licensed Product sold by ProNAi, or an Affiliate or sublicensee of ProNAi, in each country, the applicable Royalty Equivalent Rate for such Licensed Product, and a calculation of the amount of Royalty Equivalent Amounts.

(d) ProNAi shall not be obligated to pay multiple Royalty Equivalent Amounts to Novosom on Net Sales of a Licensed Product, even if a Licensed Product is covered by more than one Valid Claim.

(e) If ProNAi, in its reasonable judgment, is required to obtain a license from any third party that is not an Affiliate of ProNAi (other than Marina) under any patent in order to practice the Licensed Technology, and if ProNAi is required to pay a royalty under such license calculated on sales of such Licensed Product in any country, and the infringement of such patent cannot reasonably be avoided by ProNAi, or if ProNAi is required by a court of competent jurisdiction to pay such a royalty, then ProNAi’s obligation to pay Royalty Equivalent Amounts to Novosom with respect to such Licensed Product shall be reduced by [***] of the amount of the royalty paid to such third party with respect to such Licensed Product; provided however , that the Royalty Equivalent Amounts payable to Novosom shall not be reduced in any such event below [***] of the applicable amount set forth in Section 2(a) above. Prior to ProNAi exercising its reasonable judgment under this Section 2(e), ProNAi shall provide Novosom with written notice of a potential need to obtain any license from third parties.

(f) ProNAi may withhold from payments due to Novosom amounts for payment of any withholding tax that it is required by law to pay to any taxing authority with respect to such Royalty Equivalent Amounts due to Novosom; provided , however , that in regard to any such tax withholding, ProNAi shall give Novosom such documents and provide any other cooperation or assistance on a reasonable basis as may be necessary to enable Novosom to claim exemption therefrom to receive a full refund of such withholding tax or claim a foreign tax credit and shall, upon Novosom’s request, give proper evidence from time to time as to the payment of such tax.

(g) Translation of sales recorded in local currencies to ProNAi’s or sublicensee’s global currency will be performed in a manner consistent with ProNAi or sublicensee’s normal practices used to prepare its audited financial statements for internal and external reporting purposes, and which uses a widely accepted source of published exchange

 

*Confidential Treatment Requested.

 

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rates. Royalty Equivalent Amounts will be calculated and paid in Euros, using the rate of conversion from applicable global currency to Euros published in The Wall Street Journal (U.S.) two business days before the due date; provided , however , that for purposes of converting ProNAi’s cash payment obligations upon achievement of milestones with respect to Licensed Products as contemplated by Section 2(j)(ii) below, any such milestone payment in Euros shall be adjusted so that the rate of conversion of U.S. Dollars to Euros is not more than two percent (2%) greater or less than such rate of conversion as published in The Wall Street Journal (U.S.) as of the Effective Date.

(h) All Royalty Equivalent Amounts and Milestone Equivalent Amounts (as defined below) not paid within the time period set forth in this Agreement shall bear interest at a rate of one percent (1%) per month from the due date until paid in full; provided that, in no event shall such annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such Royalty Equivalent Amounts or Milestone Equivalent Amounts when made shall be accompanied by all interest so accrued.

(i) Upfront Payment. Novosom acknowledges and agrees that all up-front payments contemplated in Section 7.1 of the License Agreement have been paid in full as of the Effective Date.

(j) Milestone Equivalent Amounts.

(i) Novosom acknowledges and agrees that the Milestone “Completion of the first Phase I Clinical Trial” specified in Exhibit A has been fulfilled and the payment obligation with respect to the milestone payment specified with respect to such Milestone was satisfied through the issuance to Novosom of 2,108,870 shares of ProNAi’s common stock on May 1, 2013, such number of shares calculated based upon a per share price of $0.625 per share and equal in value to 1,000,000 Euro, and is not subject to further adjustment.

(ii ) Within thirty (30) calendar days following ProNAi’s achievement of each of the milestones set forth in Exhibit A attached hereto with respect to each Licensed Product, ProNAi shall pay or issue to Novosom the corresponding consideration set forth in Exhibit A attached hereto (each, a “ Milestone Equivalent Amount ”). In the event that a milestone is met without all prior milestones being met, all unmet prior milestones shall be deemed met simultaneously with such milestone, accompanied by all interest so accrued.

3. F ULLY P AID U P L ICENSE .

Marina, by its acknowledgement of this Agreement, agrees to the following additional modifications of ProNAi’s payment obligations with respect to Licensed Products (as defined in the License Agreement), which payment obligations will be preserved in any amendment to the Marina License unless Novosom agrees otherwise:

(a) In the event ProNAi closes on a financing in the minimum amount of Thirty-Five Million United States Dollars ($35,000,000 ,the “ Financing ”) within thirty (30) days of the Effective Date, then (i) within two (2) business days following the closing of such Financing, ProNAi shall pay Novosom Eleven Million United States Dollars ($11,000,000) in cash (the “ Initial Cash Payment ”); and (ii) within thirty (30) days following Regulatory

 

4


Authority Approval of the Licensed Product, ProNAi shall pay Novosom a Milestone Equivalent Amount, as set forth below in Section 3(b). Upon Novosom’s receipt of the Initial Cash Payment (the “ Fully Paid Up Effective Time ”), no further payments will be due to Novosom with respect to Licensed Products (other than the Royalty Equivalent Amounts and Milestone Equivalent Amounts set forth in Section 3(b)). In the event a Financing does not close within thirty (30) days of the Effective Date, this Section 3 shall be null and void.

(b) If ProNAi fulfills the requirements for a fully paid-up license as set forth in Section 3(a) within thirty (30) days of the Effective Date and makes the Initial Cash Payment to Novosom as set forth therein, ProNAi also shall pay Novosom:

(i) A Milestone Equivalent Amount payment of Three Million United States Dollars ($3,000,000) in cash following Regulatory Authority Approval of the Licensed Product; and

(ii) A Royalty Equivalent Amount with respect to Licensed Products in accordance with the following: [***] of Net Sales of ProNAi or any of its sublicensees in respect of such Net Sales of the Licensed Product (the “ Fully Paid-up Royalty Equivalent Rate ”). To the extent that a sublicense royalty received by ProNAi exceeds [***] of the sublicensee’s Net Sales of the Licensed Product, the Fully Paid-up Royalty Equivalent Rate shall increase by [***] for every full percentage point in excess of such [***] level. Royalty Equivalent Amounts shall be payable on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration in such country of the last to expire Valid Claim and all SPCs. On a jurisdiction-by-jurisdiction basis, for all periods during which there is no Valid Claim or SPC in a particular jurisdiction, the Fully Paid-Up Royalty Equivalent Rate shall be reduced to [***] for the use of Licensed Know-how until the earlier of (i) the three (3) year anniversary of the date of the last to expire of all Valid Claims and SPCs in such jurisdiction or (ii) the date upon which a third party legally introduces a generic version of the Licensed Product in such jurisdiction; and

(c) Except as expressly set forth in this Section 3(b), all financial obligations of ProNAi set forth in the License Agreement are terminated as of the Fully Paid Up Effective Time.

4. P RIMARY T ARGET S UBSTITUTION . ProNAi agrees (and Marina, by its acknowledgement of this Agreement, confirms) (a) that ProNAi has right to make one (1) substitution of the Primary Target with another Available Target (including any Secondary Target, to the extent it is an Available Target) [as such terms are defined in the License Agreement] which is targeted with DNAi, upon approval by Marina, which approval shall not be unreasonably withheld, (b) that the product resulting from such substitution shall constitute a Licensed Product as such term is used in the License Agreement, and (c) that in the event of such substitution, Novosom shall have the same rights to receive payments from ProNAi with respect to such License Product as it had under the License Agreement with respect to Licensed Products prior to such substitution. ProNAi agrees that, in the event that ProNAi successfully exercises the foregoing substitution right, it will promptly notify Novosom.

 

*Confidential Treatment Requested.

 

5


5. M ANUFACTURING C OMPENSATION . Until the earlier of (a) the Fully Paid Up Effective Time or (b) ProNAi’s completion of Phase II Clinical Trials for the Licensed Product, ProNAi shall (1) provide Novosom with a copy of all orders that are placed with a Sourcing Designee or a Manufacturing Designee; and (2) pay Novosom an amount equal to [***] of the aggregate prices paid (net of transportation costs, insurance costs, taxes and duties, and royalties payable to third parties) for (i) the lipids comprising the Licensed Vehicle purchased from a Sourcing Designee and (ii) the Licensed Product purchased from a Manufacturing Designee. Payments shall be made monthly and shall be accompanied by reports showing the calculation of the payment. In the interest of clarity, effective as of the Fully Paid Up Effective Time, ProNAi shall have no obligation to make any payments under this Section 5.

6. R ECORDS AND A UDITS . ProNAi and its Affiliates and sublicensees shall keep for three (3) years from the date of each payment of Royalty Equivalent Amounts complete and accurate records of sales by ProNAi and its Affiliates and sublicensees of each Licensed Product, in sufficient detail to allow the accruing Royalty Equivalent Amounts to be determined accurately. Novosom shall have the right for a period of three (3) years after receiving any such report or statement to appoint at its expense an independent certified public accountant reasonably acceptable to ProNAi to inspect the relevant records of ProNAi and its Affiliates and sublicensees to verify such report or statement. ProNAi and its Affiliates and sublicensees shall each make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from Novosom, solely to verify the accuracy of the reports and payments. Such inspection right shall not be exercised by Novosom more than once in any calendar year nor more than once with respect to sales of any Licensed Product in any given period. Such information shall be deemed to be Confidential Information (as defined herein) and subject to confidentiality pursuant to Section 7. Novosom shall pay for such inspections, except that in the event there is any upward adjustment in the aggregate Royalty Equivalent Amounts, payable for any relevant payment period shown by such inspection of more than [***] of the amount paid, ProNAi shall pay for such inspection. Any dispute arising under this Section 6 shall be resolved in accordance with Section 16 of this Agreement.

7. C ONFIDENTIALITY .

(a) Confidential Information . The Parties each recognize that the other Party’s Confidential Information constitutes highly valuable and proprietary confidential information. The Parties each agree that during the term of this Agreement and for five (5) years thereafter, it will keep confidential, and will cause its directors, officers, employees, consultants, Affiliates and sublicensees to keep confidential, all Confidential Information of the other Party. Neither Party nor any of their respective directors, officers, employees, consultants, Affiliates or sublicensees shall use Confidential Information of the other Party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder or fulfilling its obligations arising pursuant to this Agreement. For clarity, the foregoing shall not limit (or be asserted by either Party to limit) Marina’s existing rights to audit or otherwise have access to either Party’s books or records in order to enforce Marina’s agreements with either Party; in the interest of clarity, this sentence does not create any new or expand any existing audit rights of Marina.

 

*Confidential Treatment Requested.

 

6


(b) Publicity . Neither of the Parties may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may make such a disclosure (i) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded or (ii) to any investors, prospective investors, prospective acquirer, joint venture partners, lenders and other potential financing sources who are obligated to keep such information confidential.

8. T ERM . This Agreement shall become effective upon the occurrence of the Condition Precedent set forth under Section 10. The Agreement shall continue on a country-by-country basis until the later of (a) the expiry, invalidation or abandonment of the last Valid Claim of the Licensed Patent Rights in such country, (b) a Licensed Product becomes publicly available in a country such that the Licensed Product becomes uncompetitive or unprofitable in such country, including by intentional disclosure by Marina or ProNAi of its trade secrets that results in the elimination of an enforceable intellectual property right of Marina or ProNAi, or (c) the expiration or termination of all obligations of ProNAi to pay Royalty Equivalent Amounts or Fully Paid-Up Royalty Equivalent Amounts with respect to Licensed Products sold in such country. Expiration of this Agreement in accordance with the foregoing shall not excuse ProNAi from paying to Novosom all Milestone Equivalent Amounts earned prior to the date of written notice of such termination and Royalty Equivalent Amounts earned pursuant to Sections 2 or 3 herein prior to the effective date of such termination, which amounts shall become due and payable within sixty (60) days of the effective date of such termination. This Agreement may not be terminated except by mutual agreement of the Parties.

9. T ERMINATION OF L ICENSE A GREEMENT . Novosom and ProNAi agree that the substantive terms of the payment obligations of ProNAi to Novosom under the License Agreement have been restated in this Agreement as payment obligations of ProNAi to Novosom, except to the extent expressly amended hereby, and acknowledge that this Agreement establishes the rights of Novosom to receive payment from ProNAi relative to the Licensed Products formerly covered by the License Agreement. Upon the effectiveness of this Agreement as provided in Section 8 hereof, Novosom hereby consents to the termination of the License Agreement in its entirety and Novosom approves of such termination by ProNAi and Marina.

10. C ONDITION P RECEDENT (A UFSCHIEBENDE B EDINGUNG ) . This Agreement is entered into under the condition precedent that Novosom receives joint notice from ProNAi and Marina that (i) an amendment to the Marina License Agreement has been executed by both ProNAi and Marina and has become effective; and (ii) that such amendment (A) provides ProNAi with rights to sell Licensed Products equivalent to the Grant of Rights (as defined in the License Agreement) and affirms the terms of ProNAi’s payment obligations to Novosom as set forth in this Agreement.

11. R EPRESENTATIONS AND W ARRANTIES OF P RO NA I . ProNAi hereby represents and warrants to Novosom that the Marina License Agreement (i) does not terminate or modify ProNai’s rights to develop and sell Licensed Products as contemplated by the License Agreement and (ii) does not reduce or contain any provision that would be likely to reduce, the payments due to Novosom under this Agreement.

 

7


12. R EMEDIES . In the event that any of ProNAi’s representations or warranties set forth in this Agreement fail to be true, accurate or complete in all material respects (in each case a “ Breach ”), then Novosom shall have all rights to seek damages from ProNAi for such Breach in equity or at law. ProNAi shall notify Novosom about any fact, event or circumstance which arises or comes to its knowledge and which is or may be inconsistent with any of ProNAi’s representations or warranties set forth in this Agreement.

13. N O T ERMINATION . Marina, by its acknowledgement of this Agreement, and ProNAi agree that they will not (i) terminate the ProNAi’s license with respect to Licensed Products (as defined in the License Agreement) nor (ii) otherwise amend the Marina License in any manner that would reduce, or would be likely to reduce, the payments due to Novosom under this Agreement without Novosom’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing covenant, Novosom acknowledges ProNAi’s right to transfer its entire interest in Licensed Products (as defined in the License Agreement) to a third party on the terms and conditions set forth therein, provided that such third party shall be bound to this Agreement to the extent ProNAi is bound. ProNAi shall immediately after any such transfer notify Novosom and disclose the identity of the party acquiring rights to such Licensed Products to Novosom.

14. W AIVER AND R ELEASE . Novosom and ProNAi hereby waive, release and forever discharge Marina, its shareholders, directors, employees, agents, representatives, affiliates, successors, assigns and any other persons or entities claiming by or through Marina (hereinafter collectively and individually “ Marina Releasees ”) from any and all claims, demands, debts, accounts, actions, suits, damages, liability, losses or expenses of whatever kind and nature (collectively, “ Claims ”), cognizable at law or equity, whether known or unknown on the date of this release, which Novosom or ProNAi has or claims, or might hereafter have or claim, against any Marina Releasee based upon or arising out of the License Agreement or Section 2.01(d) of the APA. In the interest of clarity, nothing in this Section 14 shall extend such release to Claims based on or arising out of Section 2.04(b) of the APA or this Agreement.

15. S URVIVAL . For the avoidance of doubt, the Parties agree that this Agreement shall survive any change of ownership or change of control regarding ProNAi, including but not limited to an acquisition of the majority of shares of ProNAi by any third party. This Agreement shall also survive any combination of businesses between ProNAi and Marina, including but not limited to merger, acquisitions of ProNAi by Marina, acquisition of Marina by ProNAi, acquisition of relevant IP by ProNAi or acquisition of relevant IP, compound or program by Marina.

16. D ISPUTE R ESOLUTION . Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall be referred to a designated manager (having authority to settle the dispute) of each Party for resolution. If the claim or controversy is not resolved within thirty (30) days thereafter, such controversy or claim shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) as modified hereby. The location of the arbitration shall be Wilmington, Delaware. Judgment upon the award rendered by the arbitrators may be enforced in any court having jurisdiction thereof. The arbitration shall be conducted by a panel of three neutral arbitrators who are independent and disinterested with respect to the Parties, this Agreement, and the

 

8


outcome of the arbitration. The arbitrators shall have legal and technical expertise relevant to this Agreement and the Licensed Technology. Each Party shall appoint one neutral arbitrator, and these two arbitrators so selected by the Parties shall then select the third arbitrator. The arbitrators may grant any legal or equitable remedy or relief that the arbitrators deem just and equitable to the same extent that remedies or relief could be granted by a court. The decision of any two of the three arbitrators appointed shall be binding upon the Parties. The expenses of the arbitration, including the arbitrators’ fees, expert witness fees, and attorney’s fees, may be awarded to the prevailing Party, in the discretion of the arbitrators, or may be apportioned between the Parties in any manner deemed appropriate by at least two of the three arbitrators. The enforceability of the arbitrators’ award will be conditioned upon issuance of a written opinion containing findings of fact and conclusions of law. Notwithstanding the foregoing, a Party desiring injunctive relief may bring an action for such relief in the courts of the State of Delaware and the Parties agree to submit to the jurisdiction of such courts for such equitable relief. Remedies shall be cumulative. The Parties acknowledge that equitable relief will be an appropriate remedy to prevent irreparable harm in the case of the breach of the confidentiality provision hereof.

17. A MENDMENT . This Agreement, the annexed Exhibits and any amendments hereto or thereto constitute the entire contract between ProNAi and Novosom with respect to ProNAi’s payment obligations with respect to Licensed Products, and supersede all proposals, oral or written, all previous negotiations, and all other communications between the parties with respect to the subject matter hereof, including, but not limited to, the License Agreement. No modifications, alterations or waivers of any provisions herein contained will be binding on ProNAi and Novosom unless evidenced in writing signed by duly authorized representatives of both parties. In the interest of clarity, this Agreement may be modified or amended without the consent or acknowledgment of Marina. This Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together will be deemed to constitute one and the same instrument.

18. A SSIGNMENT . Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by either ProNAi or Novosom without the prior express written consent of the other, which consent shall not be unreasonably withheld, provided however, that either party may assign this Agreement without prior written consent to an Affiliate of such party or to a party which acquires all or substantially all of that party’s business, whether by merger, sale of assets or otherwise. A permitted assignee shall, simultaneously with assignment, assume in writing all obligations of the assignor under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and permitted assigns of the parties and the name of a party herein will be deemed to include the names of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment which is not in accordance with this Section 18 will be void.

19. F ACSIMILE S IGNATURE . This Amendment may be executed by facsimile or .pdf signature.

S IGNATURES ON THE F OLLOWING P AGE

 

9


IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.

NOVOSOM:

N OVOSOM V ERWALTUNGS G MB H

 

By:

/s/ Steffen Panzner

Name: Steffen Panzner
Title: CEO

PRONAI:

P RO NA I T HERAPEUTICS , I NC .

 

By:

/s/ Mina Sooch

Name: Mina Sooch
Title: President and CEO

ACKNOWLEDGED:

M ARINA B IOTECH , I NC .

 

By:

/s/ J. Michael French

Name: J. Michael French
Title: President and CEO

S IGNATURE P AGE TO

L ICENSE P AYMENT A GREEMENT


EXHIBIT A

MILESTONE EQUIVALENT AMOUNTS FIRST AND SECOND ONCOLOGY

INDICATIONS

 

M ILESTONE

  

C ASH P AYMENT

  

E QUITY P AYMENT

Completion of the first Phase I Clinical Trial    None    Satisfied.
Completion of the first Phase II Clinical Trial    One Million Fifty Thousand Euros (€1,050,000)    One Million Nine Hundred and Fifty Thousand Euros (€1,950,000) in the form of ProNAi’s common stock priced in the same manner as the first milestone.
Commencement of the first Phase III Clinical Trial    Five Million Euros (€5,000,000)    None
Completion of the first Phase III Clinical Trial    Five Million Euros (€5,000,000)    None
Regulatory Authority Approval    Seven Million Five Hundred Thousand Euros (€7,500,000)    None

MILESTONE EQUIVALENT AMOUNTS FOR ADDITIONAL ONCOLOGY

INDICATIONS

 

I NDICATION

  

P ERCENTAGE OF THE ABOVE M ILESTONE E QUIVALENT

A MOUNTS PAYABLE TO N OVOSOM

NDA Submission of supplemental NDA (or relevant foreign equivalent) for 3 rd and 4 th indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for 5 th and 6 th indication    [***]
NDA Submission of supplemental NDA (or relevant foreign equivalent) for 7 th and each subsequent indication    [***]

 

*Confidential Treatment Requested.

 

E XHIBIT A -1

Exhibit 21.1

List of Subsidiaries of ProNAi Therapeutics, Inc.

 

Subsidiary

Jurisdiction of Incorporation or Organization

ProNAi Therapeutics Canada ULC

Canada, British Columbia

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement on Form S-1 of our report dated April 8, 2015 relating to the consolidated financial statements of ProNAi Therapeutics, Inc., appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading “Experts” in such Prospectus.

/s/ Deloitte & Touche LLP

Detroit, Michigan

June 12, 2015